Strange fruit hanging
A quiet European session gave way to even quieter US and Asian sessions through the night and we walk into the office with things very much where they were. Markets nerves remain high given the slew of political risk that we will have to trade through in the coming weeks and months and there are some dislocations in some asset markets that show just how strange things have got.
Bond markets continue to show investors willing to pile into debt with negative interest rates, equities are sharply higher on the promise of Brexit-induced stimulus from the Bank of England and additional spending in Japan and China. Indeed, currencies may be a safe haven of relative sanity at the moment.
ARM bought by Softbank
We had expected GBP to rally harder yesterday, particularly against the JPY given Softbank’s £24bn bid for ARM, the UK’s largest and most innovative chip manufacturers. That is £24bn of cash that will have to wash through these markets at some point so we’ll be looking at spikes in GBP/JPY to determine when the payments are being made.
I am not ready to say that this is a good thing for the UK yet in so much that selling off companies that have global acclaim in their industry, made cheaper by moves in currency, is hardly a gesture of overt confidence and strength. While not in the same league as ARM Holdings (LON:ARM) PLC (NASDAQ:ARMH), the acquisition of UCI and Odeon cinemas by AMC Entertainment Holdings Inc (NYSE:AMC) last week as well as the purchase of Poundland Group PLC (LON:PLND) by a South African retailer will not be the last – Britain is open for business apparently.
UK CPI rather inconsequential at the moment
Today’s UK CPI number is unlikely to have too much of an impact on sterling with June CPI expected to rally to 0.4% on the year. Higher inflation is set to come down the track later in the year as producers and retailers respond to a falling pound and pressures on margins but we have to believe that the Bank of England will look through any spikes in inflation and costs in a bid to be growth and credit supportive.
UK CPI is due at 9.30am.
Kiwi housing in focus
The main mover overnight has been the NZD as the central bank proposed more rules to deal with a housing market that is close to out of control. Since 2009, the average New Zealand house price is up 52% with properties in Auckland around 85% more expensive. That is more than has been in London.
Plans by the RBNZ include limiting banks to lending only a small amount of their total mortgage book to borrowers who have less than a 40% deposit. Whether this will do much to effect house prices is up for debate. If the buyers bidding these prices up are foreign investors with their own mortgage arrangements at home then prices are still going to run higher.
NZD is down around a per cent on the day on the belief that these moves from the RBNZ will be softened by additional policy easing at the Bank’s meeting next month. Swaps markets have it as a 77% chance of a rate cut on August 11th.