Things to Watch
On the Menu: This Week in the Public Discourse
US government issues $10 billion of TIPS at a negative interest rate (-0.55%). TIPS provide natural hedge against inflation (i.e. hedge against QE run wild) but also benefits from deflation because the principal amount is only adjusted upwards against inflation (value not eroded if prices decline).
Dollar continues downward trend against most currencies (UK pound is one notable exception). Dollar and equities continue to move in near-perfect negative correlation (bear in mind that for foreign investors in US stocks, with non-dollar base currencies, a 5% increase in US stock prices and a 5% decrease in the value of the US dollar nets out to a 0% return).
UK budget direction announced on October 20 – moves to make significant cuts to government spending generally applauded as bold (as opposed to certain other Anglo-Saxon economies…) but market responses (in UK debt, pound sterling & equities) reflect an ambivalence about prospects for success.
Overall the earnings season is a bit more muted than 2Q: bright spots this week include strong rebound numbers from Ford, but Kimberly-Clark highlights weakness in staple consumer goods.
Housing remains stuck in the mud: higher sales of existing homes reflects availability and high volume of foreclosure sales, but prices remain mired around 2003 levels. No immediate recovery seen.
Market tenure remains generally upbeat – strong week in US last week with gains largely holding this week in somewhat more muted trading. October can be the cruelest month but this year it looks like we may escape the fright nights and head into window-dressing season with plenty of momentum.