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Hey Dude

Don't make it bad

Whether at relief that the two-month interregnum was over, or in hope that the incoming prime minister will not stick rigorously to his no-deal-Brexit campaign promise, investors gave sterling the benefit of the doubt yesterday. It is higher this morning than in the minutes before Mrs May's replacement was confirmed.

During the course of the two-month selection process sterling has lost an average of 2.7% to the other major currencies, including two and a quarter US cents and one and two thirds of a euro cent. Much of that damage was the result of the "31st of October do or die" stance adopted by Boris Johnson, which carried with it the explicit risk of no deal.  

Now that he has the job, the hope is that realpolitik and compromise will replace rhetoric and tub-thumping. His Commons majority is paper-thin and objection there to no-deal is as solid as it was six months ago. Should he succeed with a cliff-edge Brexit there would be yet more downward pressure on sterling.

Meanwhile in Scunthorpe

As the media were digesting the news of a new prime minister, Bank of England chief economist Andy Haldane was speaking in Scunthorpe about "Climbing the Jobs Ladder". It was mostly technical stuff but inevitably included speculation about the effect of Brexit.

Towards the end of his discourse Mr Haldane addressed the possibility of lower interest rates. He summarised that "I would be very cautious about considering a monetary policy loosening, barring some sharp economic downturn". His words were at least theoretically positive for the pound.

The same cannot be said of the CBI's Industrial Trends Survey, which came earlier in the morning. At -34 it was 19 points below forecast and 19 points lower than expected. "Optimism fell at the fastest pace since July 2016 – just after the referendum – and investment spending plans weakened again."  The US data were no more impressive. Existing home sales fell 1.7% in June and the Richmond Fed's manufacturing survey dropped 15 points to -12.

Provisional PMIs

A long list of provisional purchasing managers' index readings from Europe and the States will be examined closely today. The recent trend has been downwards almost across the board.

At least in Europe analysts expect more of the same today, though there could a small improvement in Germany, where they expect the manufacturing PMI to pick up from 45.0 to 45.2. The US readings could be a touch higher too. Britain does not report provisional figures. The other important US ecostat is New Home Sales. A 6.0% monthly increase is expected for June after a 7.8% decline in May.

Overnight New Zealand reported a $365 million trade surplus for June. It was a better result than expected, as was the below-forecast $4.9 billion annual deficit, but was of no consolation to the Kiwi. The NZ dollar shares last place for the day with the Aussie, down by two thirds of a cent against sterling.

GBP: Manufacturing optimism falls

GBP: Manufacturing optimism falls

USD: Manufacturing optimism falls there too

USD: Manufacturing optimism falls there too

EUR: Manufacturing PMIs today

EUR: Manufacturing PMIs today

NZD: No help from better trade data

NZD: No help from better trade data

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