Ear to the Ground

22 November 2024

It was quiet on the UK economic front this week in terms of the volume of economic data, but there were some noticeable releases all the same.  The one most closely watched was undoubtedly consumer price inflation.  This had been expected to rise from the previous months reading of 1.7%, with 2.2% being the consensus forecast, due to the rise in the energy cap in October.  The reading came out slightly above, however, posting a 2.3% rise year on year.  Again, it remains the price of services where the ‘sticky’ inflation lies, with those prices increasing 5% year on year, which was a little higher than the 4.9% recorded last month.

Whilst sticky service inflation was recognised by the Bank of England governor when speaking to the Treasury Select Committee, he did advise that this data had not caused a shift in their expectations that they will most likely gradually ease monetary policy moving forward.  The pace of that easing and the terminal rate reached will of course be monitored closely, but there will be a lot of data to be read and understood before that point is reached.  Distinguishing between noise and true signals could prove key during this period but could give rise to a pick-up in volatility.

For the moment the bond markets appear to be taking a steer from the US election result.  With the potential that some of the mooted policies could prove inflationary, we have seen a pull back in the interest rate cut expectations for next year.  At the same time, the pedal to the metal in terms of fiscal expenditure appears to have some investors contemplating what this means for bond markets also, in particular what coupon they should be asking for to consider taking on the debt.  For now, the US Treasury 10 year yield appears to be relatively stable at 4.4%, following a pick up from mid-September where it was around the 3.6% mark.

We could not end, however, without bringing up Nvidia.  This week saw “St. Vidia” day, where they released their latest operating results.  Earnings per share more than doubled, whilst revenue increased by 94% year on year.  Despite these figures the share price fell and at the time of writing is down almost 5% from Thursday.  Whilst there is a degree of speculation as to why this is the case, their guidance for the fourth quarter is the most quoted reason.  Whilst they still expect to see growth in revenue, the market has become accustomed to expecting nothing but the best.  This was not considered so and the share price has therefore declined.  Harsh you may say, but when you are on the tip of every investors tongue, only perfection will do!