I’m always being asked by clients if share prices will rise or fall following the release of a certain piece of important macro-economic data. Many moons ago – before a run of certain financial crises – my answer would have been simple. It might not have needed explaining at all. If, for example, UK or US GDP data beat expectations, implying stronger economic growth on both sides of the Atlantic, many of the companies on the UK 100 /250 or S&P500 would probably have reacted positively, their share prices rising. The basic assumption was that a growing economy would result in these companies doing more business thus generating more profits. Their shares were thus considered undervalued, so investors rushed to buy them helping equity indices higher.

Sterling and the US dollar might also have strengthened on the premise that people were likely to want to buy more £/$ to invest in what could become higher-yielding and more attractive UK/US sovereign debt/bonds. Why? Because if economic growth got too strong and the prices of goods and services started rising too quickly, the central banks (Bank of England and Federal Reserve) might be required to step in and raise interest rates in order to avoid inflation overshooting their mandated target.

Today, however, we live in a rather different world. We’ve just had data from the US suggesting that stateside jobs creation was much less than expected in August. This comes less than 24 hours after both continental Europe and the US delivered disappointing manufacturing data that called into question the quality of global economic recovery. Yet equity markets are higher than they were yesterday!

Why? The financial crises we have had to weather have seen significant intervention by major central banks. They have cut interest rates to zero. Peers like the European Central Bank and Bank of Japan have even taken rates negative, punishing banks for depositing money with them, charging them for the luxury of safety, preferring they keep the money out in the system to foster growth.

They have all been printing new money to buy bonds in an effort to keep borrowing costs low and their currencies weak to help exporters be more competitive. This has been going on for so long now (half my City career!) that markets have become more than a little addicted to the easy policy status quo, getting money for almost nothing and being able to deploy it elsewhere for better returns.

While the Bank of England, the ECB and BoJ are still in full-on easing mode. The US central bank is, thanks to the US economy being in rather ruder health than elsewhere, just starting down the path of monetary policy normalisation – that is starting to raise rates again. Very slowly for now – just one hike in 9 months, the next one could be months away  – nothing to panic about really. But raising them nonetheless, and markets are a little worried about this being, A) the first steps towards more expensive borrowing globally, and B) worried that over aggressive US rate rises might stifle the US and global economic recovery. US interest rates after all do have a significant knock-on worldwide, attached to many financial products. Your mortgage might even be linked in some way. The LIBOR scandal was very far reaching.

Given the potential for all US data points to alter expectations about the pace and timing of US interest rate rises, which have a significant knock-on global risk appetite, the situation is keeping markets on their toes. But investors are not always reacting in the way you might expect. The relationships between data and markets is no longer as older textbooks might claim. It depends on how markets are feeling and how they read the emerging data.

Sometimes they take consensus beating US data as a signal of US and global economic recovery, even if it does mean higher US rates. Sometimes though they prefer to focus on it being a step away from the easy monetary policy situation that they have grown to love and become so dependent on. Some days good data is good data, other days good data is bad. And vice versa! How fickle!

Accendo Markets is here to help you navigate the markets and the data. Our job is to watch the markets and data deluge daily. We know how the investor community is feeling and in a position to tell you how the data may impact your investments. We’re here to look, listen, interpret and assist. Get access to research now to know how data from China on early on Monday morning may impact sentiment for the day ahead. Enjoy your weekend. For now, markets see interest rates staying lower for a little longer worldwide. And equities like it, a lot.

Mike van Dulken, Head of Research, 2 Sept.