A crisis of confidence in the outlook for the UK’s finances was the latest trigger for risk aversion, helping drag the S&P 500 Index to an almost two-year low.
Yet with investor sentiment in the gutter and the Bank of England vowing to open the checkbook to prop up its bond market, could another equities bear-market rally be in the cards?
A: The backdrop here is just to understand that for investors, the storm that has been 2022 thus far, the dominance of macro imperatives across all assets, has really been unprecedented. And it really goes back to this idea that after 25 years of quiescent inflation, we had a breakout in the readings. That’s now been over a year and obviously really feeding into the Fed’s imperative to get inflation under control by going on this unprecedented degree of hiking.
Q: Is there an assumption going on that the Bank of England, by promising to buy bonds, is foreshadowing what’s to come from other central banks? Eventually are the Fed and the European Central Bank going to have to come out and say, “Yeah, we’ll do whatever it takes too to keep bond markets in check?”
And frankly, because so much of UK debt is denominated in sterling, that wasn’t necessarily going to be the way it would play out. But nevertheless, the markets have become just very, very illiquid and people got very, very afraid of buying bonds in an environment where there’s still no concrete evidence that inflation, particularly in Europe, is showing signs of topping. Although that evidence is starting to build quite rapidly in the US.
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