” We have three baskets for investing: yes, no, and too tough to understand” Charlie Munger

We know how much the actions or anticipated actions of the Federal Reserve can influence stock and bond markets, particularly US ones, and the sharp rally in both in the second half of the week as the result a lower CPI report reminded us. The S&P 500 finished the week rising by over 5%, and the MSCI World index was up just over 4%. The Shanghai composite recovered later in the week on reports that the Chinese authorities are looking to ease up on their zero covid policy. The hope that the Fed may be closer to “pivoting” and the negative sentiment, along with fund managers being very overweight cash was a potent cocktail for a rally.

The other big news story of the week was the collapse of FTX, described by the FT as a cryptocurrency group. An “empire” valued once at 32 billion dollars is now worthless, built by a 30-year-old entrepreneur, who apparently had aspirations to buy Goldman Sachs. That comment alone should have had potential investors running for the hills.  Instead, Mr Bankman-Fried was backed by many well-known institutions. One can never underestimate FOMO, the fear of missing out whether it is a small retail investor or an apparently sophisticated one with billions at their disposal.

The result of the mid-term elections looks as if the Republicans will hold the House and the Democrats the Senate. A stalemate that is often positive for markets. The result will lead to more bartering around raising the debt ceiling, as Republicans will use their power to force concessions in other areas.

The coming week for the UK will be the extent to which Rishi Sunak and the ever-cheerful Chancellor cuts back spending and at the same time increase taxes, to cut a 50 billion pound hole in public finances. Speculation now turns to the likelihood of maintaining thresholds, bringing more earners into existing brackets, rather than raising headline rates. Either way, a greater fiscal burden, higher interest rates, and cuts to spending are not a great cocktail for economic growth. Raising corporation tax at this time will make us less competitive, hurt small businesses and probably not bring in the anticipated revenue, not ideal in a post-Brexit UK. History often records tax increases rarely bring in the additional anticipated revenue, spending cuts are never achieved as anticipated.

As well as the autumn statement, there is a raft of UK economic data this week, including inflation, unemployment and retail sales.

The week ahead for the US economy, includes retail sales, producer prices, and housing data. Producer prices will be seen by the markets as another possible indication inflationary pressures are easing. Producer prices are expected to rise by 0.5% month on month, but the annual rate slowing from 8.5% to 8.3%. Higher-than-expected jobless claims report later in the week may also be a positive for equity and bond markets, as it will further encourage hopes of a more dovish Fed.