Daily Brief

Remember Brexit?

Sterling lags

Tuesday was uncomfortable for sterling. A number of factors, none of them individually too dramatic, combined to make the pound the second least-loved major currency ahead of the benighted Norwegian krone. The krone took last place for the fifth time in seven days, thanks to another relapse for oil prices.

The best part of sterling’s day was arguably the employment figures for February/March, which came out before London opened. They were out of date and not particularly punchy but there was nothing nasty among them. The pounds problems really stemmed from the political narrative, and the growing perception of a directionless government in desperate need of a leader. The persistent shortage of PPE for hospital staff either was or was not exacerbated by political distancing from the EU and supplies from elsewhere have appeared disorganised.

Moreover, the spectre of a no-deal Brexit has reappeared. Former deputy Prime Minister David Liddington argued that Covid-19 makes extension [to the transition period] inevitable”, because, “There is not enough bandwidth to pay attention to Brexit in Whitehall or the European Commission and the major capitals”. The Foreign Office responded swiftly, insisting 31 December was still the deadline, with or without a trade deal. Sterling fell an average of 0.6% on the day, giving up a cent and a quarter each to the US dollar, the euro and the Swiss franc.


Greater optimism

ZEW’s surveys of investor confidence in Germany and the euro zone were, at first glance, much more upbeat that might have been thought. Economic sentiment in Germany jumped 77.7 points from -49.5 to +28.2. But all is not as it seems.

Essentially, the much higher reading reflects the difference between investors’ extreme bearishness in March and their modest optimism in April; “The financial market experts are beginning to see a light at the end of the very long tunnel”. They are far less sanguine about the current situation, which was marked down from -43.1 to -91.5.

In the United States there was no surprise when existing (as opposed to new) home sales fell 8.5% in March. Nor was there much reaction when the Senate approved another half-trillion dollars’ worth of stimulus, mainly aimed at small businesses.


Inflation readings

Consumer price index data today cover the situation in Britain, South Africa and Canada. The UK numbers put headline CPI inflation at 1.5%, down from 1.7% in February, with RPI inflation a tick higher on the month at 2.6%.

Data released overnight by the Australian Bureau of Statistics showed retail sales increasing by 8.2% in March, “the strongest seasonally-adjusted rise ever”, with “unprecedented demand” for food. As with the Brits, the Aussies were stockpiling products such as “toilet and tissue paper, and rice and pasta”.

The other items on today’s agenda are US house prices and Euroland consumer confidence. Tonight brings the first of the provisional purchasing managers’ index readings, from New Zealand and Australia.

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