Powell seals another term

Global equities are once again stalling, as the Vix index climbs higher, suggesting that investors are becoming more cautious, in the short term at least. There was some speculation that Joe Biden was contemplating the removal of Jerome Powell as the Chairman of the Federal Reserve. We did comment that this may be a strange timing for such a move, at a time when the Federal Reserve is adjusting its monetary stance. In the end, Jerome Powell has been appointed for another term in office. The response from global markets was one that suggests his reappointment is one that is leading towards a stricter stance on inflation. The dollar rose, US treasuries fell and the Vix index rose. The bond market is now pricing in a near 90% chance the Fed will raise rates three times in 2022. The higher rate expectations hit the tech sector in particular on Monday’s trading.

The yield on the ten-year treasury is currently at 1.63%, unlike equity yields on many global leading indexes, which is above the current yield of 1.2% for the S&P 500. For example, the yield on the FTSE 100 is currently circa 4%, against ten year UK gilts of just 1%. Everything seems to be pointing to a setback in the short term for equities, positioning is bullish, retail seems to be getting more involved, short interest is at the low end.

On a slightly brighter note, UK retail sales rose last month and the latest Gfk consumer confidence report suggests consumer sentiment is likewise improving. This data is for October so one would suggest a little early for the Christmas market or driven by the spenders taking advantage of the Black Monday week sales.

The rising oil price has fuelled (sorry) quite a lot of the recent inflationary pressures. There now seems to be a game of cat and mouse developing between the US and OPEC. Joe Biden announced on Tuesday the US government is to release an extra 50 million barrels of oil in an attempt to increase supply and reduce prices. OPEC on the other hand is threatening to curtail increases in production if Covid reduces demand or strategic reserves are used. OPEC still controls the majority of the worlds oil supply, and the market is telling you who they think will win this game of chicken as the price of oil actually rose on Biden’s announcement.