Chart of the Week: Risk premiums back to normal?
A post recently appeared on my Bloomberg timeline that headlined: ‘BoE’s Bailey Says Truss Risk Premium on UK Assets is Gone’. Being overweight in some UK assets, I wondered what Bailey bases this on.
So I look at some asset classes that were hit hardest by the panic sell-offs caused by then finance minister Kwasi Kwarteng’s mini-budget. Just a refresher: that mini-budget consisted mainly of tax cuts for high-income earners that were not compensated elsewhere in the budget.
Chart of the week: Rough and tumbling business confidence
And then things moved fast. Business confidence fell to worrying levels in July, making a recession, especially in Europe, seem inevitable.
The S&P Global Flash Composite (Manufacturing + Services) PMI for Germany fell to 48.0. Well below the “magic” level of 50, seen by many as the line between economic growth and contraction - even though the actual level of negative GDP growth is considerably lower. The Manufacturing PMI also fell to 49.2.
Chart of the week: this valuation gets in the way
When it comes to equity valuations, most investors are concerned with the price/earnings ratio. And while that P/E ratio has fallen to just below the average of the past decade, the picture painted by another valuation measure is much less attractive.