Yesterday’s main data emanated from the US were we saw that both personal income and expenditure were unchanged in July on the previous month. That came just a few days after we heard that the US economy as a whole had slowed in the 2nd Quarter of the year. These two factors show the US is a long way from being out of recession and both have a link to the stubbornly high levels of unemployment and suggest there is an argument for further quantitative easing and financial stimulus in the US economy. The Federal Reserve Chairman appears to be testing the water in this regard. Whilst he has not suggested an increase in the volume of Fed money floating around the markets he has suggested there may be an extended time frame for the existing funds; a factor that is being described as ‘QE light’ in some quarters. However, other regional Fed Chairmen have been suggesting an expansion of the volume of QE funds and that would be more significant.
Oddly though that didn’t cause a sharp unwinding of the more speculative trades we have seen developing over the last few weeks. The US Dollar remains weak though; albeit slightly less weak then it was a day or so ago but it has hit its weakest level against the Japanese Yen in 15 years as the Japanese currency continues to attract inflows from investors seeking safety away from the US and from ‘carry trade’ investors unwinding their more speculative trades.
The US Dollar was weak against the Pound and Euro as well as many other currencies. On the Sterling side of things, the Deputy Governor of the Bank of England said they should not loosen interest rates nor buy bonds (expand quantitative easing) which is seen as positive for the Pound. And Sterling was also buoyed by comments from the Prime Minister. Mr Cameron stated that the current round of spending cuts would be permanent and not just relaxed or unwound when the economy starts to recover. That is a very positive sign for those who are concerned about not only the current deficit but also the future of government debt. The credit ratings agencies will be taking note and we have to suspect his comments were specifically designed to reach their ears.
From the Euro’s perspective, the only story is the level of, maintenance of and reduction of government debt. In spite of all that, the weakness of the US Dollar has flattered the Euro and we are seeing the Euro at the best levels against the USD in many months. Elsewhere though, the Euro is ‘less well bid’ shall we say. Today brings a rash of purchasing managers indices from across the Eurozone and EZ wide retail sales numbers so we may see some volatility in that.
Further afield, the Australian and New Zealand Dollars weakened overnight as Chinese stock markets fell again. Both of the Australasian countries are large scale exporters to China so their currencies are bound to be affected by any slowdown in the Chinese economy. The NZ Dollar was also weakened by the expectation that tomorrow’s data will show another rise in NZ unemployment levels. Negative news about the Australian Dollar was tempered though by a better than expected trade surplus and positive housing data, both released overnight.
And finally, the winner of the “you don’t say” award must go to Lady Gaga who announced that she is still using cocaine. I would guess the only people surprised by that are those who have no idea who Lady Gaga is. Don’t worry; I have a feeling we’ll all be in that camp three or four years from now.