The Daily Update - FOMC / UK Retail Sales

Last night we had the minutes of the FOMC July meeting, where members of the committee generally agreed that more data was needed before the US should consider raising rates, however the timing of any move remains an issue. There seems to be two trains of thought within the committee though, with some of the members wanting more evidence inflation would rise toward target before a hike, however others were concerned low rates could have a negative impact on financial stability, stating that a prolonged period of very low interest rates might cause investors to misprice risk, leading to the destabilising of financial markets.

James Bullard maintained his call for 1 hike in the foreseeable future, acknowledging risks might be on the upside, however, he still sees a target rate of 63bps as appropriate until conditions change. In a Q&A session after the meeting he said he was not sure if September or later this year is the best time to hike, preferring to see indications of higher GDP growth before moving on rates. William Dudley, an adviser to Chairwoman Janet Yellen also added “I think we’re getting closer to the day where we’re going to have to snug up interest rates a little bit. And that’s good news”.

In its press release after the meeting, the minutes stated; Against the backdrop of their views of the economic outlook, participants discussed the conditions that could warrant taking another step in removing monetary policy accommodation. With inflation continuing to run below the Committee’s 2 percent objective, many judged that it was appropriate to wait for additional information that would allow them to evaluate the underlying momentum in economic activity and the labor market and whether inflation was continuing to rise gradually to 2 percent as expected. Several suggested that the Committee would likely have ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis. In addition, although near-term downside risks to the outlook had diminished over the intermeeting period, some participants stressed that the Committee needed to consider the constraints on the conduct of monetary policy associated with proximity to the effective lower bound on short-term interest rates. These participants concluded that the Committee should wait to take another step in removing accommodation until the data on economic activity provided a greater level of confidence that economic growth was strong enough to withstand a possible downward shock to demand.

The last sentence in the statement is interesting. The FOMC committee now seems not only wanting to see the economy continue to grow, with inflation moving closer to the 2% target, but also needs to be confident the US economy is both strong enough and has enough momentum to withstand a ‘possible downward shock to demand’.

Meanwhile, UK retail sales for July surprised on the upside this morning. The market consensus was for a 0.3%mom increase, but retail sales beat estimates at +1.5%, bouncing from a -0.9% in June. The year-on-year was also +5.4% higher, again beating the market consensus of +3.9%. According to the Office for National Statistics, one of the main factors was sterling’s weakness; encouraging overseas buyers to spend money on fashion and jewellery. Obviously, as the saying goes ‘one swallow doesn't make a summer’, so these numbers should be viewed with caution, we will see over the coming months what the effect of Brexit has so far had on the UK economy.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.