It looks like it’ll be a quiet week – or at least a quiet week in global economics, for who knows what might happen in politics in the UK and elsewhere. This is a relief because the mass of information and disinformation of recent days needs a bit of digestion. Consider this: last week there was the rise in UK rates, the new chair at the Federal Reserve, possible disintegration of the UK Government, solid news on the world economy, muddle on US tax policies – and markets at all-time highs. Oh yes, and there is North Korea and Saudi Arabia. What do you make of all that?
So first of all I want to see how financial markets digest this great wodge of information. I have noticed half a dozen market commentators taking the line that “we know shares are overvalued but we think they will go higher yet”. There was a brave example of that – brave because it gives both a number and a date – from Fathom Consulting: “Many asset prices look increasingly out of step with fundamentals. Equity markets, which in our judgement are some 40 per cent overvalued, are just one example. However, the equity market bubble is likely to inflate further before it bursts. We see equity prices continuing to rise over the coming quarters, with a peak in the second half of next year.”
This is one facet of the biggest question facing the world economy: how do you get back to more normal interest rates without pushing the markets into a crash? (Another facet of that is what will happen to UK house prices, a question on many Britons minds right now.)
That leads to questions about high-tech America. How long does the high-tech boom last? The iPhone X has just had a wonderfully positive reaction, propelling Apple shares to an all-time high, up about 50 per cent over the past year, and consolidating its position as the world’s most valuable company. I suspect this boom still has legs, though the travails of another disrupter, Tesla, is a warning that what goes up can also come down. If our experience of the dot-com boom of 1997-2000 is any guide, the end of this boom will be associated with the next global downturn.
Of the rest, any information about the UK Budget on 22 November will grab headlines and I think the thing to look for in stories about it will be whether there will be a radical rethink about spending priorities. Does government spend money in ways people really want? Or do the priorities of the “liberal elite” take precedence over popular expectations? This is more interesting, surely, than the debate as to whether the Government should still aim for a fiscal surplus in four years’ time.
On the macroeconomic side let’s see what the markets make of the new chairman of the Fed, Jerome Powell, probably not much as he is seen as a safe pair of hands, and US tax policy. As far as new economic data is concerned, the most interesting numbers will be the services PMIs on Monday for large parts of the world, including the eurozone. These give us a good feeling for the health of the world economy through the rest of this year. From a UK perspective, however, expect attention to focus on some work by the Office for National Statistics.
On Tuesday the ONS is publishing estimates of four measures of personal wellbeing for people in the UK: life satisfaction, feeling that the things one does in life are worthwhile, happiness and anxiety. What has happened to the way we feel about our lives in the 12 months to the end of June this year, the first year after the Brexit vote? Beyond a certain level of income, wellbeing is more important than material wealth. It is hard to measure, but at least the ONS deserves credit for trying to do so in an orderly and apolitical way. On a glummer note, it is also publishing some other data on Monday: deaths that are exclusively caused by alcohol. It deserves credit for tackling that too.