Happy Monday there Invest Diva-ers (yes, this is a real word.)
I’ve got two main topics for you this morning: Geopolitics and fundamental economic news.
Let’s start with looking back at Friday’s trading which was a little strange. European markets played the risk aversion game through what was a quiet day for economic data. Investors continued to trim stock positions in line with the general theme of the week, which sounded sensible, particularly when the news wires announced that the US had begun air strikes on IS targets in Iraq. The curious thing was the reaction from US stock markets, which actually rallied quite heavily. The move was driven by a couple of factors; stocks that are 5% cheaper than they were at the start of the week look like a good deal. Also, news from Interfax that Russia have p stopped military exercises on the Ukraine border will have helped the rally. The question now is whether the buyback is sustainable.
In other geo-political news, Gaza and Israel have agreed to a 72 hour ceasefire. We’ll have to see how long it lasts, but if it does stay the course it will be a positive sign.
Over in Iraq, air strikes on IS targets by the US have allowed airdrops of aid from the UK and US to reach some refugees. President Obama has cautioned that tackling the insurgency is going to take time, saying “I don’t think we’re going to solve this problem in weeks”.
Bank of England’s quarterly inflation report is likely to highlight just how slow the pace of wage rises is in the UK and underscore that 2014 will be another year where inflation outstrips wage growth. We’ll be interested to see what the bank forecasts inflation to be over the coming months, as we saw June inflation running much closer to their 2% target, at 1.9%. There may well come a point where Mark Carney has to abandon the push for wage growth and raise rates to curb inflation. Do you think they’re there yet?
There are fears Germany won’t have grown at all over the last three months and this is when we see if those fears are valid. Thursday’s data reading has real potential to further deteriorate the value of the Euro, as justifying European investment when even their strongest asset is creaking becomes a very tough judgement call.
Aussie & Kiwi Dismal Jobs Reports
The Land Down Under and its oceanic buddy had worse than expected employment data, though Australia seems to be winning the battle of bad employment.
Employment in Australia fell by 0.3K in July instead of showing the estimated 13.5K rise. This was also much weaker than the previous month’s 14.3K increase in hiring.To top it off, their jobless rate climbed from 6.0% to 6.4% in the same month, reaching its 12-year high. The good news though is that part of this increase resulted from an improvement in the participation rate, which went up from 64.7% to 64.8%.
Today we have a fairly light calendar but tomorrow we could see some volatility for short-term traders with the National Australian Bank business confidence and German ZEW economic sentiment.