Another day that saw equity prices grind higher once again caused pain to those who reacted in haste a week or so ago. Nomura fund flow analysis suggested that the recent correction saw US investor sentiment dip to levels last seen in October 2011. The year so far appears to have some symmetry as equity markets slowly rise, punctuated by a brief sell off as a few head for the exit door, equities then quickly resume the upward trend leaving a few to nurse their wounds. There remains a healthy scepticism that the rally can't last, and while that continues to dominate, one should feel reassured.
Tuesday saw releases of inflation data in both the UK and the US ahead of the release of the minutes from both rate-setting bodies. The reports from both sides of the Atlantic continue to show inflation pressures remain subdued. In the case of the UK the year on year number for July fell back to 1.6% from 1.9% in June. The Bank of England's monetary policy committee minutes will reveal if any of the nine members voted for a rate hike. Expectations are for continued unity amongst the committee, but one can never rule out the rogue element, despite the lack of inflationary pressures. The Federal Reserve minutes will grab some headlines but what will attract more attention later in the week is the annual meeting of central bankers in Jackson Hole Wyoming.
One trend that does appear to have broken is the trading range of the US dollar as it also continues to trend higher. What appears to be suffering so far is the commodity market as oil, copper and, to a lesser degree, gold drift lower. The euro has now fallen to $1.33. The oil price weakness has probably taken most investors by surprise as that is the commodity most likely to react to geopolitical risks. Dollar weakness has generally been associated with strengthening equity prices as the market believes the weak dollar will aid US competitiveness. Some analysts blame the Federal Reserve's apparent policy to deliberately weaken the dollar as the root of problems in other parts of the globe. Just as the strength of sterling was blamed for some of the FTSE 100's lacklustre performance in the last year, time will tell if the continued dollar strength will start to have the same impact on US equities. So far the rise has been fairly minimal, but it has broken through a range that has lasted nearly a year.