Stock markets are recovering slightly on Wednesday after another volatile start to the week.
It’s clear this week that investors have one eye on the U.S., with Fed minutes, U.S. inflation data and the start of earnings season likely to be the primary drivers into Friday’s close.
Any hope of a helping hand from the Fed minutes may not be forthcoming, with the commentary to an extent outdated at this point and policy-makers seemingly unified in their goal of defeating inflation. Even a good CPI number may do little to change that in the near term.
Sterling Jumps On BoE Reports
It is reported that the Bank of England could extend its emergency bond-buying measures beyond Friday in order to ensure continued stability in the market, which has lifted the pound in early trade. While Governor Andrew Bailey’s warnings to pension funds this week gave the impression there’s no turning back, it would appear that isn’t entirely true.
And that shouldn’t be as surprising as it seemingly is. While the hope within the central bank will be that its emergency measures have allowed pension funds to recalibrate and address the vulnerability in the bond market, if that doesn’t prove to be the case it would be ridiculous to pull the rug from under it rather than extend the measures until the end of the month when we get the full budget.
Still, at a time when investors are living in fear of what’s around the corner, perhaps the mindset of “prepare for the worst and hope for the best” is behind it. It does go to show how huge the Chancellor’s budget is in three weeks and the carnage that another misstep could cause. The BoE can buy the government time for now, but it isn’t a permanent solution.
U.K. May Already Be In Recession After GDP Miss
The rebound in sterling held even as we received some pretty bleak GDP data for August that suggests the U.K. may already be in recession. I mean, most people already agree that the country is in recession, but we’re just waiting for the data to technically confirm it. The numbers weren’t good though, with a 1.6% manufacturing slump driving a 1.8% decline in production. Meanwhile, consumer-facing services fell sharply by 1.8%, with overall services dropping by 0.1%.
All in all, the numbers are pretty grim, and I don’t see much scope for improvement in the near future, particularly on the consumer side. Perhaps the minor reaction is a reflection of the fact that most already believe the economy to be in recession and the data just confirms that, despite falling short of analyst expectations.
BoK End Game In Sight
The Bank of Korea hiked interest rates by 50 basis points overnight, taking the base rate to 3% and not far below what it believes to be the terminal rate of around 3.5%. The move was widely expected, with the central bank still concerned about external conditions and a weaker won. Time will tell whether the central bank will indeed start to ease off the brake, but today’s comments suggest that, much like the RBA, the end game is now in sight.
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