A bounce in equity markets had been overdue, and was duly delivered, with the US technology sector leading the way. Investors were initially somewhat cheered by an American service industry survey that showed only a slight reduction in activity from the previous month, bucking the trend from other nations for much larger declines. More importantly, the minutes of the US Federal Reserve’s last meeting did not derail the rally, despite demonstrating plenty of determination to fight inflation combined with precious little concern for the weakening economy. Thanks to recent downward revisions to economic data, it’s possible that America is already in recession, but the Fed’s minutes seemed to emanate from a different dimension, stating that “overall economic activity appeared to have picked up”. The minutes referred to inflation as being “more persistent than they had previously anticipated”, ignoring the recent reduction in so-called “core” inflation, which strips out less-controllable items such as food and energy. In summary, there were suspicions that the Fed may have cherry-picked data to support its current, aggressively anti-inflation policy. But that stance seems to please equity markets, which continued their rally on the day the minutes were published, though bond markets reversed their recent strong run.

More positive news from China supported sentiment once again, this time the main story being a government plan to deploy another $220 billion in support for the Chinese economy, which would add to the $160 billion already announced in recent weeks. These are huge numbers, enough to move the needle on the entire global economy. This was followed by the all-important monthly US jobs data, which also surprised to the upside, with the US economy creating 390,000 jobs in June versus the expectation of 265,000. Initially, stock markets dropped on fear that this would bolster the Fed’s case for rate rises but, along with a downward revision to the previous month’s jobs, the data ended up being in the “Goldilocks” zone, neither too hot nor too cold, and cementing the rally.

Investors don’t need an excuse to buy US dollars, one of the world’s truly safe havens, causing the dollar to rise an extraordinary 12% on average against other major currencies since the start of the year. This has sent some major currencies to multi-year lows against the dollar: the Japanese yen lost its safe-haven status because the Bank of Japan has refused to raise rates or allow government bond yields to rise, prompting a devaluation against the dollar to 25-year lows. Traders are questioning how long this policy can hold, given that Japan is now importing a great deal of food and energy-price inflation. Japanese exporters, meanwhile, must be rubbing their hands with glee. Another major currency in traders’ sights is the Euro, but this time the consensus seems to be for further declines: the economic consequences of Germany’s over-dependence on Russian energy has been the Euro’s undoing and, with the flow of Russian gas to Germany in a perilous condition, there is much talk of the Euro breaching parity with the US dollar, something which hasn’t happened for 20 years. Investors might be surprised to learn that the Brazilian real has been the strongest major currency against the dollar this year, rising by 6%, with the Mexican peso in second place, mainly due to the massive influx of dollar-flows from oil and other commodity exports.