Recovery and taper nerves persist

Wall Street edged lower overnight as markets shuffled between concerns over the US recovery after a downbeat Fed Beige Book and tapering nerves after the New York Fed President Williams said tapering could occur sooner rather than later. William’s comments were further backed up by a monster 10.924 million JOLTS Jobs Openings release suggesting that employment isn’t the issue in the US; it’s getting Americans to take those jobs. That is, in some way, ameliorating the shocker of a Non-Farm Payroll print last Friday.

Stirring the pot more, US Treasury Secretary Yellen sent a letter to Congressional leaders overnight warning that the US government will run out of money in October unless Congress agrees to raise the debt ceiling. Given the polarised nature of US politics these days, you wouldn’t bet against a serious game of blink developing between the two sides, and we haven’t even got to President Biden’s 3.50 trillion packages yet.

So, we have a lot of uncertainty pulling markets in both directions with no clear theme developing and plenty of risks circling. It’s no surprise, therefore, that investors have pushed equities slightly lower. However, the primary beneficiary of a move to safety has been the US dollar, which has staged a pretty impressive comeback. US equity markets could easily drop 10% and still be in a rampant bull market, so that is not concerning me much. I can’t see the buy-the-dip mafia being able to resist a material pullback; look at Chinese equities. Perhaps this month’s FOMC will provide some much-needed clarity on the Fed taper; I won’t be holding my breath, though. I can see September typified by danger when overtaking, choppy range-trading ahead.

China’s inflation data has passed without incident this morning. August Inflation YoY and MoM came in 0.80% and 0.10%, respectively, lower than expected. PPI YoY soared to 9.50%, but this was only slightly higher than July and well-priced in. More attention will be focused on Tencent and NetEase being called in for a meeting and being told to end their focus on gaming profits, along with a host of “suggestions” regarding children and online games. Another day, another intervention by the Chinese government. I remain concerned that buying the dip in China equities is a dangerous business at the moment.

Bank Negara Malaysia announces its latest policy decision today, with markets probably less focused on it than usual. The Malaysian ringgit has rallied impressively of late, removing that pressure from the central bank. BNM has also been vocal that their priority is supporting the countries pandemic recovery. That should see rates left at record lows of 1.75%, with only a surprise cut shaking the tree.

ECB decision eyed

Today, attention will be focused on this evening’s European Central Bank policy decision. It is likely to drown out any reaction to Germany’s Trade Balance this afternoon. Rates will remain unchanged, of course, with markets only interested in the decision if the ECB announces a dovish taper to their pandemic support bond-buying programme, or at least signals a timetable to such. Despite some hawkish inflation table-slapping from some northern European members, I believe the doves will carry the day this time around. A tapering, whether by cutting the headline bond-buying targeted amounts or doing less month, but over a longer period (a very European can-kicking strategy), should support the euro.

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