Monday, 31 August 2015

A few macro thoughts today

A UK bank holiday...but the rest of the world rumbles on.  A few macro thoughts today then:

China – another volatile session in China (helping to push European futures down c. 1% at the time of writing) as the Financial Times writes that “China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials”

I think this is actually very sensible: the Chinese should refocus their main efforts on economic reform.  Make that transition from a manufacturing to a services economy successfully...

...and all the other issues will take care of themselves especially given the relative point of extremity we are at currently: 

Meanwhile I liked this story via Bloomberg about option market skews:

'Options traders have never been so pessimistic on China’s stock market, betting the government’s renewed effort to prop up share prices is doomed to fail. The cost of bearish contracts on the China 50 exchange-traded fund has surged to the highest level versus bullish ones since they started trading in Shanghai six months ago. The so-called skew also climbed to a record for a similar ETF in the U.S., even as government buying drove China’s benchmark index to a 10 percent rally in the final two days of last week'.

European stimulus/inflation/low rates - ECB Stimulus Should Help Lift Inflation Toward Target, Constâncio Says. Says inflation near 2% is possible if policies are able to significantly reduce the output gap (link here). Meanwhile the Swiss National Bank head said Swiss interest rates will stay negative "for some time" given many risks -- including China. Well you can see what he means...

European reform -  French PM Valls pledged to ‘revise thoroughly’ the country’s labour laws to give more flexibility to employers and wage earners.  French labour laws are ‘so complex that it has become inefficient…curbed activities’.  Good rhetoric…now time for implementation.
Japan - shabby data today: Japan Industrial Production SA (MoM) Jul, P: -0.6% (exp 0.1% prev 1.1%), Japan Industrial Production (YoY) Jul, P: 0.2% (exp 0.8% prev 2.3%).  Still not convinced about Japan.

(h/t @jsblokland)

Africa – striking FT headline today: ‘Global turbulence knocks Africa off course’.  Feels a bit over-the-top to me...

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