Spreadex Market Update
Austerity not working?
Not unlike the rest of Europe, the UK has debt relative to output not seen since times of war, with the government’s balance sheet expanding in a similar fashion to that of, say, Japan’s soon after the stock market collapse of the early 90s.
The figures released today show that government spending increased and tax receipts fell, the result of a greater dependency on welfare and a weakening economy. Hardly optimistic.
But, like Japan’s policy makers of the day, the Bank of England stands ready to act, willing to pump more cash into the real economy using money markets as trustee.
If the BoE acts in a way that interest rate markets anticipate and bankers desire, risk takers could soon be rewarded. And the stock market might offer itself as one of the paths of least resistance for money fresh off the press.
Not surprisingly, then, risk assets have largely ignored the prima facie bad news today and continue to price downside risks against central bank action.
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