Daily Brief

Brexit jitters again

Saved by the data

Sterling ended the week on a relatively even keel, but what a week! A 3% loss over the seven days left the pound an average of 5.2% below its position at the start of the year. Even Friday’s relative evenness took it lower against just about everything.

There has been much in recent days to make investors uneasy about Britain and its currency. Tough new restrictions on personal interaction come into effect this morning. After lunch the Prime Minister will ask Parliament to make significant alterations to his EU Withdrawal Bill, which he described in January as a “fantastic moment” for the country, ending years of “argument and division”. However, there are serious reservations on both sides of the House about what it would mean for Britain’s reputation, with past PM's Tony Blair and Sir John Major saying the changes could imperil the Good Friday Agreement. 

What came to sterling’s aid on Friday were the UK economic data, most of which were in line with or ahead of expectations. Gross domestic product expanded by a provisional 6.6% in July after growing 8.7% in June. The caveat there was that the economy is still 11.7% smaller than it was in February prior to the Covid-19 pandemic. It was a similar story for output: although manufacturing and industrial production were down by 7% from February’s levels, they both increased strongly in June and July.

 

Inflation spread

Consumer price index data from Europe and the United States told different, but equally irrelevant, stories. The numbers from Germany and Spain did not at all chime with the European Central Bank’s projections for accelerating inflation. The US data will make no difference to the FOMC’s policy decision this week.

And that was pretty much all investors had to run with on Friday (except, of course, for the capricious pound). In Germany inflation was flat in the year to August, or -0.1% using the EU’s HICP standard. In Spain the CPI for August came in at -0.5%. In the US meanwhile, headline inflation went up from 1% to 1.3% and core inflation, ignoring food and energy prices, ticked up to 1.7%.

In Canada the industrial product price index “edged up 0.1% on a month-over-month basis in August, its fourth consecutive month of growth”. Compared with a year ago the IPPI was down by 2.4%, its seventh consecutive month of year-on-year decline.

 

Brexit’s back, again

For six months the tragic Covid-19 pandemic has monopolised the front pages but now Brexit is striving to reclaim its place. This afternoon’s second reading of the Internal Market Bill will not be the end of the matter: two days in committee follow, together with many more in acrimony.

Brexit aside, the biggest news today is the appointment of a new Japanese Prime Minister to replace the veteran Shinzo Abe, who stood down because of ill health. Chief Cabinet Secretary Yoshihide Suga has won the job, subject to Parliament’s rubber stamp. Although he will doubtless put his own spin on policy, Suga is unlikely to divert the broad thrust of the “Abenomics” pursued by his predecessor.

Ecostats today cover EU industrial production and South African unemployment. Tonight the Reserve Bank of Australia publishes the minutes of its last policy meeting.

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