Friday’s data confounds the “old way”
The non-farm payroll data that was released on Friday illustrated perfectly how the market is changing and evolving and in a similar way to how it changed from trade to employment, it is now looking for a new primary piece of data that encapsulates sentiment in one package.
That one driver may prove elusive but if I was forced to choose, I would say that inflation could turn out to be the most significant going forward.
In the U.S., the level of the dollar appears to have less influence over inflation than in other G7 nations. Furthermore, the FOMC doesn’t particularly consider CPI as an indicator primarily since it is backwards looking, it prefers to look at personal consumption which provides a more up to date impression.
Obviously, inflation is far more important on the other side of the Atlantic in both the U.K. where if you believe the MPC, and in the Eurozone (ask the Bundesbank) inflation is already the prime driver of monetary policy, although it is hard to imagine just what would galvanize the ECB into action in the current environment even as the common currency continues to weaken.
Friday’s employment report had the hallmarks of the final throw of the dice. It is reaching the point where the only interest in the headline NFP will come from office sweepstakes that have been taking place for years.
Hard Brexit bad, Soft Brexit good… not any more
Strip away the markets jingoistic and nationalistic fervour that surrounds Brexit and you uncover the simple premise that the current UK Prime Minister Theresa May sees the only way that her party can remain in office is to acquiesce to the demands of the tiny number of Northern Irish MP’s propping up her Government.
She has therefore decided to pretty much abandon the demands of the British people made through the result of the referendum held in June 2016. So, the Irish border remains where it is, and the UK remains in the customs union in one form or another.
This has, and will, continue to cause a massive rift in both her Cabinet and on the back-benches of Parliament. If there was ever a time when a Party thanks the electorate for not voting them in, it is Labour right now as they would probably have been even less able to deliver a workable set of proposals even though many their MP’s represent constituencies that supported the idea of Brexit.
The entire idea that Brexit debates in Parliament should have been divided along Party lines is absurd. The Government has been singularly unable to cobble together a set of proposals for the future relationship since it is considering the alternatives from an entirely “remain” perspective.
Who (or what) is driving this market?
It is logical to think that a market that is more and more being driven by algorithmically programmed robots would be more predictable than a market that reacts to human emotion as it has in the past. This is not really proving to be correct as fundamental influences driven by money managers and hedge funds look for and exploit weaknesses in the system. The new buzzword is disruption. Anything that disrupts the tried and tested methodology, whether that is in global payments or telecoms or simply driving a car is considered the future.
It seems that everything we take for granted is now up for re-examination. This is generally a good thing, particularly in finance where banks are stuck between a moral obligation to fiat currencies and the “traditional” methodology and embracing crypto and blockchain.
However, banks are also giving up their moral duty to be service providers. The rush to favouring technology over hands-on service driven products is likely to attract Government attention as consumers rail against branch closures, on-line banking and other tech-driven, money saving innovations.
Retail traders have long blamed interbank traders for hunting out stops and this will become even more prevalent as banks build their algo’s to be money making rather that liquidity driven. It will become beholden upon traders to either be smarter in their placement of orders or rely upon being able to build the algo that beats the system!