Erratic market movements
The pattern of exchange rate movements on Wednesday was erratic. For no obvious reason the USD, JPY, NZD and ZAR ended up sharing last place, an average of 0.4% lower against the majors. The NOK in the lead shot an average of 1.1% higher.
A multitude of factors were available for investors to choose from. At the simplest level they could focus either on the disappointing purchasing managers’ index readings from Japan, France, Spain and Germany or the better than expected ones from pan-Euroland and the United States. On balance there was more to disconcert than to encourage, though the disappointments were relatively small ones and insufficient to send all investors in the same direction.
Sterling came out of it almost unchanged on average, two fifths of a US cent better off and down by a quarter of a euro cent. Britain’s services sector PMI was more of a theoretical than an actual disappointment, a tick below forecast at 56.5. Euroland’s composite PMI was fractionally better than expected, with the French, German, Spanish and Italian components all at multi-month highs.
Old Lady Sticks
As expected, the Bank of England kept monetary policy unchanged this morning, with the Bank Rate at 0.1% and the target for quantitative-easing asset purchases at £745 billion. Sterling’s instant reaction was positive, perhaps because some had feared a rate cut.
The bank’s assessment of the UK economy is that “GDP is expected to have been over 20% lower in 2020 Q2 than in 2019 Q4. But higher-frequency indicators imply that spending has recovered significantly since the trough in activity in April.” Nevertheless, “the risks to the outlook for GDP are judged to be skewed to the downside”. The focus of the Monetary Policy Committee’s concern was clear from the way the minutes referred five times to Covid-19 and not once to Brexit.
The early data this morning came from Germany, where factory orders leapt another 27.9% in June after rebounding by 10.4% in May. The increase was almost three times as big as the forecast 10.1% rise.
Jobs… and stimulus?
Employment – especially North American employment – will generate the most important ecostats today and Friday. Politically, investors’ attention will be on Washington, where politicians are struggling to compromise on a stimulus bill which they almost all agree is necessary, if possible by the end of Friday.
Today’s fairly light agenda includes Britain’s construction PMI, weekly US jobless claims and the Bank of England’s Financial Stability Report. Governor Andrew Bailey will be speaking at lunchtime.
The really heavyweight numbers come tomorrow with employment data from the United States, Canada and, less importantly, France. Analysts predict that 1.6 million people were added to US nonfarm payrolls in July, taking unemployment down to 10.5%. The equivalent numbers for Canada are estimated at 400k and 11%. Other ecostats on Friday cover the trade figures for China, Germany, Italy and France as well as Norwegian, German and Spanish industrial production.