An uneventful start to the week, however US indexes continue to climb, breaking new highs. UK equities regaining a little ground as sterling weakened after Mark Carney, in a speech to the IMF, tried to play down expectations of interest rate rises in the coming year. The FTSE 100 had once again hit the lower end of its trading range, 7200 towards the end of last week. Whether it was his comments or just some profit taking in the currency markets after the recent rise in sterling is a moot point. Brexit he commented was a “real shock” about which monetary policy can “do little”. That of course does once again beg the question as to why he reacted so quickly last August. The subsequent fall in sterling, following the vote itself provided something of a loosening effect on monetary policy alone.
Why Mr Carney feels the need to constantly undermine the process with his negative comments as to the impact Brexit may or may not have on the economy is a mystery. The final outcome is an unknown and for the Governor of the Bank of England to continually speculate in public can be of no benefit to our negotiating stance. Also by taking this negative position, he immediately undermines economic sentiment, if you keep telling everyone something is bad, eventually they believe you. He does not appear to have learned his lesson from last year.
Other sentiment indicators around the world are recording an improvement amongst analysts and businessmen. Two recent surveys, one from America, the Business Roundtable's economic outlook index held at its highest level since 2014. Analyst sentiment as recorded in the monthly Geman ZEW survey rebounded in September. The Vix index has fallen back below 10 and once again close to the historic lows reflecting an apparent improvement in sentiment towards the equity market. Despite gold being considered a hedge on inflation, the price has fallen back in the past week after a string of stronger than expected inflation reports last week. The price of gold has reacted to the rise in bond yields in the past few days as this has taken the shine of its allure.
Tuesday is the start of the two-day Federal Reserve meeting, and there are no expectations the Fed will raise rates tomorrow, however, there is now a greater expectation the Fed will lay the groundwork for a move in December. The Fed is also expected to announce the start of running down the balance sheet. The much-vaunted collapse in bond yields has yet to happen, once again equity investors will look for the reaction of the bond market could lead the movement in the equity market post the meeting.