The main event at Jackson Hole starts later Friday as we get speeches from both Janet Yellen and Mario Draghi. Ahead of it equity markets around the globe have stabilised but like most every asset class remain trapped in close knit trading ranges. The FTSE 100 managed to climb back over 7400 on Thursday posted after the release of the second estimate of second quarter GDP. There was no revision to the second quarter estimate, however, there was further evidence of weaker household spending which remained almost flat quarter on quarter having risen by 0.4% in the first quarter. The weakness in consumer spending was compensated for by an increase in government spending. Sterling dipped against the US dollar marginally and gilt yields likewise fell slightly, creeping ever closer to trading back below 1%.
There was not much in the way of good news from the US economy on Thursday either as existing home sales fell in the month of July. This followed on from a downwardly revised 2% drop in existing homes sales in June.
In contrast, the indications are that the eurozone economy continues to rattle along at a steady pace. August Flash Purchasing Managers Surveys came in above expectations for the region. The Spanish economy grew by 0.9% quarter on quarter.
As UK retailers reported their worst month on growth since the weeks following the Brexit vote (FT) and after the reaction to Provident Financial woes on Wednesday. Shareholders in Dixons Carphone saw a third of the market value wiped off as the retailer warned of a slowdown in the mobile phone market. In what could be another indication of weakness in consumer demand, apparently, we are now content to hang onto our mobile phones for longer!
One story that we have mentioned that now seems to be developing into making a few headlines is the extension of the US debt ceiling, to allow the US government to pay its bills and avoid a shut down at the end of September. The possibility that the US government could default led to several rating agency downgrades in August 2011. The impact of this was to send equity markets into a spin at the time. On Wednesday Fitch Ratings once again warned that a failure to agree to raise the debt ceiling could once again place America’s AAA rating at risk.
This may be a big test in the coming weeks for the Trump stock price, as the president continues to battle with the Senate leader Mitch McConnell. The president blames Mr McConnell for the failure to repeal the health care bill. According to the New York Times, Mr McConnell also failed to protect the president from investigations of Russian Interference in the 2016 election. Now Mr McConnell is at fault for not adding the debt ceiling legislation to the V.A. Bill that passed.
Presently the view is that there may be some brinkmanship but ultimately no party, no matter what their views on Trump may be, will want to be seen to throw the US economy into greater uncertainty. However, some point out time for horse trading is short.