UK GENERAL ELECTION
It was Workington what won it
The polls were right. The average of the last 10 polls before the election revealed voting intentions along the following lines; 43% for the Conservative Party, 34% for the Labour Party and 12% for the Liberal Democrats. That compares with actual results as follows; 44% for the Conservative Party, 32% for the Labour Party and 11% for the Liberal Democrats. Of course, what was always unclear was just how those voting intentions might translate into seats. Now we know. Reactions in the capital and foreign exchange markets were also in line with forecasts; the pound gained, linkers lost and the FTSE 250 flew. Anyway, goodbye parliamentary paralysis. The outlook for the British economy has brightened considerably.
USA MONETARY POLICY
Last week, the Federal Reserve Open Market Committee held the upper limit on the target for the Fed Funds rate at 1.75%. And that, if the accompanying projection material is representative of the thoughts of committee members, is pretty much where Fed officials expect it to be for the whole of next year. Underlying that assumption is that inflation – as measured by the Personal Consumption Expenditure index – remains reasonably passive. Prices in the bond market are consistent with the Fed’s outlook though a reduction in rates is considered more likely if and when the Fed does move late next year. We’re not taking a contrary view currently; we are broadly in agreement with both policymakers and market participants.
JAPAN ECONOMIC OUTPUT
One step forward, one step back
Japanese economic data is wonderfully volatile. Take the recent estimates for gross domestic product in the third quarter of this year for example. Initially, boffins at the Cabinet Office’s Economic and Social Research Institute guessed that the world’s third largest economy had expanded at an annualized rate of 0.2%. Last week, the revised data revealed a 1.8% increase instead. That’s some jump.
Unfortunately, the fourth quarter is likely to see even the higher, revised Q3 figure reversed. The effects of this quarter’s increased sales tax – postponed several times previously for fear of the negative impact on consumption – will likely see a sizable contraction.
EUROZONE MONETARY POLICY
A damp squib
Christine Lagarde’s first meeting of the Governing Council as President of the European Central Bank (ECB) yielded very little in the way of excitement. Policy rates of interest remain unchanged, the forward guidance attached to those rates was unchanged and the Bank’s schedule of monthly bond purchases was similarly unchanged. Actually, the ECB’s inaction, following the looser policy instituted in September, is consistent with policy at other major central banks. There is, I think, a growing consensus that the global economy is stabilizing.