INFLATION FALLS SHARPLY AS BANK OF ENGLAND KEEP RATES ON HOLD
Data Sourced from FE Analytics, and Bloomberg Finance LP
LACK OF ACTION RISKS CORONAVIRUS AND BREXIT NEGOTIATIONS RUNNING OUT OF CONTROL
This week, despite some warmer weather, summer appeared to come to an end. While the season might still be clinging on, the coronavirus is starting the winter resurgence officials had feared. As daily infection rates climb rapidly into the thousands, the relaxed rules of July and August are being replaced by new restrictions on gatherings. As the pandemic took the summer off so too, it appears, did the government and the chance to put a functioning test and trace programme in place through the quiet months has been squandered. With no new infrastructure to fight the spread off the virus further restrictions and lockdowns are likely.
In a fine display of multitasking, the government’s Brexit policy also devolved into shambles. An attempt to legislate away the bits of the withdrawal agreement it didn’t like caused an uproar even its 80-seat majority couldn’t protect it from. It has duly backed down but the problematic issues remain. Unfortunately, any solution which looks like a customs union appears to be politically unviable, so the stalemate looks set to continue.
UK: INFLATION FALLS SHARPLY AS BANK OF ENGLAND KEEP RATES ON HOLD
The Bank of England continues to move closer to implementing negative interest rates in its efforts to stimulate the economy in the face of the coronavirus-inspired recession and potential effect of no-deal with the EU.
At this week’s meeting of the Monetary Policy Committee, the bank held rates at their historic low of 0.1 per cent and left its bond purchase programmes unchanged. It reported that economic conditions continue to recover although the bank’s current best estimate for economic growth is based on a comprehensive trade deal being agreed with the EU. With signs that no deal may be reached its outlook may already be overly optimistic. The bank announced it had briefed members of the committee on how negative rates could be implemented if the economic situation deteriorates. The announcement saw sterling lose more ground against the euro and dollar as a result. The bank’s official inflation target of 2 per cent remains an aspiration only, as the latest figures show CPI fell from 1 per cent to 0.2 per cent in August.
JAPAN: NEW PM FOR JAPAN BUT NO CHANGE FOR ABENOMICS
This week Yoshihide Suga replaced Shinzo Abe as prime minister of Japan after his predecessor stepped down due to ill health. The new prime minister is a longstanding ally of Abe and his elevation is expected to see little change to
existing government policies. Suga has already committed to the long running Abenomics programme of economic reforms which were designed to boost Japan’s faltering economy.
The Bank of Japan’s latest policy meeting showed no signs of any change to policy. The central bank kept interest rates on hold at -0.1 per cent and promised to maintain its current cap on government bond yields, holding 10-year yields around zero. The bank also left its asset purchase and corporate lending programmes unchanged, indicating that business activity is beginning to recover from the coronavirus. Japan is suffering from the same economic problems as other developed economies. GDP shrank by a record amount in the second quarter and even before the coronavirus outbreak Japan has been struggling with persistently low inflation.
EQUITIES: MARKET SNAPS UP NEW TECH LISTINGS
Despite the profit taking which has seen US technology share falling since the start of the month, investor appetite remains for tech companies. Several new tech stocks have made successful stock market debuts this week. In the US, cloud
computing company Snowflake completed the biggest ever IPO by a tech company as it raised $3.4bn and its share price jumped 160 per cent in its first day’s trading to give it a market cap of $63bn. JFrog, which helps firms manage their software updates, saw the value of its shares jump 47 per cent on its first trading day.
There was a successful tech IPO In the UK this week as online retailer and e-commerce provider The Hut Group began trading in London. Its success has been held up as a sign that the UK also has some world-leading tech companies. But while The Hut Group did well on debut it was muted compared with the US flotations, with its shares climbing 30 per cent on its launch. All these stocks have seen their prices settle slightly but all three remain comfortably above their launch price.
This document has been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. Financial Express Investments Ltd, registration number 03110696, is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit https://www.fefundinfo.com/en-gb/about/legal-and-policies/.