Daily Brief

Daily Brief

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Hard Brexit and soft economy

Another bad day

On Thursday and again on Friday, sterling took last place among the major currencies, with average losses of 0.4% and 1.0% respectively. Compared with its position prior to the referendum three years ago, it is 13% lower. Relative to its place in the immediate aftermath, it is down by 6%. Looking on the bright side, the pound is not quite at record lows against any of its peers.

Two related stories were running concurrently. The first was about Dominic Cummings, the Prime Minister's political strategist, who continued to peddle the line that Parliament is impotent to prevent Britain leaving the EU without a withdrawal deal. The second was that Britain's gross domestic product shrank by 0.2% in the second quarter of the year. Investors had been ready for stagnation in Q2 but not for contraction.  

It is debateable whether weak economic data or political uncertainty contributed more to the pound's rough treatment at the end of last week but it is safe to say that neither helped. A general election looks inevitable and it is possible that the government will arrange its timing to protect the enforcement of a no-deal Brexit. 

Growth elsewhere

Japan also reported on second quarter GDP on Friday. The 0.4% expansion was much better than the expected 0.1% and helped the yen into second position for the day, behind Norway's krone and alongside the Swedish krona. The NOK got some help from higher oil prices.

It was the third successive quarter of expansion for Japan, driven by household consumption and business investment. The news was positive, in that it could relax some of the pressure on the Bank of Japan to ease monetary policy.

The UK production data were rather overshadowed by the negative GDP surprise. That was just as well, because they were not very good either. Manufacturing output fell 0.2% in June and industrial production was down by 0.1% for annual declines of 1.4% and 0.6%. Canada's employment figures were at least as disappointing. Unemployment rose from 5.5% to 5.7% as 24.2k jobs were unexpectedly lost in July. Canadian housing starts increased and building permits fell.

Taking it easy

Another long weekend for the statisticians means only those at Statistics NZ needed to turn up this morning.  

Even they did not have a lot to do. Retail card spending dipped slightly in July, down by 0.1% on the month and up 1.6% from the same month last year. There will now be a long gap until the same folk report on NZ food prices tonight.

Tonight also brings Japan's domestic corporate goods price index and the rather more important Business Conditions report from the National Australia Bank. The tempo picks up from there tomorrow with German inflation, UK jobs and US inflation.

GBP: A second day's kicking

GBP: A second day's kicking

JPY: A third quarter's growth

JPY: A third quarter's growth

CAD: Higher oil vs. lower jobs

CAD: Higher oil vs. lower jobs

NZD: Retail spending slightly down

NZD: Retail spending slightly down

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