Economic seesaws and stock market slides

A seesaw of financial news this week with both good and bad.

First – interest rates have fallen. This week, in the tightest contest since Real Madrid beat Manchester City 5-4 on penalties, the Monetary Policy Committee voted by the same margin to lower rates by 0.25% to 5%. This of course takes a while to filter through into the system for most of us, but I think it’s symbolically important. This is the first cut in over 4 years and brings some light relief for those coming up to a remortgage, or servicing a lot of debt.

It’s not a massive change, and nor should we expect dramatic reductions this year because inflation remains sticky. All being well, we may be in line for one, potentially two, further dribbles down. One topical consequence is that the pound is at a 4-week low as a result of the cut (big wig investors can get relatively higher interest in other counties, so they go elsewhere and dump their pounds), which will make your summer holiday paella or glass of ouzo that touch more expensive.

No need to be too dramatic, unless you’re a squillionaire trader. Before the cut, £100 was worth €119. It now buys you €118.

On the other side of the seesaw, the Chancellor has struck up the Jaws theme tune and we know that a big fat tax shark is going to leap out of the dark sea at some people on Budget Day this October. She needs to find £22 billion down the back of various sofas.

Her tools are limited if manifesto promises are kept. But pensions (limiting tax relief), clamping down on inheritance tax loopholes and increasing capital gains tax are firmly in the frame as obvious levers she can pull. Other changes could be to reverse the cancellation of the fuel duty rise, and potentially review higher bands for council tax.

We’ll have to wait and see, but in the interim, getting smart about the tax-busting abilities of ISAs and DIY pensions is a sensible idea. Learn more about how ISAs can beat inflation or consider three reasons to open a SIPP (Self-Invested Personal Pension).

As we move across the financial playground, stock markets have been less of a seesaw and more of a slide.

The US market has been such a dominant driver of stock market returns that the news out this week about a slowdown in the US jobs market and weak manufacturing data has rattled many cages.

Of course, the US sneezes and the world catches a cold – Japan had its worst day on the markets in 8 years this week. The yen is getting stronger which makes Japanese corporate profits lower. And Europe is trading lower this morning. Intel is going to cut 15,000 jobs, as this chippie’s shares fell substantially in response, and the Dutch semiconductor ASML dropped over 7% as investors get a little spooked about Big Tech earnings.

There’s a subtle shift in the narrative this week. It’s gone from people saying “oh yay, this slower data looks like we might get lower interest rates which would be swell” to “oh god, maybe this data actually means that things are a bit cr@p”. And that, my friends, is my final technical analysis of markets this week. It will be like this for a while – surges of optimism tempered by bouts of anxiety. 

It’s over and out from Boring Money for a few weeks as we take a summer break. We will be back at the end of August. In the meantime, we’ve three questions to ask our readers who invest – would appreciate your thoughts. 

Thank you all for your continued interest and support. I hope you and your families have a safe, sunny and restful summer.

Holly

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