Click here to view this email in your browser (mmmmaven.com/daily-market-update-dmu/)
Sign Up Here (mmmmaven.com/dmu-sign-up/) for Free to the DMU Email me to provide feedback
Contents Click on the links below to get to the stuff you really really want. USA – Stocks touched all-time high before Fed meeting notes brought reality to bear; Bond yields down (#USA) UK – Exporters up on higher dollar; Inflation picking up – could spell trouble for stimulus (#UK) Continental Europe – Exporters up (#Europe) Elsewhere – Stocks drop on Fed notes and general geopolitical concerns (#Elsewhere) WTF – Boring stuff you need to know (#WTF) Links (#Useful) Numbers (#Numbers) Ts & Cs (#Ts+Cs)
————————————————————
USA
The S&P 500 touched a new all-time high yesterday during trading yesterday. The Republicans and Democrats still can’t agree on a stimulus package, relations with China are getting worse, but virus cases have eased and that was enough to start the day’s trading off on a positive.
Then the latest meeting notes from the Federal Reserve (equivalent to the Bank of England) were released, and that provided a jolt of reality. The Fed was less optimistic about economic growth in the second half of 2020 than had been hoped. They get economic data before everyone else does, and they are the ones who decide interest rates and quantitative easing policies, so what they might be thinking is a fun guessing game that everyone can play.
The dollar had been on a downward march in its value relative to other currencies since the pandemic took hold and stimulus measures were implemented. These measures have lowered the value of the dollar: more cash being poured into the system through quantitative easing (electronically printing money) and lower interest rates (offering less return for holding dollars).
But yesterday, the dollar rose while folk digested the Fed notes and the other factors facing them. The negative sentiment from the Fed also pulled stock prices down to leave the S&P 500 0.4% lower on the day. While the demand for and prices of lower-risk rated bonds also rose.
We’ve still got a way to go before a proven vaccine puts an end to the pandemic and we can start to focus on paying off the debt accrued during the lockdown.
Back to Contents (#Contents)
————————————————————
UK
The rising value of the dollar is good news for UK exporters because it effectively makes UK goods cheaper to US customers. Hence the FTSE 100 closed 0.6% higher on the day (which closed trading before the Fed minutes were released).
In domestic news, the rate of inflation began to pick itself up. The target rate of inflation is 2.0%. This provides steady growth in prices without rises going out of control (steady rises are good because otherwise people would wait for prices to fall further before buying anything, and that is self-perpetuating leading to lower spending and growth).
Anyway, the rate rose from a worrying 0.6% in June to a less worrying, but still very low, 1.0% in July. Unfortunately, a good degree of this rise was due to higher oil prices. But, on the bright side, core inflation (the prices that are less volatile and exclude oil, food, alcohol and tobacco) rose from 1.4% to 1.8%.
Inflation is pretty important at the moment because, with all the low interest rates and cash being pumped into the system, inflation could get out of control and rise too quickly. If inflation looks as though it might do this, then the stimulus measures have to be toned down…just when the economy is in dire need of support.
It’s a tricky balancing act that investors need to be aware of: high inflation means lower stimulus which means slower growth which means lower profits which means lower stock prices.
As for yesterday, the export-heavy FTSE 100 added 0.6% while the more domestically focused FTSE 250 nudged down by 0.2%.
Back to Contents (#Contents)
————————————————————
Continental Europe
The Euro Stoxx 50 and German DAX posted modest gains of 0.9% and 0.7%. Most sectors were up as the dollar value rose. Nothing terribly Earth-shattering to add to that really.
Back to Contents (#Contents)
————————————————————
Elsewhere
Stocks are decidedly down this morning across the entire Asia Pacific region. Folk there are digesting the cold reality of the Fed’s outlook and adding into it Trump’s latest anti-China rant (he might be right, but it would be very helpful if he learned some diplomacy). Stock indices from China to Australia were down between 1.5% and 0.8%. The outlier was South Korea where the Kospi slumped by 3.7% this morning where a massive anti-government rally last weekend might have triggered a sharp rise in virus cases.
Back to Contents (#Contents)
————————————————————
WTF (What’s The Fact?)
Boring stuff you need to know
Inflation: too low and people stop buying, too high and money becomes useless Quantitative easing: electronically printing money by the country’s central bank to make money available to people through borrowing Interest rates: Higher rates prevent inflation rising to fast but also slow borrowing and spending and, therefore, economic growth. Second-guessing the central banks: Investors want to anticipate what the central banks (e.g. Bank of England) are going to do with interest rates and stimulus because those actions directly affect the prices of stocks and bonds. If you can correctly anticipate what’s going to happen, you can buy/ sell the right stuff and make a fortune. Everyone else is also doing this. That’s why the central banks are very cagey in what they say – they try to gently lead investors to the actions that would help the general economy by hints and subtle notes. If they were to panic about the outlook, stock prices would collapse all because of confidence (or a lack thereof).
Back to Contents (#Contents)
————————————————————
Links
Investopedia (www.investopedia.com/dictionary/) – Loads of free explanations of financial terms including some helpful videos. Not 100% accurate, but a good starting point Guffipedia (ig.ft.com/sites/guffipedia/) – Lucy Kellaway of the FT has collected some painful examples of corporate people disappearing up their own analogies Guardian (www.theguardian.com) – Free to access website with a couple of decent columnists (e.g. Nils Pratley and Larry Elliott) Times of India (timesofindia.indiatimes.com) – Why use five words when 37 will do? Daily Mail (www.theatlantic.com/magazine/archive/2016/07/the-war-on-stupid-people/485618) – Click it. I dare you.
Back to Contents (#Contents)
———————————————————— IMPORTANT This is my opinion. Yes I read a lot and share what I’ve read with you, but this content remains my opinion. It’s NOT advice. If you take my advice – don’t take my advice. Any decisions you make about investments, your hairstyle or whether or not to eat marzipan are entirely at your own behest. If you are too stupid to recognise the devil’s ear wax when you see it, then you’re on your own.
————————————————————
============================================================ Copyright © 2020 Chris Hurst, All rights reserved.
Want to change how you receive these emails? You can ** update your preferences (funnymoney.us4.list-manage.com/profile?u=09a51282c76deb2dc44653051&id=dcc3fa0043&e=f68b7163ab) or ** unsubscribe from this list (funnymoney.us4.list-manage.com/unsubscribe?u=09a51282c76deb2dc44653051&id=dcc3fa0043&e=f68b7163ab&c=97ac21f8b1) .