Daily Brief

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Apocalypse rescheduled

Upside down

The story on Wednesday was all about weakness in Germany and China, inverted yield curves and the implications for a global recession. Tuesday's optimism went out of the window, along with shares, oil and other "risky" assets. The safe-haven Japanese yen and Swiss franc were the only currencies to strengthen against sterling.

Neither Tuesday's awful German confidence readings nor yesterday's news of shrinking gross domestic product were immediately damaging to the euro. Technical support at $1.1160 twice prevented it falling yesterday. At the third attempt, that support gave way and the euro lost a fifth of a US cent on the day. It is also a fifth of a cent lower against the pound.

But that was the detail: on the bigger stage it was fear of recession that had investors on the run. The US yield curve (and that of other countries too) has inverted. Short-term government bonds offer a better return than 10-years. Traditionally, such a state of affairs occurs ahead of a recession. An inverted yield curve does not guarantee a recession. It is not even an immediate indicator - the downturn, if it happens, could be two years away. Even so, it was enough to put the wind up investors yesterday.

Train fares to rise

The UK consumer price index rose 2.1% in the year to July while the old retail price index, which includes housing costs, was up by 2.8%. RPI is the measure used by train companies to calculate their annual fare increases, because it is higher.

Sterling gained ground after the inflation data came out, perhaps because most of the components were above forecast. There was no follow-through, and Cable topped out a little less than half cent higher a couple of hours later. It fell all the way back and sterling is net unchanged against the US dollar.

There was progress of sorts on the Brexit front when Labour Party leader Jeremy Corbyn came out with a proposal to install himself as Prime Minister so that he could call a general election, delay Article 50 and avert a no-deal departure. Whatever the merits of the strategy, the practical obstacles are many and investors have not immediately warmed to the idea.

Aussie jobs, retail sales

This morning's Australian employment data were unequivocally good. With 41k new jobs, the majority of them full-time, unemployment was steady at 5.2% and the participation rate ticked up to 66.1%. The Aussie strengthened on the news and is virtually unchanged on the day against sterling.

Next up today is Norges Bank, which is expected to keep the krone benchmark rate steady at 1.25%. Then came the UK retail sales data. The sales figures in recent months have more often been a surprise than not. Analysts are guessing that they fell 0.2% in July. US retail sales follow after lunch. The forecast there is that they were up by a monthly 0.3%.  

There will not be much to look at on Friday. The provisional Michigan Consumer Sentiment Index is the only ecostat of real importance.

GBP: In third behind the safe-havens

GBP: In third behind the safe-havens

AUD: Good employment data

AUD: Good employment data

JPY: Back on top as risk appetite evaporates

JPY: Back on top as risk appetite evaporates

USD: Recession fears on yield curve inversion

USD: Recession fears on yield curve inversion

EUR: Eventually loses ground

EUR: Eventually loses ground

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