Daily Brief

Very slight relief

More BoE QE?

Wednesday had the feel of an ordinary risk-off day. The safe-haven Japanese yen was out at the front, followed by that other default purchase in times of doubt, the US dollar. Sterling lost an average of 0.2% and was all but unchanged against the euro, the Canadian and NZ dollars, and the Swedish krona.

The UK economic data which came out ahead of London’s opening had surprisingly little effect. Yes, they were mostly better than forecast but not even through the most rose-tinted spectacles could they be described as good. The pound drifted mostly higher through the morning before making another lunchtime down-turn. It eventually lost one yen and three fifths of a US cent.

Bank of England governor Andrew Bailey featured in a TV interview last night, which was trailed on the ITV website a couple of hours in advance. Mr Bailey defended the bank’s financial support for the Treasury, saying “we can help to spread over time the cost of this [pandemic] thing to society”. Without promising to do so, the governor gave the impression that the bank will further increase monetary stimulus.


Forget negative US rates

Mr Bailey’s opposite number at the US Federal Reserve also made an appearance and he, too, hinted at more monetary and fiscal stimulus. In his prepared remarks at the Peterson Institute he said the steps taken so far “may not be the final chapter”.

Asked about negative interest rates, Mr Powell said “It’s an unsettled area, I would call it. I know that there are fans of the policy, but for now it’s not something that we are considering.” It confirmed his observation a few weeks ago that negative rates are “not an appropriate policy response”.

The US dollar responded positively and swiftly to the chairman’s reassurance. It strengthened by an average of 0.3%, adding two fifths of a cent against the euro. There were no US ecostats of any real significance, the sole offering being a 0.6% annual rise in core producer prices.


It could be worse

Today’s ecostat agenda opened up with more not-as-bad-as-they-might-have-been numbers. UK house prices were under less pressure than expected. Australia’s rate of unemployment was lower than forecast, as was Italy’s.

The monthly RICS survey found a net balance of 21% UK estate agents reporting lower prices in April: the betting had been on -38%. Unemployment in Australia rose by a percentage point to 6.2% in April, an improvement on the predicted 8.3% but still representing a net loss of nearly 600k jobs. Treasurer Josh Frydenberg said the report was "heart-breaking". A handful of early reports from Europe included a slowdown in Italian unemployment from 8.1% to 7.8%, and a pick-up in German inflation from 0.8% to 0.9%.

Slim pickings today include the European Central Bank’s economic bulletin and US weekly jobless claims, which have recently been in the millions. On Friday Germany and the euro zone update first quarter gross domestic product growth, expected to be unchanged at -2.2% and -3.8% respectively. The American numbers cover April’s retail sales and industrial production, the provisional consumer sentiment reading from the University of Michigan and the New York Fed’s manufacturing index.

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