Dog days of summer

Dog days of summer. The summer doldrums have finally hit financial markets. The lack of economic data suggests that illiquidity remains the source of exaggerated price action rather than a lasting sentiment shift. Last week Fed members hit the wires sounding marginally hawkish, yet credibility issues muted any significantly adjustment in US front-end yield. Despite insistence that the US economic recovery remains solid, markets are not convinced and are betting Yellen will not signal a rate hike in September. Fed funds futures predict 12% chance of an increase in September and 39.1% in December. Post-Brexit European data was encouraging suggesting doom-and-gloom scenarios might be unfounded, however, its remains too early to draw meaningful conclusions. In Russia, economic data has improved further supporting the rotation into high beta RUB. In Australia, the AUD continued to gain despite the RBA second rate cut this year, highlight the growing risk of ineffective central bank policy. Finally, retail sales data suggests the UK consumer continued to spend while in the middle of the Brexit storm, potentially hinting markets have been overly pessimistic on the destructive effect of Brexit.

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This article is a guest blog written by Peter Rosenstreich from Swissquote