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PMIs wobble


The Australian statisticians had a fairly busy week, producing a little something almost every day. Manufacturing sector purchasing managers’ indices from AiG and Markit told roughly similar stories of growth with readings of 53.5 and 54.0 respectively. The same could not be said of the services PMIs, which showed a marked divergence. AiG saw a further decline in activity, though as a slower pace as the index improved from 31.5 to 44. Markit disagreed, saying that the recovery gathered pace in July as the index rose by five points to 58.2. Retail sales were roughly in line with expectations, rising by 2.7% in June, and mortgage approvals for the same month rebounded by a seasonally-adjusted 6.2%.

As expected, the Reserve Bank of Australia kept its benchmark Cash Rate unchanged at 0.25%, with the target for the yield on three-year government bonds also steady at that same level. In its statement the RBA indicated that the two rates will remain low for a considerable time. Perhaps because some investors had foreseen a rate cut, the Aussie strengthened on the news. It was eventually almost unchanged on the week against sterling and down by a seventh of a US cent.



Wednesday was the big day for fans of NZ economic statistics, with the quarterly employment data for Q2. Statistics NZ said “About 650,000 people were away from their job, working fewer hours or less than they wanted, or were otherwise less active in the labour market in the June 2020 quarter due to reasons related to COVID-19.” Paradoxically, the rate of unemployment went down from 4.2% to 4% because some of those not working did not tick all the “unemployment” boxes. “To be categorised as unemployed, a person must: not have a job, be available to start work, and have been actively seeking work in the last four weeks or be due to start a new job in the next four weeks.”

The only other ecostat of any consequence to the Kiwi was the GDT dairy price index. It was down by 5.1% from two weeks earlier, its biggest fortnightly decline since March 2017. The news itself did no damage to the NZD though it was an average of 0.4% lower on the week, losing a third of a US cent and down by four fifths of a cent against the GBP.



The pound was on average unchanged after a week of sometimes seemingly random peaks and troughs. The safe-haven Japanese yen strengthened by 1.1% and gold broke above the US$2000 barrier for a 4.6% gain while the equally safe-haven Swiss franc fell 0.5%. Among the biggest losers were the indisputably risky South African rand and Turkish lira, both of which lost 4.4% to the pound.

UK economic data played only a small part in the process. Nationwide’s house price index rose by 1.7% in July, offsetting the 1.6% fall in June, leaving the average price 1.5% higher on the year. Nationwide attributed the rise to pent-up demand and changing preferences as a result of the Covid-19 lockdown. The purchasing managers’ indices for manufacturing and services were both higher on the month at 53.3 and 56.5. Manufacturing output growth touched a 32-month high and it was the “fastest expansion of the services sector for five years”. The Bank of England kept monetary policy unchanged on Thursday, leaving Bank Rate at 0.1% as expected.



Although the US economic data were far from wonderful they did not really get in the way of the dollar. The USD was just about unchanged on the week against sterling and it strengthened by three fifths of a cent against the EUR. The Michigan index of consumer sentiment dipped back to 72.5, within a point of an eight-year low. On the positive side, the two sets of purchasing managers’ index readings from ISM and Markit both came in at or above the breakeven (or stagnation) level at 50. Markit’s services PMI at 50 was the weakest while the ISM measure of the same thing put in the strongest reading at 58.1.

There is still no consensus between the White House and Congress – or more accurately between the Democrats and Republicans – concerning the fiscal stimulus which all sides agree is necessary. If anything, the two factions are further apart than they were a week ago. Although the aim is still to reach an agreement by the end of today there remains a big gap between the $3.5 trillion that the Democrats want and the $1 trillion that the Republicans are prepared to concede.



There were some quite nasty economic data from the eurozone last Friday and some of this week’s numbers were disappointing too. Even so, the euro’s movements owed more to the ebb and flow of global investor sentiment than they did to the quality of the eurozone data. The EUR softened by an average of 0.4% against the major currencies, losing three fifths of a US cent and giving up nearly half a cent to the pound.

The figures for second quarter gross domestic product at the end of July were predictably dire. Among the major euro zone countries the worst result came from Spain, where GDP contracted by a provisional 18.5% in Q2. The economy of Euroland as a whole shrank by 12.1% with Lithuania delivering the least negative growth at -5.1%. This week’s purchasing managers’ index readings, a much more up-to-date indicator of how things are going, all pointed to growth. The 54.9 composite PMI for pan-Euroland indicated the “fastest growth in over two years”, not altogether surprising given the level to which activity plunged in April (13.6).



It was better week for the Canadian dollar, which strengthened by an average of 0.6% to take second place behind the Japanese yen. It added a third of a US cent and went up by a cent against sterling. The Loonie received a degree of help from an upward tilt to oil prices, with WTI crude up by more than 4% on the week having touched a four-month high.

The Canadian economic data were mostly tedious, the exceptions being gross domestic product for May and the manufacturing PMI for July. GDP increased by 4.5% in May “following two months of unprecedented declines” which resulted from the economic shutdown. The manufacturing PMI was even more startling, hitting an 18-month high and trouncing predictions that it would fall to 44.1. This week’s most important Canadian data come today, in the shape of the employment figures for July. Analysts expect 400k jobs to have been added during the month, taking unemployment down from 12.3% to 11%.

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