Posts Tagged ‘confidence fairy’

The return of the confidence fairy could spell trouble for Labour

16/01/2013, 10:12:44 AM

by  Dan McCurry

The stock market has historically been a good barometer of future economic activity. It tends to be 6 months ahead of other indicators, representing the daily confidence of company bosses, either in their own investing, or in the conversations they have with institutional investors. However, the stock market has often been a poor tool for the policy maker, since it is so volatile that it is difficult to see the wood for the trees.

The FTSE100 recently broke through the 6,000 barrier. This may be volatility, but a comparison to the bond market may provide clarity.

UK gilts have been unusually expensive in the last few years. So expensive that a 10-year gilt yields less than inflation. This is partly a distortion caused by QE, but it is also indicative of capital preservation. Fear has governed the markets.

However, gilt prices have been falling recently, and the fall appears to correspond with the rise in the stock market. Are investors leaving safe-haven assets and returning to stocks? Are we witnessing the return of the confidence fairy?

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