Pounding Higher with No Bust

The “herd” was treated to the “suspense” of three Central Bank monetary policy meetings this week, The Bank of Japan, The US Federal Reserve Bank and The Bank of England, the result being that the herd are just as confused now as they were last week in respect of interest rate direction

Furthermore, they are equally confused as to the direction of the US Dollar and the British pound, as they are about the outcome of the impending US election, now less than a week away.

This column has tried to offer some clarity on two of the issues via the 19th October “Relief from the £Pounding,” which concluded that a trend change for the £/$US looks to be imminent and the “Investment Markets Overview” at 28th October which reminded that market interest rates are headed higher, perhaps far higher, regardless of a bunch of Central Bankers.’

So what’s the score?

The three CBs left their “official” rates on hold, with their press-release comments being the usual vague double-speak saying that rates could increase, or they could fall, so not a lot of help there. Meanwhile, before the three meetings, the 28th October overview, referred to above, showed just how quickly and how far 2-year market rates had travelled. In fact, the US 2-year, shown below has been annualising at a 31% rate since its August 2011 all-time low of 0.2%.

3-nov-2016

An overlay of the £/$US exchange rate, inverted to better show the correlation between it and US interest rates, shows the relief now being offered to the British pound, so a welcome break from being £Pounded.

Which leaves the third and trickier subject of the US Presidential election?

The 14th October post entitled, “Trump Card Busted,” observed that whilst Trump’s campaign appeared to be in meltdown following a decade-old video-clip which surfaced showing “the Donald” bragging about groping women, with many commentators saying that it’s a done deal, Clinton will win, a reminder stated:

“In practice it’s the collective social mood of the country, as identified by its main stock-indices, that decides on “inclusionism,” we and us, or “exclusionism,” us and them, with the former evident during a rising market / positive collective social mood and the latter during a falling market / negative collective social mood, with the latter also opening up a polarised society from which “alternative” politicians appear, such as Trump, UKIP and the French Front Nationale, the list goes on.”

So we looked at a chart of the Dow Jones Industrial Average, perhaps the most watched stock-index in the world and the barometer of America’s collective social mood, which had been falling since mid-August of this year and concluded, “that trump may not be busted quite yet.”

The race is still tight and frankly it could go either way, but we’ll stick our neck out, hence the title, “Pounding Higher with No Bust.” Just take a look at the Dow.

 

 

 

 

 

 

 

 

 

 

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