Thursday, July 18, 2013
Seasonal trading in London. A few days of hot weather and the media are trotting out spurious statistics on the number of deaths caused by the heat and looming water shortages. The authorities, to be seen to be "doing something" and avoid corporate culpability, are issuing warnings that boil down to "Heat is hot" and "Don't do anything that sane people wouldn't do anyway" such as "If you can't swim - don't".
With the average number of deaths per day in the UK at about 2,000 (so 28,000 over the past 2 weeks) TMM think the additional 700 being panickly reported as caused by heat is pretty insignificant. But the "Something must be done" media mentality has taken grip. TMM are looking forward to Government edicts that statistical blips (and the sun) are morally wrong and that those with fridges should do their "fair share" by leaving their fridge doors open (forgetting the 1st law of thermodynamics). TMM however say "Enjoy it while it lasts, you'll be moaning about rain within the month".
So why mention this apart from TMM's running ire with UK press and politicians? Well, there is another reason why these stories are on the front page - There isn't any worse news to replace it. The UK is doing OK. Retail sales this morning confirm the recovering trend in data that has been in place since May and things really are looking up despite the BBC's continued attempts to blame government cuts, this time benefit caps, for our "disastrous" living conditions. They really are the Zero Hedge of UK economics.
Moving on, yesterday's headline event saw The Beard manage to hold a central line and, despite our hopes of a market seeing him as more hawkish than they thought, it appears they have finally got the message. Policy will be responsive to economic conditions. Yes folks it's called nuance and as we learned during the European problems of 2012, the markets aren't very good at nuance preferring the black and white of either boom or bust.
So if BB was, as many reported, dovish relative to market expectations we wonder why the performance of equities has been particularly lacklustre and any softening in USD vs EM we might have expected hasn't happened. In fact the reverse in INR with USDINR pressing on and Indonesia appearing to have chucked in the towel. US10y has dipped 7 bp to just below our mental anchor point of 2.50% but all in all not a ballistic response to a "dovish" Humphrey Hawkins statement.
The Carneyage resulting from the 9-0 BoE vote was kneejerk as further examination of the minutes showed that things weren't all one way and that further QE could be useful (Para 28). But the BoE is generally adopting the new Monetary Policy fashion of forward guidance over action. Watching these central bankers get to grips with forward guidance is like watching a 4 year old's first attempts at riding a bike without the stabilisers. Exceedingly wobbly and prone to reckless deviation from the desired course, though Ben appears to finally be getting the hang of it.
So, what are TMM doing? We are still holding out for a corrective turn in markets. EM hasn't calmed down post Ben and equities have not ripped higher so despite this "Meh" response, we would suggest that the market set up is vulnerable to a small bit of bad news tipping things lower pretty quickly. A correction is in order. But as for what that cause may be, well, as with the best bits of unexpecteds we don't know, but a friendly bet on some stupid comment from a European is top of the list.
Until we get it, Meh = carry creep