A strong jobs report on Friday capped a week that saw US treasuries, as well as UK and US equities finish the week lower than where they started. In the case of US equities, for the first week in four. The equity and bond market appear now fully prepared for the Federal Reserve to raise interest rates at the monthly meeting on Wednesday. The Vix index closed the week modestly higher, however remains close to its 52-week low. The weekly AAII investor survey still records that, despite US equity markets remaining close to record highs, retail investor sentiment remains cautious. The index recorded that bullish sentiment remained below its historical average for the 7th week out of the last eight.
The oil price fell around 9% on the week as US inventories reported a rise of 8.2million barrels. The oil price has appeared stable around $55 for most of the year, closed the week below $50. Despite the almost near certainty the Fed will hike on Wednesday the US dollar lost ground on the week against its basket of currencies, however it did rise against the Japanese yen.
Last week’s budget has been a complete disaster of the Conservative government, as the move to increase taxation on those self-employed has breached a promise in the Conservative manifesto, and alienated a large part of the Conservative voting base. One can only imagine that the Brexit debate led to Theresa May to taking her eye of the domestic ball to not spot this major policy error. This domestic problem cannot help her position in Europe as she looks to trigger Article 50 in the coming days.
Brexit, budgets, US interest rates, Dutch and French elections are all in turn making headlines. One that has been in less focus is the upcoming budget in the US, Donald Trump’s first. One of the issues will be Congress agreeing to raise the debt ceiling again. Would forty or more democrats risk putting the US at risk of defaulting on its debt, just to defy Trump? One would think not, but it is a possibility and one that markets are less focussed on.
Not only do the Fed meet on Wednesday, it’s also the turn of the Bank of England to meet and decide whether to alter either the current interest rate policy or monetary stimulus programme. No one is expecting the Bank to move on either despite inflation picking up, the better economic growth expectations and the unemployment rate remaining below 5%. One must wonder if Mr Carney is storing up trouble further down the line.
The other event at the end of the week that may attract some headlines is the 2-day meeting of G20 finance ministers starting on Friday.