Milkshakes the flavour of the day.

A volatile week for stocks and bonds, as US indexes experienced their largest losses in a month. There was a partial recovery from the lows by the end of the week; it appears investors are once again happy to buy any dip. Despite the political uncertainty surrounding the UK economy, the upcoming budget, and potential threats to leadership, the FTSE All-Share ended the week essentially unchanged. The gilt market was a different story, as yields across the board rose following another budget leak suggesting the government is retreating from its plan to raise income tax. Apparently, milkshakes are now the flavour of the day. The bond market sent Racheal Reeves a warning shot across the bows about what could happen on the 26th if she does not announce spending cuts and instead depends on a series of asset taxes, which are unlikely to generate the income needed to cover the £20 billion, £30 billion, or whatever the budget gap turns out to be. The pound weakened earlier in the week; against the US dollar, it finished roughly where it started, but it lost further ground against the euro.

The gilt market may be under more pressure this week, as it appears that multiple members of the Labour Party fancy their chances when it comes to challenging Mr Starmer’s premiership, most of whom are even more left-leaning than the Prime Minister. Mr Starmer may not be popular within his own party or with the voting public, but some of the names linked as his replacement will scare those the government relies on to lend them money.

Bond investors will fear that a change in leadership, with potentially alternative economic principles, which could lead to a spike in inflation rates, possibly triggering further economic stagnation.  The Bank of England will be powerless to assist and will actually be forced to increase interest rates. The fact that the FTSE All-Share finished the week unchanged is not entirely surprising; equities may be one of the few places to try and hide should Mr Starmer be deposed.

Comparisons with what happened in the 1970s will be made once again, should he be unseated. Despite the early 1970s stock market crash caused by an oil price spike-induced recession, the FTSE All-Share index finished the decade higher than where it started. The pound fell sharply against the USD, particularly in the early years, and 10-year bond yields peaked at 16%. Of course, none of this may come to pass, but markets may fret initially.

Looking ahead to the week, now that the US government shutdown is over, investors are focusing on the revised schedule of economic reports from the government agencies. We will receive the Global Flash PMIs for November at the end of the week, and will they continue to support the belief that economic growth remains resilient? We will also get the minutes of the last Fed meeting released this week. That may give further clues about the mood for a December cut. UK data releases include inflation and retail sales. The annual rate of inflation is expected to fall from 3.8% to 3.%, which will be welcome news for the treasury. Although earnings season is drawing to a close, one major name will be reporting this Wednesday evening: Nvidia.