Daily Agenda: Investors Shrug Off Political Theater in Cleveland

Dow rises for ninth consecutive day; ECB makes policy announcement; Kuroda rejects helicopter money; Indonesia holds rates; Komatsu buys Joy Global.


David Paul Morris

A Republican convention speech by Texas Senator Ted Cruz, in which he failed to endorse Donald Trump for president, produced raucous boos from the crowd in Cleveland last night. Instead of supporting the nominee, Cruz encouraged the audience to “vote your conscience.” In response, Trump Tweeted “Wow, Ted Cruz got booed off the stage, didn’t honor the pledge!” Separately, in an interview published by The New York Times yesterday, Trump indicated that under his administration the U.S. might not support NATO allies facing a threat from Russia. These comments are only the latest isolationist foreign policy statement from Trump, and came as Russia has embarked on a major military buildup and increasing concentrations of troops near the Baltic states and eastern Ukraine. Despite the continuing acrimony of the U.S. presidential campaign, investors appear willing to shrug off concerns, with the Dow Jones Industrial Average rising for a ninth consecutive trading session yesterday.

ECB keeps rates unchanged, signals willingness to act. While the European Central Bank took no action during today’s monetary policy announcement as had been widely anticipated, the ensuing press conference by ECB president Mario Draghi signaled that there may be more stimulus on the way this year if the impact of the U.K.’s departure from the EU threatens growth. According to Draghi, the bank will “act by using all instruments available within its mandate.” The reaction in currency markets was muted with the euro largely unchanged versus the dollar.

U.K. watchdog takes a look at dark pools. In a report issued today, the Financial Conduct Authority, the U.K. securities industry regulator, identified conflicts of interest by operators of so-called dark pools. The private trading venues for block equity transactions operate differently than exchanges, which require continuous and transparent price discovery. U.S. regulators have recently fined several dark-pool operators including UBS and Credit Suisse.

Kuroda says no helicopter money on the way. In an interview with British Broadcasting Corp. today, Bank of Japan Governor Haruhiko Kuroda rejected the notion of perpetual bonds to monetize government debt — so-called helicopter money, as a strategy to drive inflation. The Bank of Japan will announce its monetary policy statement next week, ahead of Prime Minister Shinzo Abe’s cabinet meeting revealing the government’s new fiscal stimulus package. The yen rose against major currencies following Kuroda’s remarks.

Indonesia keeps rates on hold. Bank Indonesia held the benchmark reference rate at 6.5 percent today, surprising a majority of forecasters who had anticipated on average a 25 basis-point cut. The central bank has made four cuts already year-to-date and, with low relative inflation and anticipated capital inflows due to a tax amnesty that could strengthen the rupiah, many economists and strategists expect further cuts.

Retail sales dropped sharply ahead of Brexit. June retail sales data for the U.K. issued today by the Office of National Statistics indicates that shoppers were reluctant to spend ahead of the EU referendum. The headline sales index declined by 0.9 percent month-over-month, a 4.3 percent decline versus June 2015. The decline of pound sterling in the wake of the vote to leave the EU has raised concerns in the consumer-staples and discretionary sectors that rising import costs may fuel price inflation that would further dampen spending.


Komatsu buys U.S. heavy-equipment company. In a statement issued today, Japanese heavy-equipment manufacturer Komatsu announced the acquisition of U.S.-based mining equipment maker Joy Global in a transaction valued at $2.9 billion in cash. The buyout, at a 20 percent premium to Joy’s prior closing share price, suggests that Komatsu leadership sense demand from the mining industry will rebound after years of declines on the back of falling commodity prices.