Good day to all you merry readers of the blog. I hope your week has been full of joy and that this week’s publication will simply add to the greatness. Why do I feel like I am setting myself up for a fall? Anyway, welcome to this week’s News, Views and Truths.
Regular readers will know my thoughts on global central banks. Their actions are unequivocally the reason why markets have continued on such a strong trajectory for the past 10 years, with loose monetary policy and super-low interest rates being the tools of their trade.
And if to question this, just look to the back end of 2018 when the US tried to increase interest rates, based upon traditional economic theory and the subsequent fall across most capital markets.
In the words of Chuck Prince, ex CEO of Citigroup, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.”
And we are dancing. The world is dancing. And it looks like a new DJ is about to start his set.
Last night, the President of the New York Federal Reserve, John Williams, delivered a speech at the annual meeting of the Central Bank Research Association in which he said, “It’s better to take preventative measures than to wait for disaster to unfold.” As a result, the market absolutely expects the US to start cutting rates and the first of these to be announced during the July meeting.
So, what does this mean? It advocates the view that I have held for the past few years that Central Banks will do absolutely whatever it takes to keep the markets going. The ECB has announced this and now the US is, with the view that pre-emptive rate cuts, catering to a new low-rate-world, “should vaccinate the economy and protect it from the more insidious disease of too-low inflation.”
And there we have it. In no way will rates rise any time soon, which is another significant positive for equities. At the time of writing, the FTSE 100 is up 0.68% today and European equities are up across the board. The futures market is pointing to a positive opening for the US, across all capitalisations.
That is not to say that this is the time to take the hands off the wheel; rather the contrary. The UK has its own special event happening in October and that naturally will cause market uncertainty. Cable (£GBP v $USD) is already nearing historic lows at 1.25 and although this could be viewed as broadly positive for exports, the cost of imported goods for consumers will increase.
But despite the doom and gloom that dominates the media outlets, markets are continuing to look very good. And the powers have added further support to this. Can’t be bad for a Friday.
And as usual, our playlist. This week, the theme being “guilty pleasures” of the Three Counties staff. I hope you all have a wonderful weekend and I shall see you all next week!