Daily Brief

No shock, no horror

Not bad actually

If there was any surprise at Friday’s US employment data it was that, in some respects, the numbers were better than expected. Alright, slightly less awful than expected. Out of a sense of tradition and obligation investors still sold the dollar but their hearts were not in it.

US nonfarm payrolls fell 20.5 million in April, taking the number of employed workers down to just over 131 million, a level last seen in March 2011. Nine years of jobs growth had been blown away in a single month and unemployment went up from 4.4% to 14.7%, a record high. Looking on the bright side, the great majority of job losses – 18 million - were temporary layoffs. The average earnings numbers – up by 4.7% on the month and 7.9% on the year - were misleading. They simply reflected “the substantial job loss among lower-paid workers”.

However dire the data, the element of surprise was absent. Investors had been teed up for the announcement and the half-cent loss suffered immediately by the dollar was recouped by the end of the day. The dollar was an average performer on the day, unchanged against the euro and two fifths of a cent lower against sterling. The pound was edged out of first place by the NZ dollar and shared second with the Aussie and the Swedish krona. The Canadian dollar and the yen were hot on their heels.

Delete “home”, insert “alert”

If the US employment data dominated the global economic debate at the end of last week, the British government’s lockdown rules were of greatest importance to sterling. A change of tone that had been widely leaked by the press was confirmed by the prime minister on Sunday. 

The new government mantra enjoins people to stay alert rather than (at) home. There are five levels of alert for people to stay, ranging from one to five. On Wednesday level four is expected to change to level three, and although the new system has not received universal approval across the UK it seems to have gone down well enough so far with investors. The pound began this morning looking reasonably comfortable. 

On the other side of the Channel a different political drama is playing out. Following last week’s decision by the German constitutional court to set itself against the European Central Bank, the European Commission president Ursula von der Leyen has threatened a lawsuit. She says it is the German court, not the European Court of Justice that is overstepping its powers. The power struggle between Berlin and Brussels does not bode well for European cohesion or the euro.

Unbolting the stable door

On Thursday Norges Bank’s Monetary Policy and Financial Stability Committee “unanimously decided to reduce the policy rate to zero percent”.  This morning Statistics Norway announced that inflation had gone up in April.

The two events are of course unconnected. Norges Bank is far more concerned about an economic downturn than it is about a still-low 0.8% headline rate of inflation. Statistics Norway helpfully set out the inflationary implications of the tragic Covid-19 pandemic, which will also be applicable outside Norway.

The rest of today’s agenda is bare other than for Italian industrial output, which will probably not look great. Tonight brings NZ house prices, Chinese inflation and Australian business confidence. 

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