Equities do not always excite economists
- Chinese equity trading was suspended after an index fell 7%. Should economist get excited? Equities do have relevance if they reflect fundamental changes, if they change the cost of capital in an economy, or if they impact wealth or sentiment in an economy.
- Of these four factors, it is really only the sentiment impact that is likely to matter in the current case. Chinese equity moves do not seem to be fundamental in origin, equity markets are not a critical source of capital and housing matters more to wealth.
- Today has a torrent of manufacturing sentiment data. A contraction (or expansion) of such data emphatically does not equate to a contraction (or expansion) of manufacturing in an economy. For what it is worth, most economies are seen expanding.
- German December CPI inflation is due – this may be worth watching as the divergence of inflation in the Euro area could be as big a part of the story as the composition and level of the aggregate number.