Last week I wrote about how bad economic data could sometimes actually be good for financial markets, sending share prices higher, even if it does depend on how optimistic investors are feeling at any given moment. Last week’s mixed US data meant investors welcomed the prospect of delay to any forthcoming US rate rise. Increased uncertainty about the growth outlook meant they remained just as attached to the extraordinary monetary policy (low/negative rates, quantitative easing, stimulus measures) that major the central banks have in place to rekindle growth and inflation post-crises. This love for a highly accommodative policy stance, one that has sponsored equity and bond markets for years, means that traders are often fearful of it being withdrawn too soon. They want the party to go on forever.

And this week saw another fine example of this ‘bad data is good data’ situation, but this time in reverse: ‘good data is bad data’. A strong rebound in UK PMI Services data (80% of GDP) in August echoed the bounce by PMI Manufacturing last week. But while this implies good news for the UK economy, dismissing fears of  Brexit-inspired recession, it spooked easy policy loving investors, especially as it allowed Bank of England (BoE) Governor Mark Carney to say he wasn’t quite as worried about the Brexit impact. Which means he might not need to UK monetary ease policy any further (rate cuts, more QE etc). The stronger GBP that resulted dented equities, especially those of currency-sensitive exporters.

I’m still sceptical about this August data rebound. The improvement in sentiment may look better than it really is. It may simply be a rebalancing after a very weak July straight after the referendum. I think we need more time. Business confidence remains low. Data points are not always perfectly aligned, giving the same message. This is why the US Fed is finding it so hard to hike again. It is not sure either. However, I think several months are required before we get the real picture about the post Brexit vote landscape in the UK. Hey, we haven’t even triggered Article 50 to start divorce proceedings with the EU. We don’t even know what Brexit will look like. It could be better, it could be worse. Nobody knows. Not even the government. It’s a first and things are evolving day by day. It will be that way for a few years.

Which makes me wonder what markets are panicking about. It smacks of greed and complacency with regards to easy policy and cheap money. In the words of Oliver Twist, “Please sir can we have some more?”. As I said everybody wants the party to go on. However, while policy may not be any looser than last week after the European Central Bank (ECB) held pat yesterday, and the BoE will probably do the same next week, nor is it any tighter. Furthermore, even if the Fed does tighten the week after next it will only be the second time in 9 months and the wheels didn’t exactly fall off last time. Well, only briefly and we have more than recovered. In which case investors need to look at policy globally and appreciate that the situation is likely to remain highly accommodative for a good while longer. Think years.

Things may be improving in the US, but we are far from being able to hike rates in Europe the UK or Japan. And even if things improve quickly elsewhere, taking away the punchbowl is likely far more dangerous for central banks than letting inflation blow a little too hot for a few months. Easy policy has helped equities recover markedly from their crisis lows. Economic growth is returning slowly, but the IV easy policy drip will remain firmly in place to support the patient for a protracted period. Governments may even have to start doing more on the fiscal side as central bank’s exhaust their options. Sentiment will undoubtedly swing positive and negative in the months to come given the obsession with each and every data point. However, existing intervention should keep the wolf from the door in terms of disaster. And there’s always the chance that growth starts to really improve meaning we get the best of both worlds; economic growth and an continued equity market rally. Don’t worry. Be happy.

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Mike van Dulken, Head of Research, 9 Sept