The smarties who
sniff the geopolitical winds seem to think there are signs of easing of Middle
East tensions – eg “Israel
smells victory against Hezbollah
“. Another, more
reliable, sign is the $5 drop in the price of oil that has occurred in recent
days. But bond markets
are giving the opposite indication, with yields up by six or seven points in
New York
overnight.

This may of course
be related to the fact that US producer prices exceeded expectations in June,
showing 12 month ended growth to June of 4.9 % overall, and 1.9 % “core”. (“Core
inflation” is like a politician’s “core promise” – a slightly less unreliable
indicator.)

China’s GDP
growth
in excess of 10% also rattled the markets yesterday, with the expectation that
Chinese monetary policy – such as it is – will need to be tightened further than
previously expected. Tonight sees the
release of US CPI results for June and a speech by US Fed Chairman Ben
Bernanke.

One of Henry’s favourite economists pointed out this morning that US
markets are bulled up for the Fed to say that the cash rate increase
expected in August will be the last. Should Chairman Bernanke say or
imply this is incorrect he may well be labelled “terrorist Bernanke”.

More reading at
Henry Thornton.

Peter Fray

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