Daily Brief

Sterling's main event

Andy’s last day

Today’s Bank of England Monetary Policy Committee meeting will be the last one attended by Chief Economic Andy Haldane. Some suspect he will use the opportunity to vote for a rate increase, and that he will be the only member to do so.

The MPC announcement at midday is the main event for sterling ahead of the weekend. Its two supporting acts will be tomorrow’s consumer confidence reading and the Bank’s Quarterly Bulletin.

Important data today cover US durable goods orders and the revision to first quarter gross domestic product. Tonight brings the NZ balance of trade. German consumer confidence appears on Friday morning, followed by US consumer confidence in mid-afternoon. There is also data tomorrow for US personal income and spending.


Non-committal Fed

A week on from the Federal Reserve’s supposedly hawkish policy meeting, little has changed. Most notably, after two days at the front of the field and three days at the back the Japanese yen is flat against sterling; plenty of heat but no light.

With 0.8% separating the yen from Wednesday’s leader, the NZ dollar, Wednesday was another day of FX minimalism. At the open there was an attempt to take sterling higher, which came to nothing. They tried to do the same with the euro in mid-afternoon but that, too, was reversed before long. Investors could find nothing among the economic data – mostly comprised of provisional purchasing managers’ indices – to justify doing much with anything, so mostly they didn’t.

The commentary from Federal Reserve officials did little to clarify the picture. Boston’s Eric Rosengren expects inflation to come down to slightly above 2% next year. Chairman Powell believes the price surge will ease on its own, without central bank action. Governor Michelle Bowman thinks the temporary inflation rush may last for longer than expected. Atlanta’s Raphael Bostic thinks rates might have to go up next year. Some investors believe the divergence of opinion is evidence of policy disagreement: others see it as a sign that the Fed is keeping its options open, so as to be ready to jump either way. The USD is unchanged on the day against the EUR and CHF.


PMIs hit by realism

Having bounced dramatically as lockdowns were lifted around the world, it should perhaps not come as a surprise that purchasing managers’ indices have not continued ever higher into the stratosphere. They are after all limited to a 0 – 100 range and the bell curve peaks at 50. Nevertheless, analysts’ optimism for yesterday’s readings was overdone in some cases.

Eurozone was not one of those cases. The composite provisional PMI reached a 15-year high of 59.2, helped by a 10-year high from Germany. It might seem churlish to describe an 11-month high from France as a disappointment but analysts had predicted an even better result. A full set of two-month lows from Britain was unambiguous, unlike the two-month low from the United States, which coincided with a record high for manufacturing.

Wednesday’s other ecostats put South African inflation at 5.2%, as forecast, and showed Canadian retail sales falling by more than expected. A 5.9% monthly fall in US new home sales came as a surprise, yet was completely ignored by investors, who promptly sent the dollar higher.


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