A flat start to the week

Struggling to bounce back

We’re seeing mild risk aversion in the markets at the start of the week, perhaps some apprehension ahead of what could be a big few days for the US.

The jobs report on Friday remained strong which supports the view that the Fed won’t yet ease off the brake, much to the dismay of equity investors. They may still be hoping that this week’s inflation data will swing the central bank but given previous comments, that doesn’t appear realistic unless we see a significant miss to the downside. ​

It’s a big week for the US, with the Fed minutes also being released on Wednesday and retail sales on Friday. Earnings season also kicks off later this week which will offer crucial insight into how corporate America views aggressive monetary tightening and the outlook for the economy. I don’t expect it will be a particularly upbeat few weeks.

Another PR blunder

The UK government has unsuccessfully sought to bring some calm to the markets by announcing it will bring the budget forward to 31st October. A bit of a PR own goal if it turns into a horror show, with the Halloween headlines writing themselves. As if there wasn’t already enough pressure on the new Chancellor to deliver.

Markets clearly aren’t feeling optimistic, with the pound trending lower once more and bond yields on the rise. Yields on 10 and 30-year debt are now not far from the post-mini-budget peaks which is hardly a vote of confidence in the Chancellor to deliver. Bank of England interest rate expectations have been pared back though, with markets viewing the meeting on 3 November as a coin flip between 1% and 1.25%.

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