A slightly negative week for the majority of world stock markets but the US continues to outperform.
As discussed during last week’s update, Jerome Powell, the US Federal Reserve Chairman did in fact announce a change to the central bank’s strategy going forward.
Previously the bank had targeted inflation at 2%. This would mean tightening monetary policy once inflation was above this level (like raising interest rates) and loosening monetary policy once inflation was below this level (like lowering interest rates). The bank will now target inflation at an average 2% meaning they will allow inflation to go higher for longer when there have been periods of low inflation like we have seen recently.
I believe this is something we will likely see in the UK and other parts of the world.
Investors are now turning their attention to a new economic stimulus package from the US. The US job growth rate and consumer confidence is stalling. The stimulus package is being held up in congress and investors will be keen to see this resolved soon.
In China we saw results from a private survey which indicted manufacturing activity was expanding at its fastest pace since 2011. This has been helped by growth in overseas orders as European economies get back on their feet.
In the UK the Nationwide’s latest house price index showed that house prices had increased 2% in August (month on month). This was the fastest monthly rise since February 2004. The average new home is now costing £224,123.
We have also seen this week, headlines regarding potential tax rises to come in the next Budget with pensions, second homes and businesses to be hit.
These types of sensationalist stories are not helpful. Before any budget it is right for the government to review all taxes, this does not mean changes will be made. Whilst the UK will ultimately need to repair its finances after the huge cost of Coronavirus it doesn’t necessarily mean tax rises and certainly not straight away. There are other ways to get rid of the debt.
A much better way to prepare for any Budget is to have clear objectives and a plan for your finances. Shortly after the Budget review it for any threats and opportunities. Then adapt your plan appropriately.
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