It might be Monday but it’s still August and, more strictly, we now find ourselves in the dog-days thereof. Given that, to many market operatives, volumes have felt more akin to August ones through many of the previous months, the residual scraps that clients are trading now will barely keep the wolf from the door. Sleepy markets of course don’t augur sleepy economics and the tapes are as busy as ever.
As an observer of activity, I am beginning to feel like Murray Walker, the near-legendary BBC Formula One sports commentator, with his “He’s off….no, he’s on again….oh, no he isn’t; he really is off……my word, he has made it back on again…..” as we see economic releases drip out of the US that might look quite plausible on their own but which are becoming progressively more difficult to bring into context with one another. Just a week ago we were marvelling at the jobs figures but by Friday, doom and gloom had returned with the most dismal set of retail sales figures for July as each individual sub-component very clearly missed economists’ estimates while June revisions were across the board to the upside.
The headline figure for month-on-month retail sales for June was revised to +0.8% from +0.6% while the July forecast of +0.4% was washed away by a reported figure of zero. The “ex-auto” number at -0.3% missed the forecast of +0.2%. So, having gone into the post payrolls weekend in the firm belief that the Fed has all the ammunition to resume the tightening cycle, we went in to this one in the equally firm belief that there is no way they can raise rates any further at this point in time.
This week, however, is pretty busy in terms of stats with the very volatile and therefore pretty useless Empire State manufacturing survey out today followed by housing starts tomorrow, the CPI complex and industrial production for July on Wednesday and the Philly Fed on Thursday. That will keep the economists busy while trading, sales and syndicate are sitting around improving their war-gaming skills. Does anybody really care if most of their clients are sunning themselves on the beach? They should, maybe, but they don’t and they might have point in as much as economics and market dynamics seem to be more removed from each other now than they have been in many a good year.
The sense of impotence is, please forgive, reflected in the theme of this year’s Fed off-site jamboree at Jackson Hole, Wyoming. The Kansas City Fed’s annual summer symposium, which not so many years ago was a central bank watcher’s dream come true has set itself as a subject “Designing Resilient Monetary Policy Frameworks for the Future”. The future? Do me a favour; let’s try to get the present sorted out…. which neatly brings me to Japan where preliminary Q2 GDP figures were released overnight and make worse reading than host Brazil’s standing in the Olympic medal table.
Quarter-on-quarter, economic growth is no better than flat, having been forecast to rise by 0.2% and annualized growth which was forecast to be 0.7% was only 0.2%. Business spending that was slated to increase by 0.2% in fact fell by 0.4%. I picked over the bones this morning and once again struggled to find any positives. Abenomics doesn’t work, won’t work and, although I sometimes feel I was alone in predicting this, never was going to work. It always looked a bit like trying to fight cancer with aspirin.
Sitting, as I do, a little bit away from the computing power and man power which would be needed to conduct this exercise, I’d be interested to know what organic GDP growth in Japan might be and by that I mean what is left if one takes the debt-funded stimulus out of the GDP equation. And while we’re at it, it might be interesting to do the same for the likes of the UK, the US and of course the rest of Europe too. Cranking up the power on the life support system might make the patient look healthier but he isn’t actually getting any better.
Meanwhile oil is creeping higher again and by tonight WTI might have broken back above US$45 per barrel. It will be supported by the dollar weakness of last week which will remain underpinned by Friday’s soft retail sales. Aficionados of the Baker Hughes rig count will also be happy to see that Friday’s weekly metric was at 396, up from the May’s low of 316 and seemingly on a linear trajectory north.
Finally back to the UK where Brexit fears have temporarily been kicked into touch by the somewhat hoped for but still unexpected medal rush in Rio. Bit by bit it is emerging that nobody, and I mean nobody, has the faintest clue how a withdrawal of the UK from the EU is supposed to be practically executed. The muppet-in-chief, Jean-Claude Juncker, who was all gung-ho for “We want you gone and we want you gone now!” has been remarkably quiet, presumably as he contemplates what he will do once he is pushed out of his current job, which can only be a matter of time.
Talk is now of the triggering of Article 50 being postponed by a matter of years rather than months while those in power on both sides of the table try to work out what is to be done and in what order. Glass-half-empty businesses will continue to worry about future terms of trade while glass-half-full ones will blithely assume that whatever changes are brought about will end up being only minor – both sides have too much to lose by being stubborn - and not enacted for a long time so will act as though nothing has happened.
Let’s try to stay focused on things other than whether Usain Bolt can nail the 200m and the 4x100m…