More help from the Treasury
On Tuesday there was another burst of governmental and central bank efforts to pour water on the flames of economic meltdown. In Britain, the Prime Minister tried to mitigate the effect of his warning on Monday to stay away from pubs and clubs. In the States, the President backed a plan to make direct payments to individuals.
A joint presentation by Johnson and the Chancellor of the Exchequer introduced a package of £330 billion of loans to business that have been hit by a sudden lack of customers. Cash grants of £25k will be made to retail, leisure and hospitality firms and businesses of every type can apply for grants of £10k. “Every single shop, pub, theatre, music venue, restaurant… will pay no business rates for 12 months.” For good measure, the prime minister said he would “do whatever it takes to support our economy”. At the same time, the Bank of England will provide funding by buying commercial paper.
The plan was reasonably well-received by investors. Sterling was on average just about unchanged on the day and flat against the euro. It was unaffected by data that showed unemployment ticking up to 3.9% and basic wages increasing more quickly than prices at 3.1% a year.
Not only has the US President undergone a Damascene conversion with regard to the clear and present danger posed by Covid-19, he is ready to sign more than a trillion dollars’ worth of “helicopter money” cheques to keep the economy moving. The news did nothing to deter investors from buying the dollar.
A trillion here, a trillion there, and soon you are talking about a lot of new money. It might normally be expected to make investors at least a little wary about the currency, but with the US dollar, it is not working like that at the moment. Since the Fed’s first unscheduled rate cut at the beginning of the month, the Greenback has strengthened by 5.3% against sterling, not quite as much as the yen’s 5.9% or the franc’s 5.4% but there or thereabouts. It was the top performer on Tuesday with a gain of 1.1%.
As Britain and the United States wheel out their big monetary guns, the EU remains divided about the economic response to Covid-19. From an economic standpoint, the European Central Bank is still holding the baby, with little scope to do more than it has already done. Where the 26 could agree was on keeping foreigners at bay. The EU has banned travellers from outside the bloc for an initial 30 days and rebranded the Euro 2020 football tournament as Euro 2021.
It was no surprise yesterday to see ZEW’s surveys revealing sharply lower confidence among investors. Economic sentiment in Germany and Euroland plunged to -49.5, its lowest level in nearly eight years and the biggest ever monthly drop. The euro was already in retreat against the US dollar when the data came out.
And the dollar was already well ahead when the US Census Bureau announced a 0.5% monthly fall in retail sales. Altogether it added a cent and a third against the euro. Other data on Tuesday showed a 0.2% fall in Canadian manufacturing sales and a 3.9% decline in NZ milk prices.
There are inflation readings today from South Africa, Euroland, Canada and, tonight, Japan. New Zealand reports tonight on fourth quarter gross domestic product and Australia prints the jobs numbers for February. It would not be a surprise if the Reserve Bank of Australia were to make its second rate cut of the month.