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08/09/2016

News Bites: Goldi-hawks

Goldi-hawks: As expectations of a September rate hike by the Federal reserve continue to fade, gold prices have rallied back towards two-year highs (in the mid-$1,300s) as the opportunity cost of holding a zero-yield commodity such as gold remains at a record low. What gold’s other attractions may be remains the subject of fierce debate. (8/9)

Oi’ Guv: Bank of England governor Mark Carney said he is "absolutely serene" about the rather dire pre-“Brexit” forecasts issued by his institution in the event of a “Leave” vote. Contrary to those expectations, the UK’s economy appears to have weathered the initial uncertainty reasonably well. Nonetheless, the governor claimed credit for the current healthful economic glow, pointing out he was quick to cut rates and expand a long dormant quantitative easing program. The immediate 10% fall in Sterling, which he didn’t take credit for, was also a tad helpful. (8/9)

Franc-ly speaking: Swiss consumer prices were unchanged in August, the first time they have not contracted since January 2015. Then, the Swiss National Bank discontinued a three year policy of pegging the Swiss franc to the euro, releasing ferocious, pent-up demand for the safe-haven currency; the franc rose by 30% versus major currencies in a day. This lowered prices for imports, while also suppressing demand for Swiss exports. Result: 20 straight months of deflation. (7/9)

Friend trend: Japanese and Chinese leaders sat down for a meeting for the first time in roughly 18 months. While their talks produced few concrete outcomes, except for an agreement to a continued dialogue, the desire to normalise relations from both parties was clear. In recent years, tensions between the two Asian giants were at dangerous levels, and posed a major geopolitical risk. That risk has clearly dissipated somewhat. (7/9)

Waiting on a revolution: A summit of leaders from G20 nations is underway in China. Chinese President Xi Jinping opened proceedings by neatly capturing the root cause of the world's problems by saying, "growth drivers from previous technological progress are gradually fading, while a new round of revolution has yet to gain momentum." He also reiterated the dangers of highly levered financial markets, a theme that has cropped up at the last few G20 summits. His own country – with a banking system saddled with non-performing loans – is an epicentre. (5/9)

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