Behold the Christmas rally
Macro & Overnight
US and UK inflation is falling faster than expected, causing euphoria in equity markets, fueling a risk-on recovery that could continue for a while and erasing fears of one last rate hike this year.
However, expectations of rapid rate declines are likely to be premature. As we saw from yesterday’s better-than-expected UK employment and wages data, headline measures are falling faster than core measures.
More problematic for policymakers is the reality of our new world of fiscal dominance. Central bankers know that their political masters need to borrow more money, potentially much more, and to do that, they need to issue more bonds.
The fiscal requirement for the UK will be under the spotlight at next week’s Autumn Statement, where Jeremy Hunt needs to finance the highest proportion of public spending to GDP since 1975/6, which resulted in the UK seeking an IMF bailout, at a time the MPs will be demanding pre-election sweeteners.
Investors will enjoy a traditional pre-Christmas rally. However, a broker’s comment that “now is the time to mortgage your house and buy the FTSE 250” is probably not advisable, albeit the sentiment is understandable.
In other news, Biden and Xi meet today to try and patch things up. A thawing of US-China relations would be welcome news for Biden’s election prospects and assist Xi’s sluggish economy, with the prize for the market being the prospect of the chance for peace and a halt to de-globalisation.
This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.
Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position, and/or may perform services or solicit business from, any of the companies or related securities mentioned.
Any prices quoted in our research are as at the previous day’s close.