Another quiet start to the week as we approach the end of the third quarter, one that could see the S&P make gains every month of the year so far, according to Bloomberg. The German election results have had a modest impact on the euro. Some of the implications for the ECB from the result may not be welcomed however the resultant slight weakening in the euro probably are. The election result has been a surprise, and the financial press has spent quite a lot of ink and quill on analysing the impact for the German Chancellor and Europe overall.
North Korea’s claim that America has declared war keeps up the rhetoric but so far still has limited impact on market sentiment. Oil has been the main talking point of the week as the price has hit a two-year high. Brent crude has come close to $60 a barrel, up 30pct since the start of June. Once again going to demonstrate that just as investors get complacent, the price moves in the direction that causes the most pain.
Trading in the Vix index, a measure of how much investors feel they need to protect themselves against a possible market movements, saw record volumes on Monday, according to press reports. This is worth noting as trading volumes are often considered by traders as a signal that sentiment is changing to a situation. Tops and bottoms in stocks are often marked by sharp increases in volumes. The Vix index has climbed above 10 from the start of the week despite the index mainly holding onto the recent gains. These may be signs that fund managers are increasingly looking to protect their gains for the year, coming into the last quarter.
There was a selection of Federal Reserve members speaking on Tuesday, the main attraction is always Janet Yellen. Stocks showed little reaction to her balanced comments. She talked about a gradual tightening being prudent, on the other hand apparently continuing to prepare investors for another rise in December. The yield on the 2-year treasury remains close to the highs last reached in 2008. Yields on longer-dated bonds have pulled back from the start of the week.
The labour party conference is currently taking place, John McDonnell’s rhetoric often suggests he may have more than a quiet admiration of the works of Karl Marx. His latest suggestion, should he get into power, that no-one should ever have to pay back more than twice what they borrowed. Interesting idea, not sure that would do much for responsible borrowing. Secondly, who would lend if the rate of return was defined independently of the risk. Not sure he thought that one through, still the theory is a good one, a bit like quite a lot Karl Marx’s work.