Waiting for Sue Gray

The Covid pandemic continues to make itself felt in financial markets, not least because it complicates the job of economic forecasters. Friday’s UK and Canadian retail sales figures were an example, with both sets falling short of predictions and British sales falling by six times as much as expected in December.

It was of no consolation to investors that December’s sales were higher than before the pandemic in February 2020. The GBP was already on the defensive ahead of the data, partly due to a softening of consumer confidence, and it slipped further on Friday morning for a daily loss averaging 0.2%. Sterling is lower on the week too, by much the same proportion, but it was beaten only by the CAD over the month since Christmas Eve.

The economic headwinds faced by Britain are not markedly different from those troubling the rest of Europe: rising prices, especially for energy and supply chain holdups. Sterling has the additional problem of a government under political fire from all sides, even from its own team. A host of personal challenges to the prime minister relate to everything from cocktails to wallpaper. It is possible that Sue Gray, the Second Permanent Secretary in the Cabinet Office, will complete her inquiry this week, but it is not certain that the prime minister will allow the findings to be made public.

Ending with a whimper

Retail sales aside, last week ended with more of a whimper than a bang. The rest of Friday’s ecostats were few and relatively low-key.

In fact, there were only two other economic statistics to entertain investors on Friday. Canada’s new housing price index rose 11.6% in 2021, slightly less than the 15.5% seen by Teranet earlier in the week for the market as a whole. In Europe, consumer confidence was almost unchanged in January at -8.5, and very close to its pre-pandemic level.

European Central Bank President Christine Lagarde took part in the virtual World Economic Forum, defending the ECB’s laissez-faire attitude to inflation. She argued that Europe did not share the United States’ “state of excessive demand”. The EUR was steady against the USD and just about unchanged on average.

PMI

A busy week lies ahead with monetary policy decisions from the US Federal Reserve and the Bank of Canada. It began today with the first of the provisional purchasing managers’ indices from Markit.

Australia opened the proceedings with a disappoints set of numbers. The manufacturing PMI was two and a half points lower on the month at 55.3, with the services figure plunging by 10 points into the contraction zone at 45. Overall, Australia’s private sector shrank for the first time in four months, with the composite PMI coming in at 45.3. Covid bore the blame. Japan shared a similar fate, for a similar reason, with the composite PMI falling two points to 48.8.

There are plenty more provisional PMIs to come, with UK manufacturing and services estimated at 57.9 and 55 respectively. The Eurozone is pencilled in at 57.5 and 48, with the USA at 56.8 and 55. The only other ecostats during London’s day are Chicago Fed’s national activity index and the Dallas Fed’s manufacturing index. Australia’s consumer price index data is due to come out tonight.

The next market update will resume this Friday with the weekly review.