Good morning, this is Paul Donovan, Chief Economist at GBS Global Wealth Management. It's 7 o'clock in the morning London time on Tuesday the 23rd of June. Technology stocks have been weakening in recent trading with notable declines in the Korean market overnight.
This has nothing to do with any change in economic fundamentals and so is not generally worthy of economists' attention. Whenever there are moves like this in financial markets there is often a concern expressed about wealth effects, the idea that a loss of hypothetical equity wealth will cause consumers to cut back on spending in order to save more money. This move is too soon and too small to have a noticeable effect like that.
Equity wealth is not something that actually affects many consumers in society, especially in the United States where equity ownership is very concentrated into higher income groups. Consumers' commitment to spend is anyway quite strong at the moment. Wealth effects are likely to be overwhelmed by the desire to at least maintain current consumption patterns.
The current situation in the Strait of Hormuz seems to be about as clear as the Lincoln Reflecting Pool. The Financial Times is reporting that there is confusion amongst ship owners about whether to follow Iranian instructions or US instructions in terms of where to sail. The result is only a moderate increase in the number of ships passing through the Strait.
There was some expectation of a slow process for reopening so this should not be too concerning for financial markets. And the passage of an increased number of vessels postpones the risk of physical energy shortages emerging. But it does perhaps put a little bit more focus on the pace of the current peace negotiations.
It has been confirmed that the United Kingdom is to have its seventh Prime Minister in ten years. This is hardly without precedent. Exactly the same thing happened in the first ten years of King George III's reign and the seventh, Lord North, went on to govern for twelve years.
Of course, North also contributed to the loss of the North American colonies 250 years ago but these things happen. The market reaction of general indifference seems to be an appropriate response given the fact that this current change is more one of spin than of substance. The data calendar has nothing other than business sentiment polls to recommend it.
These surveys have always had a loose relationship to reality and the gulf between sentiment and reality at the moment is at historically high levels. The media cycle and political partisanship work against that gap-narrowing any time soon. There are also a few central bank speakers.
ECB President Lagarde, in remarks yesterday, did not go so far as admitting that the ECB has committed a policy error with its last rate rise. Lagarde did suggest that further action was unlikely and that has raised hopes that the ECB may not compound its mistakes with more rate increases. That's all for today.
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