Everybody has an opinion on Brexit but ultimately for the debate to make sense there needs to be something to gain on both sides of the argument. In this case is hard to see what the merit of this decision would be: as the exit option started gaining ground before the vote the market started selling the British pound. Regardless of why, my first question was about the UK’s trade balance. According with the latest report, Aug 9th, of the UK’s Office for National Statistics the trade deficit in June was 5.1 billion, up .09 billion from May and with imports reaching an all-time high of 48.9 billion. Not surprising that the first post-Brexit inflation numbers confirmed imports as the main source of raises in prices. Whatever the supporters of the “leave options” hoped to gain looks like it just got more expensive.
The Italian banks are in bad shape and they possibly threat once again the financial stability of the Country. Is that news? Certainly the down move in many of those stocks made things more noticeable to everyone, but as you consider how deeply connected the banking and the public sectors are in Italy this is not surprising. Lots of mounting debt everywhere and still the country has a resiliency that many cannot explain. It’s always on the list of the countries in trouble but somehow always gets to live another day. Several reasons, including being in the Euro which keeps rates lower than they would be otherwise. Another big reason is the unofficial GDP, from unreported but not criminal activities, which is estimated to be significantly higher than what the official figures represent. One way or the other life goes on.
Oil is in a bull market, according with the latest headlines. Since the beginning of August it’s higher by over 20% so the observation has merit. Regardless of how people feel about the near future, it’s reasonable to assume that part of the rally is due to the expectation that OPEC will agree to a production freeze next month in Algiers. Far from a done deal.
Happy times for the US Equities Market that reached new all-time highs on Aug 15th and has been hanging around there since. While the economy seems to be running close to full employment it’s not exactly overheating. The mkt seems to be shrugging off every concern and moves on. Interest rates are not going higher even though everybody agrees that they should at some point. It’s not clear what will happen the day we wake up and we are there.
As mentioned above the OPEC meets in Algeria on September 27-28, that might shed some light on the status of the oil supplies.
The FED meets on Sep 21st and a rate hike cannot be completely ruled out: as many signals point toward low rates but a number of FED officials made more hawkish comments, is it possible that the market is finally in for a surprise? Everyone’s attention will be focusing on Jackson Hole when Janet Yellen speaks on Aug 26th at the annual Economic Policy Symposium sponsored by the Kansas City Federal Reserve.
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