Bond bubble
Fed warning
Are we heading for another asset bubble? That is the fear expressed by senior US banker James Bullard. The head of the Reserve Bank of St Louis has called for the Federal Reserve to hurry up its 'normalisation' process now it has removed the 'patient' tag from its latest minutes. He fears that, with the economy picking up and consumer spending likely to follow suit, near-zero rates are not appropriate and risk exacerbating an asset price bubble, particularly in the bond markets, of which he told the Financial Times: "You wonder whether that's a powder keg ready to explode."
No-flation
UK low
We've been expecting it for months now, but some still found it a surprise when UK inflation evaporated. Inflation in the UK, as measured by the consumer prices index (CPI) fell to 0 per cent in February, down from 0.3 per cent in January as falling oil prices and weak food inflation continued to ripple through the economy. Coming just six weeks before the general election, the move was welcomed by Chancellor George Osborne as "good news for family budgets". With further utility price cuts still to kick in, deflation is likely to be recorded in March and this may even prompt some to call for a further cut to record low interest rates in an effort to stoke prices back into life.
Housing dip
UK slows, US grows
The much-anticipated hiatus in the UK housing market in the run-up to the general election appears to be taking hold. Official data form the Office for National Statistics for the December to January period showed a 0.2 per cent dip in UK house prices, the first reversal since last March with the annualised figure slowing from growth of 9.8 per cent to 8.4 per cent as the heat comes out of the market. But over the pond, the US housing market appears to be playing catch up with new home sales in the US up 7.8 per cent in February from a month earlier despite tough winter weather conditions.
New highs
FTSE record
The FTSE 100 index punched through the 7000 level late last week, finally breaking through a barrier it had been threatening to breach for some time. With inflation remaining benign, the economy picking up, interest rates likely to remain low and quantitative easing medicine beginning to course through the veins of European markets, equity junkies have been enjoyed the party. How long it lasts remains to be seen and, as Chris Dillow points out this week, the nominal record high is nothing of the sort, given that it does not take into account dividend payments.
Debt boom
Danger signs?
The latest UK economic recovery appears to be being driven by age-old factors which could spell another sticky end. According to figures from accountant PricewaterhouseCoopers household debt in the UK rebounded sharply in 2014, reaching an all-time high of £239bn or almost £9,000 per household. And this is only likely to accelerate, with PwC forecasting an average household debt of close to £10,000 as soon as 2016. Almost half of the rise in unsecured household debt last year was accounted for by student borrowing.
Buffett lunch
Food deal
Consolidation is on the menu in the global food sector. A proposed merger between Heinz and Kraft, which is being driven by Heinz's owners Warren Buffett's Berkshire Hathaway and Brazilian investor 3G Capital, looks set to create a global food heavyweight with a market capitalisation of around $100bn. The merged Heinz/Kraft business could have combined revenues of $28bn (£18.79bn) and would see Kraft shareholders end up with 49 per cent of the enlarged business as well as a sweetener worth $16.50 a share at a cost of $10bn to 3G and Berkshire Hathaway. The combined business would be the fifth biggest food and beverage business in the world.
Greek crunch
Cash tight
The ongoing hiatus in resolving Greece's stand off with its international paymasters is set to create a cash crunch for the embattled government. With prime minister Alex Tsipras promising to reveal another list of reforms by Monday, time is fast running out with the Greek government facing a €1.7bn (£1.25bn) wage and pensions payment at the end of the month coupled with a €450m loan repayment to the International Monetary Fund falling due on 9 April. The 'troika' which is running Greece's bailout programme is holding on to €7.2bn of much needed funds until evidence of reforms is produced
