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Welcome from New York where we've had the wildest week on the markets in at least two years. If it hadn't been for a big rally in the last hour or so of trading here on Wall Street, it could have been the worst week for the stock markets in the decade since the financial crisis of 2008.
Now what we're showing you here is what's happened to the S&P 500, the main index for the US stock markets, and for the stock markets of the rest of the world over the last six months. You can see there was obviously a lot of enthusiasm, largely generated by the tax cut that was announced here in the US at the end of last year. And what we've seen so far isn't much more than a correction of that exuberance, that excitement.
Whether it's going to go any further could depend in large part on the bonds market. Now we've seen a steady rise in 10-year bond yields, which set the price of money, over the last few months. And those yields stay at an elevated level. These are the kind of yields we haven't seen in some four years. If that continues to move further, there has to be a question whether stocks can avoid further falls. But so far they remain at a level you wouldn't think would be that big a problem for a strong economy to endure. You can deal with money that's not that expensive.
In terms of the critical number that we're waiting for next week, it's inflation. If you take a look at inflation expectations for the next 10 years, which you can derive from the bond market and its formal official inflation numbers, which are for core inflation, excluding food and oil, you can see that it's really pretty hard to see any sign that inflation has yet picked up to any really significant or scary degree. There's various small data points here and there that do suggest it's a risk. It hasn't actually happened yet.
On Valentine's Day itself, the 14th, we get the next CPI inflation report from the US. Given the state of nervousness about inflation at the moment, that promises to be very important for the stock market.