Remember the Trump bump?

One sign of the strength of an economy is the demand for labour. Industry data published on Tuesday would suggest demand for labour within the UK economy is at least resilient. The latest “Report on Jobs” suggested an increase in demand for recruitment services with in the UK. The permanent placement index rose to 58.4 (from 55.9) and temporary billings rose to 61.3 (from 58.8), the highest levels in 2.5 years. Vacancies remain high and candidate availability low, hence employers are leaning on recruiters to fill roles. Worker shortages most acute in London and the South East. Not sure how much attention the Bank of England will pay to this anecdotal data, but perhaps this survey suggests that the “Brexit effect” may be waning.

The US dollar has taken a hit from the start of the year, some believe this is a result of Trump failing to deliver on his promises. That is possibly not entirely fair as the US economy has been weaker than analysts’ forecasts at the start of the year, and this too will have impacted dollar sentiment. The new president’s ratings have not been good, at times as poor as any US president in history. Could his fortunes be changing and with it, that of the US dollar. Last week the president secured agreement amongst from the United Nations further sanctions against North Korea. The Republican party are said to be working hard on cuts and reforms to the tax structure to be announced later in the year. The healthcare bill may have been as much a distraction as an obsession, now its dead in the water perhaps Mr Trump can turn his attentions to other matters. At this moment, the US dollar basket is down about 8pct year to date.

As the Dow breaks ninth straight day of gains, last week we pointed to the possible correlation between equity prices historically and car sales, and how they had recently diverged. We also pointed the recent divergence between the performance of the Dow Jones Transport Index, and the Dow Jones Index itself. The Financial Times on Monday may have found a third one. Companies buying back shares has been a feature of the rising indexes over the past few years, as directors have taken advantage of either a lack of alternatives for their cash or to reduce the share count at very low interest rates. If a corporate is paying a 3pct dividend yield and can borrow money substantially below, it makes sense to swap equity for debt. However, looking at a chart in yesterdays Financial Times, the level of share buy backs appears to be on the wane. As one can see there has been a correlation between markets and buy backs, that too has been diverging.

Posted on August 8, 2017 .