Stocks or bonds? Bonds or stocks?

The rise in US bond yields is continuing to disrupt global stock markets as the week draws to a close.

The rise in US bond yields is continuing to disrupt global stock markets as the week draws to a close.

Markets across Asia closed lower and European markets opened with a wobble as Treasurys increasingly become the flavour of the moment, underpinned by strong US economic growth and planned interest rate hikes.

The latest data shows that US jobless claims have fallen to a nearly 50-year low and the labour market is now not far from full employment, at least on paper. What has caught markets by surprise is not so much the strength of the job market and of the overall economy but the speed at which it is progressing. The high levels of employment has been feeding wage increases and fueling higher consumer spending, in turn leading to rising inflation. Now the speculation will start if the Federal Reserve will speed up its planned rate hikes this year and next thus giving bond markets more fuel for a further flare up in yields.

UK house prices fall

In the UK it is a different story. September is typically a good month for house buying as buyers come back from summer holidays and schools restart but this year not only did domestic house prices decline on the month but the rate of decline sped up against August numbers. It is too early to call a serious turnaround in housing price growth as the overall quarterly price is still up on the year but the slowdown in growth is becoming more embedded. This is unlikely to translate into an action point for the Bank of England at its next rate setting meeting on 1 November as the Bank has already said that it plans on keeping rates steady until it has more clarity over Brexit, but the news will add to concerns about the effects of Brexit on the UK economy.   

Unilever to keep London headquarters

A small group of the larger Unilever shareholders managed to apply the brakes on the Anglo-Dutch firm’s plans to close down its London headquarters.  Instead the consumer goods firm will continue operating a dual-headed structure. The firm would have needed approval from 75% of UK shareholders who were getting increasingly worried that the company may end up delisted from the FTSE 100. It is now caught between a rock and a hard place, reflected in a share drop of 0.29% this morning. The decision to abandon its Rotterdam plans means that the company’s hands may be tied over some other strategic issues and is unlikely to be positive for the firm in the long run.


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