Dollar gains as Trump loses support

Whilst President Trump’s press conference yesterday on the events in Charlottesville hasn’t influenced markets, it has certainly garnered the attention of the world’s media. The data picture remains mixed, and so the dollar can only get its direction from geopolitics and the progression (or lack thereof) of the President’s agenda in the White House. At present, the market’s still erasing the moves induced by Korean tension, with the dollar, Swiss franc and Japanese yen pulling back, but this could all change should the market see more hurdles ahead for Trump’s reform programme.

Gary Cohn, the director of the National Economic Council and Trump’s chief economic advisor, is reported to be “somewhere between appalled and furious” about the President’s conduct over the past few days and is becoming increasingly concerned that the administration’s tax reforms are becoming more unachievable. His departure from the increasingly small group of trusted individuals in the Oval Office could be read as the final nail in the coffin for Trump’s campaign promises and an end to the so-called ‘Trump Trade’ – but Cohn’s supposed aspirations for the top spot at the Federal Reserve could delay this from happening too soon.

The blowout retail sales number yesterday has been countered by a particularly poor set of real estate figures this morning. Both building permits and housing starts slumped over 4% apiece, suggesting that without drastic improvement in the coming months, Q3 growth will be slowed by a dwindling investment in housing.

Fed minutes close to irrelevant given proximity to Jackson Hole

This afternoon’s Federal Reserve meeting minutes are from a meeting that took place about a month ago, and given the amount of Fedspeak we’ve been privileged with over the past few weeks, it’s unlikely we’ll see anything new from any FOMC members. This month, the far more important Fed event will be the Jackson Hole Economic Policy Symposium in ten days’ time, where the Fed could signal that the beginning of the asset sales from their $4.5 trillion balance sheet could be as soon as September.

Negative UK real wage growth extends into fifth month

A stable inflation number and a higher than expected wage release from the UK this morning suggests that the pain of real wage declines may be lessening. UK consumers grew poorer by 0.5% in the second quarter of this year according to this morning’s figures and this will continue to act as a short term depressant on UK economic growth.

While the Bank of England and markets may be confident that inflation may become more benign, there is less commitment to a belief that pay will start to charge higher and therein lies the rub; real wage increases cannot be counted on to fuel a dependable backdrop for our post-Brexit economy. We have said many times that real wage increases are the silver bullet for the concerns that swamp the UK economy and while this figure is better than had been expected, at the end of the day people are still getting poorer.

The labor market is solid at the moment but it has been solid for a long time and has not been enough to generate reliable and meaningful wage growth.

Have a great day.