Regular readers of this column may have noticed that the usual twice weekly update reports
have been somewhat erratic over the past fortnight. Well, that’s because I have been
travelling for the past couple of weeks with a good deal of that time spent in the US and its
territories, preceded by a brief on route stop-over in Japan.
I always make it my business to engage with as many people as I can when I am on my
travels and purely from a layman’s point of view what I experienced stateside on this latest
journey was actually quite illuminating.
Firstly, it should be said, that as usual I found all the Americans I spoke with to be equally
engaging and refreshingly cynical and realistic and of course far more interested in rest of
the world than conventional wisdom often gives them credit for. Granted, I wasn’t exactly
conversing with steel workers from the rust belt.
The majority of people I spoke with didn’t seem to care much for Trump, but many seemed
prepared to tolerate him so long as he gets the job done. Ironically he’s the least popular in
his home town and equally so on the west coast- both forever Democrat strongholds of
course. Nevertheless, even the people I met who were fans of the US President didn’t give
me the impression their support was unconditional.
What I really discovered was, without exception no one had an issue with interest rates
where they currently are, and no one I spoke with felt that current Fed policy was out of
line. Even those not at all involved with the financial markets seem to understand perfectly
well that having interest rates too low for too long can be counterproductive. Once again
most of those I talked to were surprisingly well up to speed with the monetary situations in
both Europe and Japan.
What I also learned, and please remember we are talking about conversations with perhaps
two dozen different individuals or groups here; was that the mood over the pond seems still
ebullient and very positive. In terms of numbers here, certainly not enough to be definitive
in any way of course, but nevertheless a good selection people from across the whole
Meanwhile, many in the market still seem to think the Fed is going to take its foot off the
brake pedal at the end of the month. Perhaps the most recent, soothing comments from
the Fed chair last week are continuing to fuel that speculation, but let’s remember two
things; Firstly, the Fed boss is under intense political pressure and secondly, consumer
Signal to business and the real world that the party is over and before you know it the music
will indeed stop. Of course Trump wants his cake, but bombastically slamming the Fed for
‘normalizing’ rates around the current levels is, as Rex Tillerson might have put it- ‘Moronic’.
I know I have made this point many times in previous articles, but it simply has to be
repeated again and especially given all the latest data to hand over the past couple of
weeks, on employment and inflation. Whilst there’s clearly a good reason to pause, there’s
simply no argument for lowering rates yet-unless one is hell bent on getting the dollar lower
and risking yet more bubble territory for stock markets?
Naturally, that’s the way the US president wants it as he simplistically blames the strong
dollar purely on the Fed’s current tightening cycle. However, its not the Fed’s fault that
China is slowing and Europe and Japan haven’t been able to turn off the ‘fan spreader’ yet!
Well, that’s my pennyworth, but anyway come the end of the month when the Fed decides
on monetary policy again, perhaps we shall see just how independent they truly are as an
organization? Personally, I would love to see them prove that, and equally love to see
Trump’s animated reaction to such an outcome, so much so that his hair transplant comes
Conversely, the dollar is currently still well glued down, a bit like the Grand Old Duke of
York’s men, neither up nor down. Consequently, more sideways price action to come I
suppose for the USDJPY and EURUSD until we see which way the Fed blows. The Pound is
still caught in the tractor beam of Brexit tail risk and likely to remain what way regardless of
who becomes the next PM. Its high summer of course and the hot money is most definitely
basking in the sunshine on the beach, but as always, keeping one eye out for when the tide
Data wise this week the latest UK unemployment numbers and German ZEW index will have
been released today before you get to read this so I cannot comment on what reaction they
might deliver. Beyond that, the calendar as a whole this week is pretty light with the latest
US retail sales (1.30pm today) and Australian unemployment numbers (2.30am Thursday)
probably attracting the most attention of all that’s due out.
Oh and anecdotally one piece of advice in case anyone needs it- London black cab drivers
especially take note too. Don’t get stuck on Santa Monica beach without your phone and
UBER app because if you do, and in the absence of kindness from strangers; you’ll be
walking back to Beverly Hills!
Important Economic Releases Due This Week
16/07- 1.30pm US June Advanced Retail Sales
16/07- 6.00pm Fed’s Powell Speech from France
17/07- 9.30am UK June CPI, RPI and PPI Inflation Reports
17/07- 1.30pm Canada June CPI Inflation Report
18/07- 2.30am Australia June Unemployment Report
18/07- 9.30am UK BOE Credit Conditions Report
18/07- 9.30am UK June Retail Sales Report
19/07- 12.30am Japan June CPI Inflation Report
19/07- 3.00pm US University of Michigan July Consumer Sentiment Index