Someone has to say it, and it might as well be me. Markets have a distinct goldilocks feel about them at the moment, or in the words of the FT’s editors; markets are beginning to eye the “immaculate disinflation”, which is a prerequisite for a soft landing. This is a story about two trends; easing inflation and economies which are, well… neither too hot nor too cold. Soft US and UK inflation reports for the month of June have been key catalysts for the change in mood. Headline CPI inflation in the US fell to a two-year low of 3.0%, with core inflation dropping by 0.5pp, to 4.8%, a 20-month low. In the UK, meanwhile, headline inflation slipped to 7.9%, from 8.7% in May, while core inflation dipped by 0.2pp, to 6.9%. These numbers don’t exactly scream goldilocks, but markets trade at the margin of the economic data; it is the direction of travel that matters.
Read MoreLast week I tumbled down the rabbit hole of quantitative finance, so this week I thought that I would take stock on some of the main themes. In addition, I am going on holiday soon, which means that you will have to survive without my mishaps for a couple of weeks. The continued woes of the greenback are probably the main story for markets at the moment. It is driven by a number of factors as far as I can see. Firstly, economic data in the U.S—in particular core inflation—have remained underwhelming, which have forced markets to roll back on their expectations for Fed rate hikes. September, which was a done deal only a few months ago, has now become a long shot. Secondly, just as the Fed's hiking cycle potentially has hit a snag, other central banks have stirred.
Read MoreVolatility returned to equity markets last week, but it was a quick visit. The S&P 500 slid 1.8% on Wednesday, the VIX jumped and babies were thrown out of with the bathwater in Brazil. For a short while, it looked like significant chink in the armour, but this market is not easy to bring down. Equities snapped back at the end of the week and volatility receded. On the week, the S&P 500 ended down 0.4%—after a 0.3% decline the week before—just about the same as the MSCI World. One of the main debates on the Tee Vee Thursday morning was whether this "pull-back" marked the beginning of the big kahuna sell-off and a global recession. When the market goes up, we cry foul due to high valuations and tentative evidence of "bubble behaviour," and when it finally stumbles it stands to reason that it must the beginning of the big unravelling.
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