The prime minister yesterday cleared up all the questions about how the winding back of lockdown rules will affect the various UK economic sectors. A government document set out a “road map” that will guide most businesses to a reopening sometime after 4 July. Although the media were not unanimous in their praise for the plan, investors took it in good part.
Sterling was on average unchanged on the day, lower against the big four and firmer elsewhere. It lost one US cent, two thirds of a Swiss cent and half a euro cent. The pound’s biggest gains were of 0.5% each from the Northern Scandinavian crowns and the Australian dollar (worth half a cent). There were no UK economic data to muddy the waters.
The foreign secretary sidestepped an awkward question about why people can mix with folk from other families at work but not socially, saying they should “use some common sense”. A different application of common sense is proposed by Robert Barone in Forbes magazine. He argues that the shape of the economic recovery in the States, and therefore probably in the rest of G10, will be a V that begins around now and then flattens out slightly before the end of the year.
A global scarcity of economic data left investors to focus on the varying approaches to restarting national economies and to ponder upon what further measures might be taken by central banks and governments. One possibility that has been floated is negative interest rates in the United States.
Towards the end of last week US futures appeared to be pricing in a sub-zero federal funds rate. On Friday more than one prominent investor conceded that negative rates are conceivable, if not desirable. There was pushback on Monday from two regional Federal Reserve presidents. Chicago’s Charles Evans said “I don’t anticipate that being a tool we would use”. Atlanta’s Raphael Bostic was “not a big fan of going into the negative rate territory”. The Wall Street Journal’s stance was “never say never” but the possibility did not put investors off the dollar. It was Monday’s top performer, strengthening by an average of 0.8%.
Subsequent to the Norwegian inflation data the only ecostat from Europe and North America was Italian industrial output. It was rather nasty, with monthly and annual falls of 28.4% and 29.3%.
Back to work
Where Monday’s agenda was sparse, today’s is a little busier. It kicked off overnight with a slowdown in Chinese inflation from 4.3% to 3.3%. Two surveys from NAB showed Australian housing market activity falling sharply last month while business confidence remained “very weak”.
NAB’s Business Survey found business conditions continuing to weaken to levels well below those seen during the global financial crisis. “Business confidence bounced… but remains well below the trough of the 1990s recession”. NAB does not see output recovering to pre-pandemic levels before 2022.
Europe is still shy on economic data today. The US offers small business confidence and inflation. Tonight the BRC reports on UK retail sales, Westpac prints its Australian consumer confidence index and the Reserve Bank of New Zealand is expected to increase its quantitative easing programme, perhaps almost doubling it.