There are two events this week that will shape the investment climate potentially for the rest of the year. The first is the Bank of England meeting. The following day is the US employment report.
The US dollar is mostly firmer, with the dollar-bloc under-performing. Month-end flows appear to be favoring the euro though the Swiss franc is also firmer. While the dollar is within yesterday’s ranges against the euro and yen, it is firmer against sterling for the third consecutive session. Asian stocks and bonds were mostly higher though Chinese shares fell. In Europe, bond yields are slightly higher, and the equity markets are narrowly mixed.
American economic growth rose at a 2.3% annual rate in the second quarter of 2015, far below expectations.
Economists had expected a 2.9% increase, with strength from resurgent consumption leading the growth. While personal consumption expenditures (PCE) did post a 2.9% annualized increase in the second quarter, it was not enough to offset “negative contributions from federal government spending, private inventory investment, and nonresidential fixed investment,” according to the Bureau of Economic Analysis. The BEA also noted that imports rose, again hurting GDP.
After 10 years of negotiations and the official signing in June 2015, the Australia–China free trade agreement (FTA) still is not a done deal. A coalition of Australian trade unions is seeking to ‘stop the China FTA’ at the final hurdle, a vote in federal parliament.
The ASEAN Economic Community (AEC) is set to arrive at the end of 2015. It is a significant step forward and could be a crucial turning point for ASEAN. However, without a strong central authority and mandate, ASEAN integration will remain in a mess and the AEC remain an illusion.
The goal of the AEC is to implement economic integration initiatives by creating a single market across ASEAN nations. This requires a strong central authority that can harmonise and standardise regional regulations, and it must be recognised by all member countries.
The ECB’s Economic Bulletin neatly summarizes some interesting trends in Eurozone trade patterns. There are four main points.
First, through the early 2000s, most of the trade was between EMU countries. Since then, however, trade outside of EMU has increased, and in Q1 of this year, extra-EMU trade accounted for more than 55%.
In a world with an increasing focus on the importance of environmental protection, many nations have acknowledged the need to link economic and economic reform measures. Unfortunately, according to the Organization of Economic Cooperation and Development (OECD), most countries still fail to link these two priorities comprehensively, leading to uneven results that generally favor money over environment.
The US dollar is broadly firmer in the wake of the FOMC statement, but there are some notable exceptions. The market appears reluctant to sell sterling ahead of next week’s MPC meeting, where hawkish dissents are likely. There will also be the immediate release of the minutes, and new macro-forecasts. The Australian dollar is resilient in the face of a drop in building approvals nearly twice what the consensus expected (-8.2% vs -4.4%), and the continued fall in gold, copper, and Chinese stocks (Shanghai -2.2%).
The Federal Reserve provided limited forward guidance in today’s statement. It said that it “anticipates that it will be appropriate to raise the target range for the Fed funds rate when it has seen some further improvement in the labor market…”
This is the key. There will be two more employment reports before the September FOMC meeting. Given that weekly initial jobless claims have fallen to new lows, momentum in the labor market remains intact. The Fed acknowledged that the underutilization of labor has diminished.
If you like to take long walks in Shanghai, this may have been the first summer when you detected something new in the air: the scent of marijuana. It is a sad experience that leaves one apprehensive.
Rising threat
The metropolises of the advanced economies offer abundant warning examples.
Despite billions of dollars spent on the war against drugs annually, drug cartels have distribution networks in over 200 US cities.
