If history teaches us one thing, no-one learns the lessons that history teaches us. anon

The equity and bond market took the release of the latest Federal Reserve minutes on Wednesday evening with a fair degree of indifference. Th tone of the minutes was considered by the Financial Times hawkish, however, there was some disagreement between members as to the timing to start unwinding the Fed’s balance. September seems to remain the time they look for the next rate rise. Despite the more hawkish comments coming from the Central Bankers, interest rates around the globe remain accommodative. This may make the Fed’s job a little easier to raise rates and reduce the risk of volatility that can occur in capital markets when the Federal Reserve looks to adjust interest rates.

We discussed at the start of the week some of the green shoots of improving data from the US economy, Thursday provided another shoot. The Institute for Supply management’s services Purchasing Managers survey index reading rose to 57.4 in June, above May’s reading and above estimates.

According to the Financial Times, the services report would suggest later in the summer payroll growth could come in around 250,000. A number like this could reinforce the Fed’s view that rates should go higher in September. Later on, Friday we get the payroll data for June. Forecasts are for 180,000 jobs to be created.

The woes and otherwise of the oil price have well documented in the press. If one looks at a historic chart of the oil (above courtesy of macro trends) price it would seem historical that any sharp rise in the oil price, from whatever level, has caused some form of economic slowdown. The Federal Reserve is fixated on the level of employment as their measure for inflation and indications of economic growth, however, they may well want to take a cursory glance at this chart.  The Financial Times ran an article this week highlighting the fall in the UK savings rate amongst the British population. The savings rate has been steadily falling since the last recession in 2008, coinciding as interest rates have been cut to near zero. This data would suggest cutting of interest rates has been effective in its aim, encourage people not to save but to spend. Historically we have saved about 9% of our disposable income, currently, we are saving nearer 3%. The question is, now as the savings rate has fallen to such a level will households start to save again closer to historic averages or continue to spend? If the savings rate does rise it would suggest consumer spending could fall further and have a more negative impact on the economy. A low savings rate can be a positive as it may suggest that employees feel confident enough to spend, in this case, it may be more a case of a lack of traditional income from savings.  http://www.macrotrends.net/1369/crude-oil-price-history-chart

The woes and otherwise of the oil price have well documented in the press. If one looks at a historic chart of the oil (above courtesy of macro trends) price it would seem historical that any sharp rise in the oil price, from whatever level, has caused some form of economic slowdown. The Federal Reserve is fixated on the level of employment as their measure for inflation and indications of economic growth, however, they may well want to take a cursory glance at this chart.

The Financial Times ran an article this week highlighting the fall in the UK savings rate amongst the British population. The savings rate has been steadily falling since the last recession in 2008, coinciding as interest rates have been cut to near zero. This data would suggest cutting of interest rates has been effective in its aim, encourage people not to save but to spend. Historically we have saved about 9% of our disposable income, currently, we are saving nearer 3%. The question is, now as the savings rate has fallen to such a level will households start to save again closer to historic averages or continue to spend? If the savings rate does rise it would suggest consumer spending could fall further and have a more negative impact on the economy. A low savings rate can be a positive as it may suggest that employees feel confident enough to spend, in this case, it may be more a case of a lack of traditional income from savings.

http://www.macrotrends.net/1369/crude-oil-price-history-chart

Posted on July 6, 2017 .