View from London: No More Talking? 6 Global Items to Consider
08/31/2017 2:51 am EST
U.S. rates at 2.15% show a disconnect between U.S. stocks. Some still want to talk about Goldilocks with 3% growth and low inflation to spur profits. Until bonds move, the USD rally cannot sustain, writes Bob Savage, CEO of Track Research in his Thursday commentary.
There is a time for everything, talking and listening, investing and taking profit, thinking and doing.
August is over and with it many hopes for investors to keep making easy money – with USD rebound being a case in point.
Better GDP, better politics with talk of a “huge” infrastructure plan and the pain of Hurricane Harvey leave markets unsettled with the simple views that started the month.
U.S. relationships in Asia are better as the North Korea missiles drive a search for allies. Even as President Trump warns there is no more talking, diplomats look for a solution.
That is the backdrop for the day ahead in the U.S. with a myriad of month-end economic stories to digest ahead of tomorrow’s all-important Job and ISM reports.
Many won’t have time to go over all the subtle points from the economics – here are the standouts from today:
1. BOJ plans to keep buying JGbs in September at the same rate as August.
2. Bank of Korea leaves rates unchanged at 1.5% - as expected – despite higher GDP expectations and North Korea noises.
3. China Manufacturing PMI rose to 51.7 from 51.4 – better than expected and back to June levels but the Service PMI fell to 53.4 from 54.5 – worse than 54.6 expected. Leaves some issues for officials in rebalancing the economy.
4. Australian 2Q Capex up 0.8% q/q – plans are higher than expected – led by Services – lifted the A$ and rates.
5. German jobs were in line but retail spending slips.
6. Eurozone flash HICP for August is up more than expected but the core is steady at 1.2% and still well below 2% ECB target. All that news isn’t really moving markets – it's more about the stalemate in Brexit talks, the May visit to Tokyo, the locked-in China Party Congress date of Oct. 18 – which is late in the year for any rebound in capital flows.
France is waiting for the Labor reforms – due to be announced – and in the U.S. the ongoing Hurricane Harvey pain has continued with two refinery explosions reported.
Of course, the fly-over of U.S. bombers and fighter jets in Korea is also keeping nerves raw.
Perhaps the most important story for the day is the euro (EUR/USD) where Reuters reported the obvious pain of a stronger EUR means the QE tapering from the ECB is in doubt.
In the same way today, the U.S. PCE price index is going to return markets to the focus on rate risks for the U.S. and low inflation means even less of a chance for the December hike that some FOMC speakers still point to – all of which makes the USD rebound more about the data and policy choices from the ECB, BOJ, BOE and others rather than anything in the U.S.
The U.S. rates at 2.15% are indicative of a bigger disconnect between U.S. stocks – as some still want to talk about Goldilocks with 3% growth and low inflation helping spur more profits. Until U.S. bonds move, don’t think that the USD rally can sustain.