A Canadian will face a sticky wicket

Monday’s UK service sector Purchasing Managers Survey Index reading of 52.9 was well ahead of a forecast 49.4 and a previous month reading of 47.4. Another indication that Mr Carney and his band of men may have acted in haste. Representatives from the rate setting committee will meet a Treasury Select Committee later on Wednesday and will probably face some questioning on this very point. What the market reaction will be to any confession from the Bank that they did act in haste, and may look to reverse the decision in the coming months is hard to judge.

When bodies such as the IMF were encouraging governments to move from yet more monetary stimulus, and look to fiscal stimulus. Why the Bank of England felt they had act in the way they did before the Chancellor delivered his Autumn statement? Is another question the select committee might like to ask.

Post Janet Yellen’s Jackson Hole symposium speech the investment community had got into its head that a rate rise was quite possibly, almost maybe certainly on the cards in September, perhaps. The phrase data dependent keeps cropping up, well the latest set of Institute for Supply Managements Purchasing manager index readings will not make that decision any easier.

We talked about how employment remains robust, consumer remains relatively optimistic, however a lot of the underlying economic picture remains mixed. Augusts ISM Purchasing Managers survey came in at 51.4, indicating a continuing expansion in the service sector, but this was well below July’s reading of 55 and analysts’ expectations. Non-Manufacturing new orders came in at 51.4 against a July reading of 60.3. The IBD economic optimism index reading fell from 48.4 to 46.7.  On the back of this latest data 2-year treasury yields, which are the most sensitive to changes in interest rate sentiment, which hit a high of 0.83% in the past week, have drifted lower suggesting the market is now placing less likelihood on the Federal Reserve moving.

In the past month, even though equity markets have remained benign, there had been a rotation in the performing sectors. Likewise, there has been an apparent change in the leadership of global indexes as the European equity markets have started to outperform US ones in the past month.  The Stoxx fifty index is up 3.8% in the past month the S&P 500 has traded sideways. According to one technical analyst European equities are breaking a bear trend held for the past 2 years.

Equity markets have trodden water for the summer months, this will not last for ever. Watching CNBC in the morning, it is striking how bearish the guests of equities. We keep saying it but equities don’t historically fall when everyone is waiting for it and apparently positioned for it, but in this uncertain world who knows. 

Posted on September 6, 2016 .