Good morning!

Equity markets continued to trend higher yesterday notwithstanding the somewhat more hawkish than expected comments found in the minutes of the latest Fed monetary policy meeting. What is more, the rally continued unabated even as such comments appeared particularly topical after a series of US macro data beat expectations yesterday. Specifically, the unemployment claims were lower than expected for another week, the manufacturing index pointed to a strengthening momentum and the existing home sales came out higher than forecasted, adding up to the positive housing data released earlier this week. Apparently the resilience of the S&P500, which actually reached a new high yesterday, and the persistently low US treasury yields, reflect expectations for dovish comments coming from the Fed’s Chair at the annual Jackson Hole symposium; as it happened before, investors are wagering that Fed’s Governor will yet again stress that notwithstanding the improvement in labour statistics significant slack remains in the labour market. Indeed, this is probably the most important market event scheduled today. With the same occasion, the ECB’s President Draghi is also due to deliver a speech today in the evening but in this case the expectations are likely more muted given that the most recent easing decisions (most notably the Targeted Long Term Refinancing Operations, aka TLTRO) are yet to come into force; even so, the markets will look into Draghi’s comments on the current economic conditions as data continues to point to negative momentum (eg. the Manufacturing PMI, a gauge of the impetus in this industry, disappointed yesterday as did the consumer confidence).

In the bond markets we saw the same positive trend with spreads tightening and the low benchmark yields enhancing returns. Furthermore, the latest data show that the US retail high yield funds saw a respite in the week ending August 20th after the strong outflows earlier this month; actually, these funds posted the biggest weekly inflow of this year according to Bloomberg (citing Lipper data).

From a geopolitical point of view, the markets have been following the course of the Russian aid convoys which yesterday reached the Ukrainian border and are reportedly checked by the local authorities. Meanwhile, the media reported that McDonald’s was investigated by the Russian authorities for sanitary, which was met with scepticism by many and as a possible indication that other Western companies might suffer from the current Russian-Ukrainian stalemate. In Ukraine, on the political front it was also reported that the Ukrainian President Petro Poroshenko might announce the dissolution of parliament as early as Sunday; it is hoped that a new round of parliamentary elections will reduce the representation of the former President’s allies and streamline the implementation of economic reforms.

The emerging markets were spared large corrections even as the message of the FOMC minutes was detrimental to such assets and the Chinese manufacturing data hurt sentiment. Argentina continues to poise risks for this asset class after the US judge said that the country’s plan to swap the outstanding bonds into bonds subject to local law (so as to avoid the enforcement of the US Court ruling) is “invalid, illegal and in violation of current court orders and injunctions.” On a more positive note, Mexico reported a better than expected economic growth in Q2 following strong exports.

Have a nice day!