Interest rates and markets:
BOE: On one hand, we have inflation pressure and wage growth, which should translate into another rate increase, but on the other hand, we have a tense political situation and Brexit issues with 3 month Libor at .80%. We do not expect a rate increase at the next meeting in November 1st 2018.
Fed: As expected, we had a rate increase at the September meeting. Current federal fund rate ranges from 2.00% to 2.25%. Next FOMC meeting is on the 7th and 8th November but the important one is 18th and 19th December with Economic data.
3 months $ Libor up to 2.408%. Today’s slope 3 months versus 10 years treasury up to 0.97 %, 2-year treasury up to 2.889% while the 10-year treasury after breaking the important 3% level is now up to 3.233% and rising. So, with unemployment down, inflation and wages up, the US economy needs to be controlled further. We expect a .25% rate increase at the December meeting.
ECB: Next ECB monetary policy meeting is 25th October. Although, rising inflation at 2.1%, above the 2% target and slower growth, we do not expect a rate increase in October 2018.
Equity: Markets, which are worried about rising interest rates and Volatility up to 14.82%, are suffering losses. It is worth noting that YTD, all of the major indexes, except FTSE 100, are still showing positive returns. As mentioned, we should be cautious and Cash could be a prudent strategy while expected corrections are happening.
- UK & Europe: CAC 40 at 5,359 down 1.0 % but still 9% up YTD. FTSE 100 at 7,318 down 1.3% and 4.8% YTD.
- USA: Dow jones down 0.7% at 26,447 but still 7.0 % up YTD and S&P down .8% to 2,885 and 7.9% up YTD.
Currency/Commodities
$/£ at 1.30 down 0.2% and 3.9% YTD. An inverse push with strong $ but Brexit issues. Any good news on Brexit will help the £.
€/$ at 1.15 a combination of a strong $ supported by higher rates and strong economy and a weaker € mostly driven by the Italian budget issue.
£/€ at 1.13: down 0.3% but up 0.2% YTD. Any good news on Brexit and or the Irish issue will see £ trading higher.
Gold at 1200: mostly unchanged but down 8.0% YTD. This could change quickly if we see a financial market down adjustment.
Brent crude oil at $84.16: down .5% but up 32.2% YTD