Unfortunately, it seems this week won’t bring much cheer to the people of Britain. The anticipated budget from Rachel Reeves is unlikely to bolster either our morale or our economy.

While this is a significant concern for the UK, on the global stage, it hardly makes a ripple.

Globally, the focus is on broader issues such as the state of international trade, the possibility of the US economy skirting a recession, and whether the seemingly unstoppable rise of stock markets is finally losing steam. Let’s concentrate on this last point, as it could have a profound impact on us.

US stock markets have had a rough month, with the S&P 500 dropping 4% since its peak at the end of October.

Even Nvidia, the world’s most valuable company, couldn’t boost investor sentiment with its strong performance.

Once valued at over $5 trillion, Nvidia’s market capitalization has now slipped to $4.3 trillion. Although we’re not yet seeing a full correction for the S&P 500, which would be a 10% decline, there’s been a significant drop at the higher end of the market.

Prophet of doom: It is very hard to see any set of circumstances where Rachel Reeves will lift either our spirits or our economy with her Budget

The most speculative investment of all, cryptocurrencies, are way down. 

Bitcoin hit a high of $125,000 six weeks ago. On Friday it briefly traded below $81,000 and is on track to end the year down for the first time since 2022.

Does this matter? Well, if you bought at the wrong time of course it does. 

But for the wider world, surely not. After all, the market capitalisation of all cryptocurrencies is $2.8 trillion, of which more than half is Bitcoin.

That may sound like a lot but the value of global stocks is $120 trillion while for bonds it is $150 trillion. As an asset class crypto is tiny. 

If every cryptocurrency were wiped off the face of the Earth there would be a lot of disruption, but it would not be a lasting blow to the global economy. 

Indeed it would be a lesson to investors to put their savings into assets they can identify and which produce a tangible return, not a line of code on a computer.

I suggest, too, that some reassessment of the value put on artificial intelligence (AI) stocks would also be healthy. 

If Nvidia were to go back to where it was trading a couple of years ago – between $1 trillion and $2 trillion – there would be a lot of cross investors, but that would not undermine the effect that AI will have on our daily lives.

Bubbles by definition always pop, and however enthusiastic you are about AI there must be some element of a bubble there.

The thing that would be really worrying would be if financial market instability begins to undermine the world economy, as happened with the banking crash of 2008, which led to the global recession one year later. 

If you step back, it is pretty amazing that the world economy is still pushing forward, given all that has been thrown at it this decade: the pandemic, Russia’s invasion of Ukraine, the surge of inflation, the increasingly fractious relationship between the world’s two largest economies, the US and China, tariffs… the list goes on and on. 

Yet the International Monetary Fund reckons that global growth will be more than 3 per cent this year and next.

So where might this potential instability show itself – what is akin to that banking crash of 17 years ago?

I don’t think it will be in stock markets. Yes, they may be overvalued, though actually our shares here still look reasonably priced to me. Because the UK is in the dog house as far as global investors are concerned, there is good value in our best companies.

No, I think the worry is somewhere in the bond markets.

Look at the finances of the major economies, ourselves included. We are all piling up debt that can never be repaid.

In the first seven months of this financial year our own Government has already borrowed nearly £10 billion more than the Office for Budgetary Responsibility forecast in March.

While we have to pay more to borrow than other countries, we are not the worst culprits.

So governments will do what they always do – try to allow a little more inflation to reduce the real value of their debt, in effect stealing from savers – until the markets rebel and stop them.

Rachel Reeves is wrong about a lot of things, but she is right to be worried about a run on gilts.

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