Daily Brief

Sterling looks ahead in trepidation

Far from united

Washington’s Covid-19 stimulus bill seems to be going the same way as London’s post-Brexit trade agreement with Europe. Everybody half expects it to happen but it isn’t there yet. The same cannot be said of the US administration’s trade deal with China, which appears to have stalled at phase one.

Coming out of the weekend, attitudes in Washington to new fiscal stimulus were if anything even more fractured than before. The Democratic House of Representatives looked ready to reduce its $3.4 trillion package to something closer to $2 trillion but Republicans were far from united behind their Senate majority leader’s $1 trillion proposal. Some wanted more, especially those representing marginal seats, while the more conservative small-government ideologues wanted none at all.

Treasury secretary Steve Mnuchin warned the Democrats not to challenge the president’s executive orders to defer payroll taxes and pay reduced unemployment benefits. Nobel laureate Paul Krugman disagreed, panning Trump’s executive measures and describing the payroll tax cut as “the hydroxychloroquine of economic policy”.


US jobseekers outnumber jobs

The US Bureau of Labor Statistics monthly Job Openings and Labor Turnover Summary (JOLTS) does not traditionally attract a great deal of attention. Yesterday’s report was a little different: not only is unemployment a hot topic, there was precious little else in the way of economic data on Monday to occupy investors.

The good news was that the number of job openings increased to 5.9 million on the last day of June. The bad news was that last week’s (more up-to-date) figures for jobless claims put initial claims at 1.186 million and ongoing claims at 16.107 million, total 17.293 million, so roughly one vacancy for every three potential applicants. The suspicion is that the report might have exaggerated the health of the labour market.

Monday’s other ecostat was the Sentix index of investor confidence in the euro zone. It rose by 4.8 points to -13.4, in a fourth consecutive monthly improvement (its trough in April was -42.9). On a broader front, Sentix sees a trend of recovery in all of its focus regions except for Latin America, where it identifies a downturn.


UK jobs, NZ rates

For sterling the focus today is the UK employment report, already out and showing unemployment steady at 3.9%. By and large investors were unimpressed by the details and sterling looked a little uncomfortable ahead of London’s opening.

There is a sensation that investors are becoming steadily more nervous about the pound as tomorrow’s second quarter growth data approach. The story is that Britain’s economic contraction in the second quarter will be the biggest in G7, somewhere around 21%. It could of course be that everyone gets so boot-faced about it, ahead of the event, that an on-forecast outcome provokes a relief rally for the GBP. But don’t bank on it.

The overnight data put UK retail sales 4.3% ahead on the year in July. Australian business confidence matched the recent international trend of deterioration, dropping from 1 to -14. ZEW’s survey of European investor sentiment comes out this morning and the NFIB index of SME business optimism in the United States this afternoon. Australian consumer confidence appears tonight, followed by the Reserve Bank of New Zealand’s monetary policy decision. No rate change is expected.

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