10 Year Treasuries Above 4%
Equity markets have continued to fall as 10 year treasury yields hit 4%. Bond investors expect, and rightly so, that existing bonds to be worth less than new bonds, driving yields higher.
All sectors except Healthcare ended the month of September lower.
We don’t live in the financial markets though. With almost two openings for each unemployed person seeking to work, the strength of the labour market has continued to drive consumer spending. Using weekly initial jobless claims, despite large companies like Meta preparing its staff and investors for lay-offs, total new layoffs are falling again.
Falling asset prices due to the central banks’ actions have not caused consumer spending to fall off dramatically. Empirically, according to BCA Research, “changes in equity wealth have exerted little to no impact on consumption” as long as most consumers are still drawing a paycheck.
After Liz Truss came into power and Chancellor Kwasi Kwarteng (like the Minister of Finance) announced one of the largest tax cuts, UK bonds and the pound sold off. Shambolic. Tax cuts are ostensibly inflationary and now that inflation is sky high at 10%, a policy like this could make things worse. Citizens and investors’ took notice and even the IMF stepped in to criticise the mini-budget.
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