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Contents Click on the links below to get to the stuff you really really want. USA – Fed provides reassurance investors had hoped for; Real estate and banks benefit most on the day; Bond yields up (#USA) UK – Miners pull FTSE 100 down; Bad day for Rolls Royce shareholders (#UK) Continental Europe – Profit taking sent shares down; Positive French confidence results (#Europe) Elsewhere – Abe to resigned as Japanese prime minister (#Elsewhere) WTF – Profit taking (#WTF) Links (#Useful) Numbers (#Numbers) Ts & Cs (#Ts+Cs)
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USA
Jerome Powell, Chairman of the Federal Reserve (US equivalent of the Bank of England) provided the noise from Jackson Hole that investors had been waiting for. The Fed will continue to provide financial support in the form of low interest rates and quantitative easing (electronically “printing” new money).
The key to this is his comment that inflation would aim for inflation that averages 2% over time. This is one of those Delphic phrases that needs to be picked apart: – The inflation target in the US is 2% and the Fed’s job is to adjust monetary policy (interest rates and quantitative easing) to bring inflation close to that number – Providing stimulus to the economy tends to push inflation higher – Powell has indicated that he’s OK with inflation going above target so long as it comes down over time – In other words, to hell with the inflation target for now, we need to support economic recovery.
Financial and real estate companies benefited the most yesterday as the sustained low interest rates are likely to be most helpful to them.
The news nudged the S&P 500 up by 0.2% largely because it gave what had been hoped for and didn’t disappoint. Bond yields also rose as optimism was supported, giving folk a reason to move from low-risk rated investments (such as government bonds) and into higher-risk rates ones such as shares.
Other news that jobs data slightly improved, house sales rose and the US economy had suffered its largely three-month fall in history didn’t make much difference as they’d all been largely expected.
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UK
Basic materials (miners) were a drag on the FTSE 100 yesterday, which closed 0.8% lower. It was a bit of a non-day as far as major influences were concerned. No one seemed to react much to Powell’s statements, indicating that they didn’t surprise.
Rolls Royce (the aircraft engine folk, not the car manufacturer) shares dropped after announcing the action it would be taking to shore up a woeful first half of the year. That included scrapping its dividend, which never goes down well with shareholders funnily enough.
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Continental Europe
The Euro Stoxx 50 and German DAX both closed around 0.7% lower on the day with losses across most industrial sectors. There seemed to be a fair amount of profit-taking (see WTF) in advance of any announcements from Jackson Hole.
There was some positive news from France: the latest manufacturing sector confidence survey results came in far higher than had been expected. Confidence plays a huge part in the prices of stocks and bonds, so higher confidence can have a material effect on these assets and, indeed, economic growth itself. But it’s the French, so it might not count.
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Elsewhere
Certainly the most surprising, if not the biggest, news came from Japan. Prime Minister Shinzo Abe is to resign. Rumours abound as to why, with health being the favourite. Either way, it’s sent Japanese investors into a bit of a spin with the prices of stocks and bonds tumbling. The Nikkei 400 recovered some ground in late trading but still finished 0.6% lower on the day.
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WTF (What’s The Fact?)
Taking profits
This is what shareholders do when stocks are high – they sell the stocks to lock in gains.
It’s also what Robert Maxwell did with, well, everything: pension funds, company expenses, you name it, he took it.
You think he’s bad? Check out Robert Rubin’s involvement in the build up to the 2008 financial crisis.
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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.
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———————————————————— 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.
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