July 22, 2013
Whilst traders may find themselves bemoaning the lethargy of summer markets this coming week, there can be no overstating the potential significance of each and every piece of economic information to our hopes for the Great Gambits of 2013.
The market foresees another helping of fairly upbeat US economic data - the likes of which appear to have set the USD on a northerly course for the remainder of the year and beyond. The journey is likely to be circuitous certainly with Ben Bernanke obliged to feather the brakes on any overly aggressive switch out of bonds lest this robs the economy of valuable momentum; but if only for the relative deficiency of choice out there the USD appears to constitute a good bet. The Japanese data schedule is more sparsely populated, but the July CPI release looms large at the end of the week and a positive reading will be seen as another tick in the box for Abenomics. Of course, therein lies potential irony: modifying expectations and behaviour so as to stimulate growth is one thing, but actually delivering higher prices might ultimately deal the experiment a fatal blow. There may be a dawning realisation that Abenomics is a double-edged sword: a Reuters survey shows that more than 80% of households expect higher prices a year from now, the highest ratio in nearly five years, but at the same time Abe's policies have yet to put one extra yen in the workers' pocket (total cash remuneration showed no annual growth in May for the second consecutive month). That confidence is growing there is no doubt, but the ultimate acid test of Abenomics' success will be householders' appetite for consumption, and as things stand, the program still has a lot of work to do.
In the Euro-area, the Portuguese government swatted away a motion of no-confidence and with some ease in fact, but a cross-party agreement (on an 'austerity roadmap') must still be in place or there exists the very real threat of President Silva calling snap elections, and Prime Minister Pedro Coelho falling from power. The problem, however, is that the opposition Socialists have simply had it with austerity. Socialist leader Antonio Jose Seguro told parliament "We have to abandon austerity politics. We have to renegotiate the terms of our adjustment program ... The prime minister has to recognize publicly that his austerity policies have failed." One gauge of how the country's creditors might respond to demands for far easier terms could possibly be gleaned from German finance minister Wolfgang Schäuble's response to Greece's call for the same: speaking in Athens, Schäuble said "I would like to ask all of you not to continue with this discussion about a new haircut, as it's not in your interest ... You will destroy any confidence ... If you take guarantees and then you are discussing a haircut then you are a liar. And I'm not a liar." With ten year yields nudging 7%, and with the ratings agencies' warnings about political instability ringing in investors' ears, the Euro-area seemingly requires the sort of eleventh hour, deus ex machine that we have become accustomed to these past two years.
-Ends-
© Press Release 2013
