…by order of the state
Whilst the US President sometimes gets accused for cheer-leading the equity market he is seldom as blatant about it as China’s state-run Securities Journal. A front-page editorial said that “a healthy bull market” is important, and urged people to buy shares.
So they did and, as might have been expected, equities went up. The move did not appear out of nowhere though. Since last Monday the Shanghai composite index has risen 15.25%, with more than half of that rally happening this week. And it is not only Chinese shares that are flying. America’s NASDAQ 100 index hit a record high on Monday.
However, at this point the picture becomes confusing. With all this bullishness fed by all this state encouragement and all this cheap money sloshing around, financial markets must surely be in an extreme state of risk-on insouciance. But no, it is not that straightforward. Gold, traditionally a protective investment, touched an eight-year high yesterday and the safe-haven Japanese yen was strongest among the major currencies. The sensation is once again that people are buying assets because they are going up – not always a bad idea - but they are not entirely comfortable doing so.
Decent data; dented demand
Once German factory orders were out of the way, Monday’s economic statistics told a positive story, at least during the London-New York day. On the other side of that coin was the Bank of Canada’s Business Outlook Survey, which pointed to “weak demand”.
The least satisfying ecostat was the Sentix index of euro zone investor confidence. Although it was more than six points higher on the month at -18.2 it was supposed have been better. Euroland retail sales for May were more obviously an improvement, jumping 17.8% after falls of 11.1% and 12.1% in the previous two months. The two US services sector purchasing managers’ indices from Markit and ISM were quite widely separated at 47.9 and 57.1. Markit’s reading marked the “softest fall in output since February amid strengthening demand” while ISM saw activity growing in June. Crucially, both were higher on the month.
The BoC’s outlook reported that “business sentiment is strongly negative”, or at least it was when the survey was carried out from mid-May to early June. Looking on the bright side; “Roughly half of firms anticipate that their sales will recover to pre-pandemic levels within the next year.” (So, presumably, half don’t.) The Loonie was Monday’s weakest major currency losing a quarter of a cent to sterling. Only 0.4% separated the CAD from the leading JPY.
No change = no change
The Reserve Bank of Australia board “decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points”. The decision was as expected and the Aussie dollar is exactly unchanged on the day.
Ahead of the RBA announcement, AiG’s Performance of Services Index could have done some damage to the Aussie: the index came in at a disappointing 31.5, only four and a half points of the low two months ago. The NZ dollar was damned with faint praise by the NZIER’s Quarterly Survey of Business Opinion, in which the business confidence measure rose seven points from its nadir to -63. This morning German industrial production picked up by 7.8% for May, slightly less than expected.
There are no heavyweight data on the agenda for today. At a domestic level the Halifax house price index may be of some interest.