Yesterday saw the first of the UK Leadership debates, albeit a different format, with only the leaders of the two main parties, Labour and Conservative, interviewed by a news presenter and then facing questions from the audience. The polls suggest that David Cameron edged it, which means a doubly good day for him given the strong retail sales numbers published in the morning. Clearly we are seeing the benefits of lower oil prices.
Today we should see more retail sales data from other European countries as well as GDP data from the United States. Nothing earth-shaking, but enough data points to enable us to increase our understanding of where things are heading. Despite the gloomy implications of the Goldman Sachs Global Leading Indicator from weeks back, for now the Western world at least looks to be showing more constructive signs of recovery. But it would be foolhardy to ignore the GS forecasts, which suggest a topping of employment growth in the United States and a concern that the risks are now pointing towards slower growth. I was quite intrigued by the GS view that US bonds are expensive, implying that they are looking for higher bond yields from here. That could be key for Emerging market assets, so it’s worth watching.
The dollar has strengthened since yesterday afternoon with what looks like an across the board move. Despite this my view that we are in for a trendless market for some time to come remains. This is the type of market where traders lose money as they try to jump back into the preceding trend anticipating that the correction is over, it is by no means unusual for this to be done too early, and I fear that is the case right now. What I am trying to say is that until there is much lower conviction about continuing dollar strength I don’t expect the trend to start again. I really am not sure we’re there yet, but surely we would need to make a substantial new low before we can be certain. What trader will wait for a few percentages of a move for confirmation before jumping in? Not many.. hence the pain I think is yet to come.
I would just add, a point I raised in yesterday’s blog, that if the dollar does weaken over the next few months, the probability of a Federal Reserve interest hike will rise. Something to consider..
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