Build ‘em up to knock ‘em down
Investors are doing the same job on the USD as the tabloids do on celebrities. When it was hot, fawning buyers were all over it like a cheap suit. As it falls from favour they focus on flaws that were obvious all along. Could equities suffer a similar fate in due course?
As with the red-tops’ treatment of celebs, the factual is less important than sentiment to investors’ thinking. The only two worthwhile ecostats during Tuesday’s London session were from the United States and they were undeniably strong. Housing starts and building permits both increased by around a fifth in July. Yet the dollar ploughed resolutely downward. It was saved from last place by the Norwegian krone but still managed to lose a cent to the pound and two fifths of a cent to the euro.
At a fiscal level, the Republicans and Democrats are still far apart on how the next stimulus package should look and how much it should cost. They are perhaps closer to a deal today than they were a couple of weeks ago but the tripartite bickering between the House, the Senate and the administration continues. Optimists in the White House hope that a “pared-down” $500 billion package of basic support might win the approval of both sides but it would leave open plenty of opportunities for future disagreement.
With a single bound it was free
Sterling put in a splendid – and totally unexpected – performance, strengthening by an average of 0.6% and adding one US cent and half a euro cent. There was no obvious reason for its success and there was an equally unexpected rebound by the NZ dollar, which was alongside the pound.
When the Brexit negotiating teams get together in Brussels today for the seventh time the Prime Minister expects them to “continue to plug the gaps”. Competition rules, fishing rights and enforcement are the principal areas of disagreement. This week’s talks are the last scheduled round, but both sides expect further meetings in September: In order to have a deal in place by year-end the EU will need something to present to its 27 members by October, for their individual approval.
This morning’s UK inflation data were affected by Covid-19 in two ways. First, they appeared at 0700h instead of 0930h because the usual journalists’ preview (lots of people in a small room) is not currently happening. Second, the ONS has once again had to change its shopping basket to account for consumption changes during lockdown. Headline CPI inflation came in at 1.0% with RPI 1.6% higher on the year.
The last item on today’s agenda is the minutes of July’s Federal Open Market Committee meeting. Investors will be looking for advice about “future guidance” on rates from the FOMC. Ahead of that there are more inflation data, from Euroland and Canada.
This morning’s balance of trade data from Japan were just as unsightly as investors had expected. The ¥11.6 billion surplus on goods mattered less than annual declines of 19.2% and 22.3% for exports and imports. The 22.5% fall in machinery orders did not help either.
This morning’s Eurozone numbers are expected to put headline inflation at 0.4%, as previously signalled. After lunch the reading from Canada could look remarkably similar at 0.5%.