Risk-on remains, as stock surge sustains

The stock market rally has continued apace today, with the FTSE continuing its ascent, helped by rising oil prices.

•       FTSE rallies, helped by financial and energy firms
•       Rosengren raises chance of December hike
•       Did todays UK inflation reading open a window for BoE?

Stock markets rose once more today, as hopes of a high growth period based on substantial fiscal stimulus continued to stoke the embers of last week’s US election. UK stocks once more saw financials outperform on the prospect of a world with higher rates and higher growth. However, interestingly, we have seen energy stocks grab some respite today, as crude prices rose in the wake of a fresh charge from OPEC to find a means to ensure the output cut comes to fruition.

The US dollar was given yet another leg higher this afternoon, after Boston Fed President Eric Rosengren encouraged recent speculation that the Fed will raise rates in December. A combination of near full employment and rising inflation provided Rosengren with a view that absent of any significant negative economic news over the next month, a rate hike in December seems plausible. With markets currently factoring in a 94% chance of a December, there is no doubt that there is a strong conviction that the Fed will finally move. Given Trumps criticism of the Feds ultra-easy policy stance in recent years, it would be no surprise to see a shift to tighter policy going forward.

UK inflation took a surprising dive in October, with CPI falling across the board against expectations. Notably, we have seen core CPI pull back considerably from the 2% target, with the current 1.2% level providing room for manoeuvre at the BoE in the coming months. Amid a global reflation trend, the weak pound is expected to raise inflation risks for the UK, thus lessening the degree of easing the BoE are able to enact. Today’s appearance from Carney saw the governor speculate on the notion that we should see the mandate revised regularly, providing a hint that he would be willing to ease further if it wasn’t for the 2% inflation target.