Daily Brief

GDP wipe out? No worries

A degree of relief

A mostly directionless day left sterling flat against the safe-havens CHF and JPY, also level against the Northern Scandinavian NOK and SEK. It was also unchanged on average against the other 10 most actively-traded currencies. Gold extended to 9% its correction from Friday’s record highs and oil prices softened minutely, with WTI crude 1.3% lower.

So what did it all mean? Not a lot, given that there were a couple of good-news-bad-news economic statistics that could be taken either way. They began with the UK employment numbers, which looked better than they deserved because furlough continues to disguise significant job losses. And they ended this morning with confirmation that the UK economy shrank by a provisional 20.4% in the second quarter, a dreadful performance but technically less awful than the forecast 20.5% shrinkage. (For comparison purposes, a quarterly GDP shrinkage of 20.4% can be expressed as an annualised 81.5% contraction.)

It had been blindingly obvious for months that the Covid-19 lockdown would have savaged the UK economy. The only question was by how much, and even that was of little more than academic interest. Whether the quarterly collapse was 15% or 25% almost didn’t matter: it had taken place in the past and a recovery was already underway. So the GBP reacted positively – though not by much – to the news.


RBNZ expands QE programme

The other major news item this morning was the Reserve Bank of New Zealand’s Monetary Policy Statement. Investors had expected the central bank to keep interest rates unchanged and the RBNZ did just that, but it also expanded the quantitative easing programme by two thirds to $100 billion.

For good measure, the RBNZ statement mentioned “a possible need for further monetary stimulus… including a negative Official Cash Rate” (currently 0.25%). It also hinted that it was displeased with the strength of the NZD, even though the Kiwi has weakened by an average of 2.4% over the last six months.

Investors took the whole story at face value and marked down the NZD. It became the day’s weakest performer, falling by nearly a cent and a half against sterling.


Australian employment

There are consumer price index data today from Sweden, Italy and the United States but not a great deal else during London’s day. The most significant numbers come tonight, when Australia reports on the labour market in July.

Swedish inflation is forecast to be 0.3% while in Italy analysts reckon it will be 0.9% according to the Euroland HICP standard. Headline inflation in the States is pencilled in at 0.8% with core inflation (ex food and energy) at 1.1%. Euro zone industrial production, seldom a closely-watched figure, is expected to be up by 10% on the month and down by 11.5% from a year ago.

The Australian jobs numbers have a habit of surprising forecasters. The guess for tonight is that 40k jobs were added in July with unemployment rising from 7.4% to 7.8%. At midnight the RICS releases its UK house price balance, which is expected to have improved by 10 percentage points to -5%.

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