Daily Brief

Daily Brief

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A little gloom for everyone

Gloomy manufacturers and shopkeepers

There was no shortage of discouraging economic news to start the week.  Not all of it was Brexit-related, though at least one of the two dismal UK statistics certainly was. The biggest victim was the US dollar, where trade wars and the monetary policy outlook combined to douse investors' appetite.

Britain's manufacturing sector purchasing managers' index fell nearly four points to 49.4 in May, missing the forecast 52.0 by a mile. The contraction came as producers ended their pre-Brexit stockpiling rush and faced a fall in  new orders, especially from abroad. There was surprisingly little reaction from sterling at the time, though it later went on to move lower, for a daily average loss of 0.2%. It lost half a euro cent and a third of a Swiss cent.

The other gloomy UK ecostat came out overnight, with the British Retail Consortium's like-for-like retail sales report. Sales were down by 3% in May compared with the same month last year, the largest seasonally-adjusted decline since the survey began in 1995. Among other things the BRC blamed "political and economic uncertainty", as well as having a pop at Britain's "broken tax system".

Dollar shares the disappointment

Not a lot went right for the US dollar on Monday. For a second day it kept hold of the wooden spoon, falling by an average of 0.4% against the other major currencies and losing two thirds of a euro cent. The data, the economists and the Fed all conspired in its downfall.

America's two manufacturing PMIs from Markit and the ISM came in above 50. They therefore in the growth zone and not as dire as the measures from Britain, Italy, Germany , Euroland and Canada, but both fell short of forecast. At the same time the National Association for Business Economics reported that a consensus among economists put a 60% chance on a US recession before the end of next year.

The results contributed to a general lack of enthusiasm for the US economy and the dollar. The notion of rate cuts by the Federal Reserve gained added traction from James Bullard, the head of the St Louis Fed. He said in a speech that rates are "inappropriately high" and that "a downward policy rate adjustment may be warranted soon".

RBA cuts rates

For at least a month analysts have been speculating that the Reserve Bank of Australia would lower its benchmark Cash Rate today. It did so this morning, cutting it by 25 basis points to 1.25%. There was no surprise and no reaction from the Aussie, which is a sixth of a cent firmer on the day.

The RBA governor's statement was anodyne. It contained no suggestion that another cut is in the pipeline. Governor Philip Lowe will make an appearance this evening and might have more to say on the subject.

Today's ecostats include Britain's construction PMI, euro zone unemployment and inflation and US factory orders. There are first quarter GDP figures from South Africa this morning and Australia tonight.  

GBP: Manufacturing goes into decline

GBP: Manufacturing goes into decline

ZAR: Awaits first quarter GDP

ZAR: Awaits first quarter GDP

EUR: Wins by default

EUR: Wins by default

USD: In last place for a second day

USD: In last place for a second day

AUD: Rate cut expected tonight

AUD: Rate cut expected tonight

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