Comment of the Day
15th August 2023
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Video commentary for August 15th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: China cuts rates and renminbi tests lows, miners and industrial commodities under pressure, UK wages surprise on the upside downward pressure on the stock market as BoE hikes priced in, Wall Street weakens further as retail sales suggest more scope for rate hikes.
China Halts Youth Jobs Data, Stoking Transparency Concerns
This article from Bloomberg may be of interest. Here is a section:
The move is the latest example of how President Xi Jinping’s government is limiting access to information in order to more closely guard data it deems sensitive and manage the narrative about the weakening economy.
China has over the past year limited access to corporate data, court documents, academic journals and raided expert networks serving businesses, hampering investors’ ability to assess the economy. Officials have also been downplaying economic risks like deflation, with some Chinese-based analysts saying they were instructed by regulators and their companies not to discuss the matter publicly.
Eoin Treacy's view
When everything is going well the opacity of data is ignored. There have been doubts about the accuracy of China’s data for decades, so it is hardly surprising they have given up on printing data which does not gel with the official position. It is being viewed as a negative today because the problems are deep and the response is not what investors have come to expect. Cutting interest rates has only confirmed the depth of the issues facing the Chinese property/infrastructure sectors.
This section continues in the Subscriber's Area.
UK Shock Wage Surge Puts to Rest Talk of BOE Pause
This article from Bloomberg may be of interest. Here is a section:
Whole-economy regular wage growth accelerated to 7.8% in the three months to June, from 7.5% previously. That was well above our estimate for 7.5% and consensus expectations for 7.4%. The surprise, relative to our forecasts, was almost fully accounted for by revisions to the data rather than news about the monthly pace of growth in June.
Whole-economy wage gains including bonuses ticked up faster, to 8.2% in June from 7.2% previously, largely due to one-off payments made to National Health Service workers on that month.
More important for the BOE is regular pay growth in the private sector, which climbed to 8.2% in the three months to June, from 7.9% in May. We expected it to rise to 7.8%, while the BOE was projecting it to come in at 7.6% in its August forecast. One thing to note is that the reading is still affected by April’s near-10% rise in the national minimum wage.
Eoin Treacy's view
UK CPI will be updated tomorrow. The ex-food, alcohol and tobacco measure was still close to the peak level of around 7% at the last update in late June. With wage growth picking up, the Bank of England will be hoping inflationary pressures don’t reaccelerate and contribute to a dreaded wage-price spiral.
This section continues in the Subscriber's Area.
US Retail Sales Top Forecasts, Showcasing Consumer Resilience
This article from Bloomberg may be of interest. Here is a section:
The latest data illustrate how American households — supported by a strong labor market and rising wages — are so far buttressing the economy against recession in the face of high interest rates. Too much strength, however, could force the Federal Reserve to pursue more aggressive policy should inflationary pressures prove sticky.
“This will boost optimism that because of the resilience of the consumer we can achieve that soft landing,” Lindsey Piegza, chief economist at Stifel Financial Corp., said on Bloomberg Television. At the same time, “this simply means the Fed will have to be more aggressive raising rates higher and keeping rates higher for longer,” she said.
Eoin Treacy's view
This is another example of how the excess liquidity in the economy has not yet been burned off. That is going to put further pressure on the Fed to continue to tighten and suggests the soft landing hype needs to find more data points to support the argument.
This section continues in the Subscriber's Area.
Eoin's personal portfolio: two investment positions opened August 1st 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
This section continues in the Subscriber's Area.