Equity Rally Resumes As Precious Metals Continue To Shine

WHERE WE STAND – It’s been a while since I began this note with a rant, but here goes.

Once more, the ONS have failed at quite literally the only job they have, to provide accurate national statistics on the UK economy. This latest descent into outright shambles stems from public finances data, in which the ONS have identified an error in the January to August period, largely as a result of issues with data pertaining to VAT receipts, which results in public borrowing being around £3bln lower than previously announced. Quite obviously, at a time when the Chancellor’s headroom against the fiscal rules is wafer thin, and at a time when the Gilt market is on a knife-edge, accurate data on the state of the public purse is pivotal.

Furthermore, as frequent readers will know, this is not the first time that the ONS have had to admit to errors in published data. To recap, since mid-2023, the ONS have had issues with, or been entirely unable to produce, labour market, inflation, trade, growth, and retail sales statistics, as well as the PSNB issues announced yesterday. I don’t say this lightly at all, but I strongly believe that we are now at a point where each and every release published by the ONS must be taken with a huge pinch of salt, particularly considering the incredibly high likelihood that there are further data gremlins lurking elsewhere that the folk in Newport either haven’t found, or haven’t publicly admitted to.

All this, though, does make me feel a degree of sympathy towards the BoE, the Treasury, and Chancellor Reeves – not something I feel especially often! Those three already have a tough enough job, yet trying to do that job without accurate economic data is nigh-on impossible. From a market perspective, all this just adds to the ‘basket case-ness’ of UK Plc, which will do nothing to improve the attraction of UK assets, either Gilts or the quid, as far as international investors are concerned.

Anyway, rant over, and onto other matters.

Chiefly, precious metals, which continue to shine very brightly indeed. Gold, obviously, steals the show here, having broken north of $4,000/oz for the first time, though silver, platinum & palladium have all joined in with chunky gains of their own. While I don’t want to start sounding like a stuck record, the bull case for this bunch remains a very solid one indeed, amid runaway fiscal spending, the risk of inflation expectations un-anchoring, and reserve allocators increasingly diversifying their holdings. Momentum clearly favours the bulls, with this being a wave that I remain content to ride higher – all I’d like is for Spandau Ballet to write another song, as I’ve run out of lines from ‘Gold’ to riff off.

Elsewhere, yesterday was a day largely lacking in major catalysts, but one where stocks continued to take the path of least resistance to the upside, as Tuesday’s brief wobble gave way to much more solid tones across the board. My view remains that stocks should continue to gain ground from here, as underlying growth remains robust, earnings growth solid, and the monetary backdrop becomes looser. Incidentally, for those arguing that the risk party might soon come to an end, I must admit that I struggle to get onboard with that view, not least as the Fed continue to actively top up the punchbowl.

The dollar also traded firmer against most peers yesterday, again reinforcing my bull case here as the Fed’s ‘run it hot’ approach tilts risks to the outlook firmly to the upside. Incidentally, all this does rather fly in the face of all the ‘debasement trade’ nonsense that keeps getting thrown around. Quite how that holds water when the buck trades at 2-month highs is beyond me, but it shan’t stop column inches being taken up by it. In any case, I remain a dollar bull, with the greenback still by far the ‘cleanest dirty shirt’ in G10, with dips still but g opportunities.

I’ll wrap up, this morning, with just one more mention of EGBs, after yet another technically uncovered German auction yesterday. That, for those keeping track, makes it two in two days, and three in the last week. Quite clearly, the market is sending a signal that there is simply too much supply to be absorbed right now – again, not a great backdrop for France to descend further into budgetary chaos, nor for Chancellor Reeves to deliver a budget at the end of next month. Maybe I’m not feeling so sympathetic for her position after all!

LOOK AHEAD – Another light-ish calendar ahead today, as the ongoing US government shutdown continues to leave us in a data vacuum, and with a resolution on that front still elusive.

As for scheduled events, monetary policy will be the main focus, not only amid the release of minutes from the September ECB meeting, but also with four FOMC speakers due, including Chair Powell. Before anyone gets too excited, though, Powell will be delivering welcoming remarks at a community banking conference, hence any fresh hints on the policy outlook are likely to be very thin on the ground indeed.

Besides that, there’s the small matter of a 30-year Treasury sale this evening, which is likely to be very closely watched given ongoing concern over the US’ fiscal trajectory.