The news published in the Financial Times this morning that London office construction has reached a 7 year high and risen by a fifth over the last 6 months, makes me look back at the recent MPC and wonder yet again if my speculation in its immediate aftermath was correct. At the time I wondered if there was a deeper reason for the dovish report than simply concerns that inflation and demand would remain subdued over the next year. Could it, as I suggested, be to do with the UK’s terrible investment deficit? Higher gilt yields would likely make the deficit worse. It certainly feels like something’s not strictly on the up and up, as London apparently is booming, with real estate experts talking about short term shortages of supply!
Surfing for macro news over the last 24 hours the 4 items which captured my attention were:
- Chinese inflation coming in lower than expected year on year to October, and in fact a slower number than the previous data point. This just after news that the economy had grown by an amount (6.9%) lower than the year-end target, and also the continuing shrinking of imports last month, -18.8% if you weren’t aware. All this paints a picture that we are becoming very familiar with. How large a shock a Chinese slowdown will be to the global economy is yet to be determined, but it looks increasingly certain that we’re going to find out.
- FOMC dove Rosengren sounds upbeat note on a US interest rate rise. If this came from a more hawkish member of the committee it wouldn’t be as newsworthy, but there it is. Rosengren is rightly optimistic about the strength of the domestic economy and doesn’t think the market turbulence a few months ago was significant enough to damage prospects for the US economy. As far as he’s concerned it would be perfectly justifiable for gradual rate rises to occur with a continuing improvement in the US economy. Perhaps the divisions amongst FOMC members were less than some have opined.
- Saudi Arabia is likely to tap the international bond markets for the first time. It looks like lower oil prices have been very damaging for Saudi public finances and debt levels could increase by 50% of GDP over the next 5 years. It’s remarkable given all this, or perhaps it’s because of this, that the Middle Eastern kingdom will not be cutting back on crude production anytime soon. And that’s without even considering more Iranian oil which will be coming on stream sooner or later, or indeed the expected constraint in demand growth due to the push for more sustainable forms of energy over the next 5 years. It seems like cheap oil is here to stay for a considerable period of time.
- It looks like Nigerian sovereign debt is dropping out of another bond index. This time it’s the Barclays Emerging Markets Local Currency Government index, last time it was JP Morgan’s. Barclays said that “the investment conditions in Nigeria have become more challenging for foreign investors in the past 18 months.” It will however remain in Barclays’ broader index, but this can’t be dressed up as good news. The Nigerian central bank has made life difficult for international investors with some of its unorthodox policy contributions this year. As I’ve said many times before it’s up to the new government to create policy that will give domestic and international investors alike confidence that a credible plan is in place. This would give the CBN space to conducting more conventional monetary policy one would hope.
It looks like currency markets in general are taking a breather after the huff and puff from last week. But the greenback has taken great strides over the last few days and a pause is entirely understandable. The levels that have been breached suggest we should see further big gains around the corner.
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