You only have to look at the Galliford Try record profits from home building to appreciate that the UK economy continues to thrive, disappointing industrial production numbers yesterday cannot obscure this fact. In any case industrial production can be volatile, you need a few months of negative surprises to identify a change in trend. The bottom line is Galliford Try’s numbers surpass pre- 2008 levels and their construction order book has improved.


On a more sobering note, I’ve noticed stories from esteemed outfits – Bloomberg, Wall Street Journal and the like – openly discussing the possibility of a melt up in equities. Suddenly people are talking about average annual returns of 10.5% on the Dow and the industrial average reaching 44,000. For those who haven’t noticed it, recently achieved the 17,000 level a new record. Why am I cautious? When a consensus builds that markets are going one way… and one way only… the smart investor should be cautious! One of the great investors once said (and forgive me if my quote isn’t verbatim) “be greedy when others are fearful, and fearful when they’re greedy”. I’m not saying it’s that time yet.. markets can persist for a long time before the trend changes, but I always try to keep an eye out for the warning signs. Technical analysis can probably help identify specific levels to keep in mind, but a general feel for sentiment and the underlying macro-picture can alert you to when you need to start looking.


What does this mean for currencies? I would expect the trend of sterling strength and euro relative weakness to persist. I would also expect the more risky (higher yielding currencies) to perform well. But shorter term pullbacks are a part of the game, markets don’t move in straight lines, as we can clearly see from recent equity market pullbacks (the Dow is back below 17,000). I don’t expect weakness to persist for long (and we are coming up to earnings season after all), but these are the lazy summer months, the big boys are out in the Hamptons, or on their yachts so don’t expect too much excitement for the next while. What goes for equities and risk in general goes for currencies as well.