Strawberry fields forever
“We are likely to face a severe recession, the likes of which we haven’t seen.” So said Rishi Sunak, the Chancellor of the Exchequer, to the House of Lords Economic Affairs Committee on Tuesday. There is no evidence that the committee was shocked or amazed by his revelation.
Investors were not taken aback either: they had been under the impression that Britain and most of the developed world were already embroiled in a severe recession. The Chancellor’s observation that “it’s not obvious there will be an immediate bounce back” sounded similarly behind the curve. Environment minister George Eustice’s suggestion that Britons should apply for jobs as fruit pickers might have sounded desperate had it not been that the “Pick for Britain” website promptly crashed.
Meanwhile on the Brexit battlefield, the government continued to gripe about the unfairness of it all. UK negotiator David Frost said the EU was treating Britain as an “unworthy” trading partner. Cabinet minister Michael Gove, without a trace of irony, accused the EU of maintaining an “ideological approach”. To help things along the government published a dozen suggested agreements, supported by a paper setting out “The UK’s Approach to Negotiations”. None of it made a jot of difference to sterling, which is on average almost unchanged on the day.
Optimism in Germany
Monday’s euphoria about a Covid-19 vaccine evaporated on Tuesday “after a report from medical news website STAT cast doubt over encouraging early results from Moderna”. The consequent erosion of risk-appetite had more effect on equities than currencies: the NZ dollar won the day while the yen took last place.
The Kiwi did have a slightly unfair advantage though. A week ago it had tumbled when Adrian Orr, the governor of the Reserve Bank of New Zealand, said he “would not rule out” negative interest rates. This morning the NZ dollar moved higher when Mr Orr told Bloomberg that negative rates could come “a lot later” but are not appropriate at the moment.
The most important of Tuesday’s ecostats was ZEW’s measure of German economic sentiment. It improved for a second successive month to a five-year high of 51. “Optimism is growing that there will be an economic turnaround from summer onwards.”
This morning Australia reported a 17.9% fall in retail sales. It was the biggest ever monthly fall and followed the biggest ever (8.2%) monthly rise in March. A dozen price indices at London’s opening put UK headline inflation (13) at a lowly 0.8%.
There was a marked divergence between UK factory gate prices (down by 0.7% in the year to April) and manufacturers’ costs (down by 9.8%). Lower energy prices were the biggest factor in reduced costs. Bank of England governor Andrew Bailey might have something to say on the matter when he attends Parliament’s Treasury Committee this afternoon.
There are more inflation numbers today from Euroland and Canada. This evening the US Federal Open Market Committee will publish the minutes of last month’s meeting.