The US Is The Place For Foreign Investors’ Cash

The US Is The Place For Foreign Investors’ Cash

$DIA, $SPY, $QQQ, $VXX, $OIL

The latest US core inflation data show the index for all items except for food and energy increased 2.2% in the past 12 months, that he highest 12-month change since June 2012, and exceeding the 1.9% average annualized increase over the last 10 years.

The index for shelter (homes and apartments) has risen 3.2% over the same frame, and the medical care index has increased 3.0%.

The fact this increase has been part of a trend higher in US core inflation for the past year and it is the steady rising core CPI that is giving some reasons for thought.

Some markets have enjoyed the effects of lower Crude Oil prices and have started thinking that inflation is dead.

The core CPI numbers in the US tells us this is not true and that there are inflation pressures that continue to build.

It is important not to overlook the fact there is not automatically a read through from the US experience to that of other countries as core inflation has a very low correlation across countries at the moment, suggesting that underlying inflation pressures are primarily local issues according to one economist that I read.

With what we know we can be sure the rising trend of US core CPI will continue and that supports Cleveland Fed President Loretta Mester who said Friday: “My feeling is the path of interest rates to support the economy is going to be still one where we gradually reduce the amount of accommodation.”

Also, the Purchasing Management Business Sentiment Indexes (PMI) surveys that were released, and notably the one for the Euroarea was very important in that shows growth in the Euroarea was at its lowest in over a year and prices continue to fall.

The Markit Chief Economist Chris Williamson made an interesting comment saying: “Not only did the survey indicate the weakest pace of economic growth for just over a year, but deflationary forces intensified. Economic growth is likely to slow below 0.3% … In fact, growth looks more likely to slow further than accelerate.”

This means a further strengthening of the Euro Vs USD is unlikely as further easing by the ECB is  coming at the next ECB Governing Council meeting on monetary policy on 10 March.

This March meeting will be important as we can expect the divergence in monetary policies between the Fed and the ECB to widen, which should translate in weaker Euro and stronger Buck.

In China, authorities are concerned about moves in their financial markets and have sacked the Key regulator. The change in personnel is no coincidence, and investors interpret the shift as a desire by policy makers to get a strong hold on the situation. And the market rallied, will the rally extend, that remains to be seen.

The just released MNI Indicators signal that Chinese firms report that conditions in the real economy are catching up with the overall negative sentiment.

In the UK; the long awaited date of the referendum on EU membership has been set for Thursday, 23 June.

the Mayor of London, Boris Johnson, decided to back the campaign for leaving the EU, which has caused the GBP to weaken that brought it back to Y 2009 marks.

Uncertainty and volatility will impact UK markets until that Big Q is over.

The above being the case, US and USD-based investors should not look elsewhere for safety.

Monday’s the US major stock market indexes finished at: DJIA +228.67 at 16620.52, NAS Comp +66.18 at 4570.54, S&P 500+27.72 at 1945.43

Volume: trade was less than the recent tallies with about 975-M/shares exchanging hands on the NYSE

• Russell 2000 -9.8% YTD
• NAS Comp -8.7% YTD
• S&P 500 -4.8% YTD
• DJIA -4.6% YTD

Stay tuned…

Paul Ebeling

HeffX-LTN

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