This week government bonds took another leg down and volatility returned to previously bullish equity markets. The outbreak of pessimism was due to a combination of another strong reading for US Core PCE inflation, the Fed’s most keenly watched measure of inflation, and surprisingly strong employment data. In addition, the Fed appears much keener to return to rate hikes than previously appreciated. The minutes of the Federal Open Markets Committee are usually dry affairs but the account from last month showed most members are in favour of further hikes.
For most of this year, equity markets have remained unmoved by the difficulties seen in bond markets. However, this week concerns cut through as the good news is bad news theme from 2022 returned. Strong job creation and expansion in service industries would usually be welcomed. But by forcing banks to keep hiking, markets have returned to concerns that rates are going to go high enough to engineer a recession. Bond and equity markets appear to be on the same page for the first time in a while. Unfortunately, this chapter does not make for enjoyable reading.
For the following stories, please click on this link*
- US: Bond yields rise as Fed says further hikes are likely
- UK: Signs of consumer stress as savings habits change
- Markets: EV car makers benefit from record sales
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