Is Goldilocks in town?

Is Goldilocks back in town again as equity prices climb higher despite concerns economic growth may be weakening. An article in Thursdays Telegraph suggests that the recent weaker European Industrial Production data may persuade the ECB to continue monetary stimulus beyond September. Ian McCafferty, one member of the Bank of England interest rate-setting committee, has from 2011 time to time, put his hand up for a rate rise. Almost the moment he does the likelihood reduces and eventually he puts his hand back down again. In March Mr McCafferty once again put his hand up, and the market started to price in the possibility of a hike at this month’s meeting. Weak 1st quarter GDP data seemed to put that idea on hold, and today the Bank of England announced Interest rates are to stay where they are. Mr McCafferty remains once again in the minority looking to raise.  The pound lost a little ground against the US dollar but as this decision to keep rates where they are being largely anticipated by the market and therefore had no real impact. The FTSE 100 having been down almost 10% at one point earlier this year is now once again in positive territory.

Across the pond bond yields in America have continued to drift higher, as the ten years has now reached 3% again. The two year is once again above 2.5%, the curve has continued to flatten but with yields rising.

Donald Trump’s decision not renew the nuclear deal with Iran has not met with support amongst the other major governments in the agreement. Boris Johnson collected quite a few airmile points trying a bit of last-minute diplomacy. It feels a shame that others did not look at the way Donald Trump dealt with North Korea, showing fortitude, prepared to shake up the status quo which has resulted in North and South Korea coming back to the negotiating table. Likewise, the “trade war” with China has now reached the negotiating table. One can’t help but feel Mr Trump is using the same tactic here and his actions are merely a tool to negotiate a stronger deal with Iran. His Belief that all the deal has done so far is allowed the Iranian economy to strengthen its economy and its military power seems quite logical. If the others in the agreement show the same fortitude, then perhaps Mr Trump will succeed in his aim to agree a more favourable deal nuclear deal with Iran. 

Posted on May 10, 2018 .