The holiday season provides little rest

For the middle of the holiday season there was plenty of news flow for investors to digest at the start of the week. Warren Buffet boosted US equity sentiment on Monday as he announced the acquisition of Precision Castparts, as the name suggests a maker of metal components and products mainly for aerospace and power sectors. Industrial names have given back a lot of ground in the past months. This acquisition along with Valueact's move on Rolls Royce last week , suggests long-term investors believe there is now value in the sector.

China continues to feature in the news headlines, on Monday the latest export Import data from the region showed a sharper fall in both imports and exports relative to expectations, compared to this time last year. Concerns remain as to the true growth rate of the economy, which now contributes one third of the world’s GDP.  Merrill lynch in a piece trying to assess the impact of a weakening Chinese economy on the rest of the world, believe if the Chinese economy grew at 3.5% as opposed to the 7%, the Chinese government target, that would reduce global GDP between 0.6 and 0.7pct.

The other news was the Bank of China announcing on Tuesday a devaluation of 2% of the Chinese renminbi against the US dollar. Part of the rational for this move was apparently to bring the fixed exchange rate and the floating rate closer to parity. As broader observation governments around the globe keep trying to make their currency competitive to increase exports, China's move will intensify fears that currency wars will continue. Equity markets outside of Asia did not take the news of the devaluation well. This is despite the logical conclusion that the value of money around the globe will continue to decrease. Investors will continue to need to own real assets that would suggest favouring equities over bonds.

Greece has apparently come to an agreement over its third bailout with international creditors. The Greek government now needs to get the approval of Parliament later in the week. The deal includes changes to pensions, increased taxes, recapitalise the banks and manage no performing loans. Whilst it is good news in the short term that an agreement has been reached, the real energy must now be spent to encourage the economy to grow through investment.

Trading volumes remains thin, largely due to the timing in the year and this is always liable to create volatility. This stream of news flow will continue to keep investors close to their Blackberry's, whilst at the same time trying to keep the children occupied on the beach.  

Posted on August 12, 2015 .