Over the past few days investor’s focus has turned understandably towards earnings and equity markets; however, it is the bond and commodity markets that have shown, arguably, the most interesting price action over recent days. The headlines have trumpeted the rise of gold prices in dollar terms reaching new highs. This rally, at least in some investor eyes, is partially supported as investor’s look towards Gold as an inflation hedge, especially since Australia hiked rates earlier this week. Meanwhile, US 10 year bonds rallied sharply again yesterday. This rally was no doubt helped by the strong 10 year auction results but it is also an extension of the bullish trend which has been in place since August. As such, US bond prices are signalling that higher interest rates are not to be expected for some time to come. This divergence in expectations over inflationary pressures and interest rates hikes is quite telling and is unlikely to remain in place indefinitely.
Today, in Europe the attention remains focused on interest rates with both the MPC and ECB meetings. The market is pretty unanimous in thinking that both central banks will keep rates unchanged. In the UK, former Deputy Governor Gieve comments on Tuesday provided the best insight into the next key decision making timeline for UK rates. He noted that the “next decision point” will be November 5th. He also extended the more cautionary assessment of the UK economy noting that “the immediate risk that they’ll be very aware of is a false dawn” His comments shadowed the sentiment expressed in the last minutes where the BOE noted that “promising indications” from asset markets could signal “false dawns”.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
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