Markets Quiet During Summer Doldrums

Encouraging signs from the US jobs market have once again raised hopes within markets that the Federal Reserve will withdraw a portion of its stimulatory asset purchase plan at its September policy meeting.

Initial jobless claims, the number of people newly applying for unemployment insurance in the US, fell to the lowest weekly level since the end of 2007. The fact that it was the lowest since pre-crisis is big news and continues the narrative that we are seeing a normalisation of things in the US labour market. Yesterday’s release came only a couple of hours after a report revealed that initial jobless claims has a better predictive quality to the US economy than the monthly payrolls announcement.

Inflation data from the US was also stable whilst a survey of the housing market from the National Association of Home Builders showed an increase in sentiment to the highest level since September 2005.

US bonds sold off heavily alongside global shares, with US 10yr yields accelerating past the 2.75% mark for the first time since July 2011. Movements in gold markets set off a weakening of the USD as people piled into a haven amongst the sell-off.

UK data’s recent fine work continued yesterday with retailers seeing the strongest sales growth on a monthly basis since January 2011. Retail sales rose by 1.1% in July compared to an expected 0.6% rise. The typical sunshine boost towards supermarkets will have helped sales of drinks and food and other hot weather fare; a separate index for ice cream is probably hitting record highs.

Consumer confidence continues to remain high, and alongside yesterday’s increase in wage settlements, may very well continue. Q3 has started strongly, and growth differentials between the Eurozone and the UK will only increase despite the former moving out of recession in Q2.

Eurozone news is thin on the ground at the moment and likely will remain so, data apart, until the end of the month. The fact that Eurozone politicians are on holiday at the moment certainly helps things; there’s limited damage you can do from a sun lounger. We do have Eurozone CPI at 10.00 BST which is expected to pull in at 1.6%, the same level as last month.

If today’s Michigan Consumer Confidence numbers are strong – as they are expected to be – then the pain for dollar bulls should increase. The improvement does seem optimistic to us in so far that data released around the sample period was not particularly strong – including those pesky payrolls numbers.