As the month of August comes to an end, in contrast to last August and a few other Augusts in years past, this one allowed investment bankers to enjoy the holiday period with their families, and may have been able to leave the iPhone in the beach bag. Indeed, some bankers may have been looking for some excuses to ring the office, and struggled to find it. With one day of the month to go equity markets in Europe, UK and the US look like ending the month close to or possibly slightly higher than where they started them.
The big event of the week so far is the news that the EU commission is trying to claw back $14.5bn of back taxes from Apple. Should this succeed the impact on Apple will be negligible, as the sum accounts for less than ten percent of Apple’s cash balance. The impact on America’s view of Europe and our decision to Brexit may turn out to be slightly more significant. Not only is Apple appealing against this ruling but so is the Irish Government. If the EU commission wanted to hand America and the UK an excuse to start trade negotiations, and to give the remain camp a reason to say “I told you so” this is a pretty good one.
Bond markets remained in focus after some mixed economic data in Europe and the UK. Weak German inflation data meant that German ten-year bund yields fell to a negative 0.095 basis point. If one does not record these facts at the time, they may be hard to believe in the coming years. UK gilts also strengthened post some weaker than expected housing data, however in contrast to a few weeks ago when the Bank of England failed to purchase the full allocation of bonds it tendered for. On Tuesday the auction was tendered for twice over.
The odds on a move in September by the Federal Reserve, at about a 1 in 3 chance of a rise, are roughly where they were before Janet Yellen’s speech at Jackson Hole. The question will now be if the FOMC do not move in September is that good news as rates stay lower for longer or bad news as it may indicate economic growth assumptions may not be quite as strong as investors believe? Or on the other hand a rate rise could be seen as good news as it means economic growth is encouraging, but a rate rise could spook the bond market, and that’s bad. It’s all so confusing. So is good news bad news, bad news good news, good news good news or bad news, you get it bad news.