So focus remains on equities going up beyond valuation, bonds going down despite low inflation and government still pushing too much debt with populist undercurrents, writes Bob Savage, CEO of Track Research in his weekend commentary.
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The surprise of October has been in the growing evidence of a coordinated, global growth across the major economies, sustained despite political uncertainty and higher rates.
The U.S. ISM, the Japan Tankan, the ongoing PMI reports from China and Europe – all point to a stronger global economy, with reflation going faster than some expected. This has lifted rates higher and brought the U.S. dollar (USD/EUR) up from the lows.
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This puts the pressure back on central bankers to explain the balance of risks for bubbles against targets for inflation. The data in the week ahead from the U.S. may test this significantly as the doves from the FOMC will have to respond should inflation reach target even if it’s from hurricane-induced pain.
The IMF meetings in the week ahead will similarly play a role in this game of managing the markets as central bankers become content with easy policy eating up excess potential. The risks for an overshoot or a policy mistake grow with the economies going faster than many expected.
So focus remains on equities going up beyond valuation, bonds going down despite low inflation and government still pushing too much debt with populist undercurrents.
The forex markets remain on the front lines of the global growth and inflation watch with emerging markets up last week after being sold the into 3Q end. Whether that trade sustains and whether the USD bid holds into next week and the FOMC minutes, the U.S. debt sales and the U.S. CPI will be key to the new Trump reflation trade.
Politics explain half the story, economies the rest.
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