00:00Paul, I read on the Markets Live blog this morning, I'm reminded by Connor Cooper,
00:06European equities have not risen on a Friday since the Iran war began,
00:10and yet we have European futures pointing a little higher, Asian stocks going higher.
00:15Explain to us a little bit about the risk appetite we see in markets this morning.
00:21Yeah, good morning, Anna. Well, of course, last Monday we did see assets rise
00:26quite significantly and quite rapidly as well. And so the market,
00:29every weekend has to go into it with this sort of binary options of what we might get when we
00:36come
00:37back in. And particularly this weekend, there's a lot of risk with the talks starting in Islamabad.
00:42If we come in on Monday morning and things have gone badly, then obviously we could see some pretty
00:47nasty moves, given the gains that we've seen this week and vice versa. What I do think is that you've
00:53got a reasonably positive backdrop as far as the market is concerned going into this talks. It
00:59does seem that Israel is going to talk with Lebanon. That's been taken as a positive by
01:03the market. It does seem that fewer missiles at least are flying around the Middle East. That's
01:08also being seen as a reasonable positive. And so that mood music, at least, is leaning just a
01:13little bit more in favour at the moment, giving the chance for European equities maybe to grind out
01:18again today. As I watch what's happening in the Gulf, what am I missing, Paul? What else is going on
01:24out
01:24there that I should be paying attention to? So I think that under the market surface, there's a
01:30couple of other reasons to be optimistic, Guy. If you look at junk bonds in the US, this is a
01:35good
01:35one. I think we had a couple of sales yesterday. Core Weaver Tech Company coming to market, braving it,
01:40getting a deal done. Also, a couple of other deals there. And if you look at the performance of US
01:46junk bonds, spreads are tighter now than they were at the start of the war. And the Bloomberg high
01:51yield dollar bond index in the US is at a record high. And so therefore, you know, that's telling
01:57you that as far as the US economy is looking, people are reasonably confident about the soundness
02:03of it. If you look at the VIX index in stocks as well, that's come all the way back down.
02:07So it
02:07does seem like that confidence is seeping through into some of the deeper corners of the markets too.
02:14And Paul, you touched on the US economy. We have CPI out later today, of course. What is the market
02:20sensitivity to that inflation print?
02:24Yeah, Tom, don't really know. We're going to see, aren't we? We're looking for a big jump in the CPI
02:30number, a 0.9% month-on-month increase on the headline. Not a very big rise in the core.
02:36I think core is
02:36more important to look at over that longer term horizon to see whether there's secondary effects
02:40starting to seep through already, probably too early for that. But with the Fed also concentrating
02:45on the economy and how slow that's going to be, there's two different factors that are playing
02:50into how the market will take down this CPI. So unless there's something that's radically
02:55other than the way that it's expected, probably, you know, it's more about what we sort of hear from
03:01the Fed policymakers in terms of how they're weighing those risks going forward, so it's going to
03:04determine the market directions.
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