For the first part of 2015 all we could talk and write about was Greece. Now that that has been put on ice, it is now all about China, their “disappointing” growth and recent currency devaluation. Let’s be quite honest here, the world NEEDS a strong China regardless of the contradictions. Commodity countries like S.Africa, Australia, Canada etc have all found their currencies on the back foot as the slowdown in China means less appetite and demand for their products. The lack of rhetoric from the US also raises eyebrows considering the long running debate between the US and China on currency manipulation. True I might not be able to show you evidence of currency manipulation as carried out by the major economies of the world but at least the Chinese are open and do what they need to stimulate growth. In a way I applaud their decision (and I am sure the Emerging markets who rely on China are currently doing the same). The point I am trying to make is countries need to do whatever they have to stimulate growth. Trust me had Greece still had the Drachma it would have devalued by many % points. China has thrown QE at their problem, cut interest rates (and more expected) and now devalued their currency by a mere 3.5% give or take. True this will make their products cheaper but exports are the lifeline of Chinese growth and no doubt this will go some way to giving growth a boost. Obviously stock markets have been battered as a result but I view this as merely a bump in the road. Markets have a way of rebounding once the knock has run its course and I have no doubt this will be the case again.
Then we had the FOMC minutes being released over night. Not quite what the market wanted or expected which saw the Dow and S&P fall, as well as the USD. Basically the FOMC members judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point. The FOMC members have been hoping to see a rise in inflation to give them more of a reason to hike rates. However with falling energy, food, and commodity prices it is hard to find a market where prices are rising consistently (excl. property of course). Having said that I do not feel the lack of inflation will stop the FED from raising rates. As my business partner noted, a 0.50% rise in rates in the US will do very little to harm the growth prospects. The economy is growing as an acceptable pace and my feeling is the rate hikes will do little to scare away investors who have enjoyed the past 7 years where money was “cheap”. So the expected rise in September is still very much on the cards despite nothing being mentioned in the minutes.
All eyes on UK retail sales where analysts expect a rise of 0.40% from last print of -0.20%. With the horrible summer weather one can only wonder if there were enough feet on the ground shopping, given that many families went east to find the sun.
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