Next week look for Jay to extol
His record, when in Jackson Hole,
He offers the view
Is mostly beyond his control
Now keep that in mind when you hear
That China has also made clear
Division of wealth
Is better for health
Thus, taxes will soon be severe
In a market with muted price action across all asset classes overnight, two stories this morning seem to encapsulate the current zeitgeist. First is the fact that, in what can only be described as extraordinarily ironic, when Chairman Powell regales us next week regarding the evils of inequality and all the things the Fed is heroically doing to right those wrongs, he will be doing so from the seat of the richest county in the United States. That’s right, Teton County has the nation’s highest per capita income from wealth. Apparently, irony is second only to hypocrisy when considering political commentary. And make no mistake, the Fed is completely political.
The other story of note, and one that follows directly from the recent Chinese attacks on their own successful tech companies, is that China has now made clear that wealth in the country needs to be more evenly divided. Given the fact that China is ostensibly a communist country, or at the very least clearly run by a communist party, it also seems a bit ironic that there is so much concern over wealth inequality. One would have thought the Gini coefficient would have been far lower there. But I guess, equality is the new freedom, a valuable political slogan if not an actual goal. The reason this matters, however, is that it implies the recent Chinese efforts to rein in certain highly successful companies, and especially their high profile bosses, has no end in sight. From an investment point of view, it appears the Chinese equity markets are going to have any gains severely impeded. Look, too, for new taxes on estates and wealth there, all of which will have a decided impact on international investing.
Remarkably, beyond those stories, it is difficult to come up with anything that is truly meaningful regarding markets today. The RBNZ did wind up leaving interest rates on hold, backing away from the expected 0.25% increase, as the fact that the nation has reverted to a complete and total lockdown due to the single case of Covid that was detected last week, has given them pause on their views of future growth. NZD (-0.4%) is the worst G10 currency performer today on the back of that policy activity (or lack thereof), but given the tiny size of the nation, it has not had any other significant impact.
Inflation data was released in both Europe (2.2%, 0.7% core) as expected and the UK (CPI 2.0%, 1.9% core) with both of those readings 0.2% lower than forecast. So, while inflation is seemingly running quite hot in the US, it appears to have potentially plateaued across the pond. While we can be certain that the ECB is not going to change its current policy stance anytime soon, there has been a great deal more discussion regarding the BOE. Hawkish vibes were emanating from Threadneedle Street recently, but if inflation is not going to rise further, then those views may soon be called into question. However, there is a case to be made that this is a temporary lull in the CPI data and that looking ahead, readings will push up toward 4.0%, at least, as previously announced price increases start to be felt throughout the economy. Thus far, the FX impact from this data has been essentially nil, but equity markets in Europe and the UK are all under modest pressure this morning (DAX -0.1%, CAC -0.35%, FTSE 100 -0.35%).
As to markets elsewhere, Asia saw some rebounding from its recent travails, with the Nikkei (+0.6%), Hang Seng (+0.5%) and Shanghai (+1.1%) all having their first positive day in five sessions. We also saw a reversal in some currency activity there as KRW (+0.7%) was the best performer after comments from the central bank describing the recent weakness as an overshoot and that the Finance Ministry is monitoring things closely.
A look at bonds shows that Treasury yields have backed up 1.2bps this morning after having fallen by about 10bps in the prior three sessions. European sovereigns, though, continue to find support as the ECB continues to hoover up virtually all the paper issued. As such, Bunds, OATs and Gilts have all seen yields slip about 1 basis point.
Finally, the dollar can only be described as mixed this morning, with movement in the G10, aside from kiwi’s decline, pretty minimal, <0.2%, although with an equal number slightly lower and higher. EMG currencies show the same pattern, with most movement quite limited and only one notable laggard (TRY -0.7%) which also seems to be a trading response to its recent strong rally (+3.3% in the past 5 sessions). In other words, there is very little to discuss at all today.
On the data front, after yesterday’s disappointing Retail Sales number (-1.1%, exp -0.3%), this morning brings Housing Starts (exp 1600K) and Building Permits (1610K) and then this afternoon, we get the potentially most interesting news, the FOMC Minutes.
On the Fedspeak front, thus far, the only three FOMC members who have not advocated for tapering are Powell, Williams and Brainerd, as even Kashkari, yesterday, said he could see the case for tapering by early next year. But Powell gave no indication he is ready to go down that road, so barring an insurrection at the Fed, one has to believe any tighter policy is still some ways away. Today, we hear from Bullard, but he has already made his tapering bona fides known.
And that is really all there is today. It truly has all the hallmarks of a summer doldrums day, with limited price action and limited news, unless something shocking comes from the Minutes. My money is on nothing, and a range trading day ahead of us.
Good luck and stay safe