The Cambridge Weekly – 5 November 2018

‘Shocktober’ was spooky but have markets undershot fundamentals?
Well that felt scary.
Global equity markets suffered a collective $8 trillion valuation loss during October – leaving many indices in correction territory (a drop of -10% from a peak). While the longest bull market on record rumbles on (it would take a -20% drop to break it), a significant amount of shorter-term confidence damage has been done. And it could take some time to repair before a full recovery in risk appetite sets in.

Turbulent year in global stock markets – overshooting first, now undershooting?
It is entirely possible that further limited declines will occur in the short-term, as investor positioning adjusts to the apparent re-pricing of economic growth forecasts and previously overly optimistic consensus earnings expectations. While risks remain, we think October’s sell-off looks to have overshot fair value and robust economic fundamentals.

Budget boost if Brexiteers behave
Austerity is “finally coming to an end” declared a triumphant Philip Hammond on Monday. In his third budget unveiling since becoming Chancellor of the Exchequer, Hammond seized upon better-than-expected tax receipts this year to announce the biggest increase in government spending since 2010. Recent tax receipts – which were £68bn higher than forecast by the Office for Budget Responsibility (OBR) back in March – have given the Chancellor some extra cash to play with, and will all be put towards boosting public services.

Read the full commentary here