It’s been a good week for equity investors and a mixed week for the bond market. Despite all the positivity around bonds, UK gilts are looking like they could record their worst month since last May, influenced by higher-than-expected inflation. This comes after a stellar rise in gilt values from the end of October.
The equity markets, after some profit-taking, have responded to better news around the economy with US growth for one outperforming expectations. There has been some good news this week around China which has spun into a mini rally, not only for the country but the Far East region in general.
It’s also interesting to see Bitcoin tumble by 20% since the 11th January following the regulation change in the US. This was supposed to be a good move for Bitcoin. Undoubtedly, this is a market that is extremely difficult to understand and is prone to sharp fluctuations.
This week, the agenda is as follows:
- Good and bad news for the UK
- ECB rates remain steady
- Recession, what recession?
- Core inflation is still falling
- The Chinese cavalry rides in
Good and bad news for the UK
Nowadays, it’s rarely just good news for the UK, although on most metrics UK stock markets look attractive. The UK though has its challenges.
UK economy and politics
A report in Bloomberg this week highlighted that the next UK government will inherit the most challenging set of tax and spending problems in 70 years, according to the Institute for Fiscal Studies.
Soaring debt and rising interest rates have added about £50 billion a year to government borrowing costs, stripping public services of much-needed funding and driving the UK tax burden to a post-war high. The government will need to raise more tax than it spends on everything other than debt interest from now onwards, the think tank said. The last time the UK ran a primary surplus was in 2002.
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