Stock markets rise for a second day

Rally continues as military spending rises.

Aerial view of London
Source: Bloomberg

Both global indices and the US dollar have been rallying in early trading today, as the initial negative market repercussions of the Paris attacks swiftly gave way to a defiant rally across the board. The ideal situation that the French government can balance its books and enforce austerity is soon becoming unrealistic in a world where higher defence and intelligence spending is becoming increasingly necessary.

President Francois Hollande is looking to flout EU rules over budget deficits in order to cancel defence cuts, while promising heightened security across the board. The fiscal boost of expansion of defence spending is likely to be something that will play out across Europe as the war  against ISIS intensifies and the 4% rise in BAE shares so far this week perfectly illustrates this. The downing of a Russian plane over Egypt by ISIS-linked terrorists only goes to expand the idea that military spending will rise globally over time.

UK CPI remained in deflation for the second consecutive month, offset slightly by the rise in the core reading to 1.1%. The divergence between the headline and core readings highlights the impact that tumbling commodities prices are having globally. The question is whether central banks will be willing to look past their primary targets and instead raise rates despite rock bottom price growth.

The trend of consumers seeking out low cost services and products was highlighted perfectly today, as easyJet profits hit a record high on the same day Aldi and Lidl hit 10% market share in the supermarket sector. As competitors seek to cut costs to account for the impending rise in living wages, those that set out to operate under such constraints are clearly continuing to benefit. 

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