International News – 9 September 2016
US employment figures on Friday were a focus and came in with the supposedly ‘perfect’ mix of not too strong and not too weak – not too strong to force the Federal Reserve into a September interest-rate hike, nor too weak to concern us about the economy.
Of more interest to me and I have to say this kinda sums up markets right now, was the fall in US service sector activity during August.
Businesses said service sector momentum had dropped to the lowest level in 6 years and yet the market saw this as good news as it likely forestalled more rate tightening.
This is precisely why reading the market at the moment is so difficult. Equities are traditional growth assets and should recoil at the prospect of lower growth. Instead, with the wave of cheap liquidity washing around the financial system, a slower economic growth figure is supposedly good for equity as it means cash rates won’t rise.
This theory and best-practice has a finite lifespan if you ask me and only demonstrates the way traditional investment logic has been turned on its head (grant me this dramatic over-simplification).
Chinese share-markets continued their gains after the surprisingly decent August manufacturing data the previous week.
Chinese shares are maybe 12% or so off their lows and importantly Chinese FX reserves have stabilized. Certainly in the short-term it seems that once again Chinese authorities have averted immediate disaster. However, the enormity of the debt problem in China remains and leaves me with continued medium-term concerns there.
I guess we’ll see.
In Europe, the European Central Bank chose to sit tight on further monetary action in what was seen as a mild disappointment (expectations perhaps a shade high), but this wasn’t such a big deal for markets.
Before I round up, I should also say that the absolute absence of volatility in global share-markets right now is a point of concern for me.
In the US, the S&P500 has traded a 2% range for effectively the last 2 months. That is incredibly low volatility.
In fact, the volatility measures on the US market are actually coming in at or just shy of record lows indicating a market unworried by the prospect of major moves.
Maybe that’s right, but with a US presidential election, pending rate hikes and an Italian Referendum all due in the coming months, it does seem slightly complacent if you ask me.
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