Two become one
The British Prime Minister’s announcement of a relaxation in lockdown rules did not come as surprise, though some of the details did raise eyebrows. Investors were generally supportive of the news and the pound rebounded after what had been a difficult morning. On average it is unchanged on the day.
Paradoxically the pound did better from the well-telegraphed easing of separation rules than it did from the unexpected strength of the provisional purchasing managers’ index readings. People must now stay one metre apart, not two, and from a week Saturday will be able to attend restaurants, hotels, pubs and hairdressers. Exhibition or conference centres must remain closed for events, so too must indoor gyms, spas, swimming pools and beauty salons. Overall, the change ought to be good for morale and therefore positive for the economy too.
As noted, investors were less impressed by the provisional PMIs. The services measure jumped 18 points to 47 and manufacturing inched into the growth zone at 50.1. Both numbers were at least five points better than forecast, yet sterling moved lower following their announcement, perhaps because investors had hoped both would indicate relative growth after the weakness of the previous three months.
Off the bottom
As in Britain, the other provisional PMIs on Tuesday also contributed to the feeling that relaxation of the global shutdown is allowing economies to regain their poise. Of the readings that failed to make it above 50, the majority were at least in the high forties and ten or more points better on the month.
Euroland was in at 46.9 for manufacturing and 47.3 for services. The respective US provisional readings were 49.6 and 46.7. At first glance the Richmond Fed’s manufacturing index at zero was unimpressive, but it was 27 points higher on the month and 53 points above April’s low. US new home sales rose by a monthly 16.6% in May after three months of decline.
The US dollar got some, but not much, help from treasury secretary Steve Mnuchin. He said he expects the recession to be over by the end of the year but as a member of the administration he would, wouldn’t he. Of greater interest were his hints of a delay to tax collection and the rollout of another fiscal stimulus package. The dollar lost an average of 0.5% and gave up half a cent to sterling.
It was four years ago today that sterling woke up to hear that Britain had voted to leave the European Union. The pound starts this morning an average of 3% below its position following that news and 10.4% down from its pre-referendum levels.
Over the four years from 24 June 2016 one of the pound’s few gains is the 1.1% by which it has risen against the NZ dollar (it is also higher against the Northern Scandinavian crowns). A chunk of that appeared overnight, following a policy announcement by the Reserve Bank of New Zealand that cost the Kiwi 0.5%. Although the RBNZ left rates unchanged investors were unnerved by its readiness “to provide additional stimulus as necessary. As well as potentially expanding the LSAP programme, the Committee continues to prepare for the use of additional monetary policy tools as needed.”
A sparse agenda for the rest of the day holds little promise. IFO’s measures of German business confidence and tonight’s NZ trade figures are the only ecostats that matter.