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Confidence nil points

Covid again

There was no doubt about the main element of Monday’s market: a severe and acute loss of bottle. The JPY, CHF and USD took the first three places, in that order. At the rear, reading from the back, were the NOK and NZD (joint last), the CAD and the AUD. Share and commodity prices were lower, as were bond yields.

Regrettably, it looks as though investors have lost their earlier confidence that the global economy will be able to recover quickly from the Covid pandemic. Around the world the infection numbers are heading higher again. Even in Britain, where two thirds of the adult population has been vaccinated, positive daily tests are climbing back towards January’s peak. Whilst the vaccine has dramatically diminished the lethality of Covid 19, the test and trace system has decimated the workforce.

The picture is not all bleak. In the United States, the Covid-induced recession is officially over. What’s more, it ended over a year ago after only two months. Although the traditional definition of a recession is two successive quarters of negative GDP growth, America has a National Bureau of Economic Research Business Cycle Dating Committee to rule on the matter. In its opinion, the recession is long gone, but investors are not convinced, as they demonstrated yesterday. One reason for that scepticism will be that US payrolls are still down at the level of early 2017, 6.7 million below their pre-pandemic high.

 

Running scared

As promised yesterday morning, there were no economic data of any consequence to currencies. Nor was there much to be had from the ecostats and developments overnight. The most interesting event, at least for sterling, was a speech by external MPC member Jonathan Haskel.

To get the data out of the way: Eurozone construction output increased in May by a monthly 0.9% and was up by 13.6% on the year; America’s NAHB measure of house-builder confidence edged down from 81 to 80, dented by the rocketing price of timber-based materials.

Imperial College Professor Jonathan Haskel published a speech entitled “Will the pandemic ‘scar’ the economy?”. He concluded that it probably would not due to the “immense support” provided by the bank and the government. However, “considerations lean against a pre-emptive tightening of monetary policy [and] for now, tight policy is not the right policy.” Professor Haskel’s stance suggests there will be no quick tightening decision from the MPC.

 

The snooze continues

Today’s agenda points to more of the same, with nothing of any obvious market-moving potential. The two main events have already happened, and they were not very eventful.

The People’s Bank of China kept its benchmark interest rates unchanged. The Reserve Bank of Australia minutes suggested no upward move for interest rates before 2024. Japanese inflation forged ahead to 0.2%, its highest level since last September.

Switzerland’s balance of trade and the Eurozone’s current account this morning are accompanied by the mildly-interesting European Central Bank Lending Survey. After lunch come US housing starts and building permits. Tonight, Japan’s trade figures are followed by the more important Australian retail sales.

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