They love it not
In some parallel universe, the pound is pulling the petals off a daisy one by one, saying “they love me, they love me not, they love me…” A ludicrous notion? Sure, but find a better reason for sterling’s roller-coaster ride last week: top on Tuesday, bottom on Wednesday, top on Thursday, bottom on Friday.
Not for the first time, the pound is behaving like an emerging market currency. The reason this time is the same as in the last couple of occurrences: Brexit brinkmanship. There were reports at the weekend that cabinet minister Michael Gove is “working round the clock” to achieve a no-deal Brexit after “little progress” was made at last week’s – theoretically final - negotiations. The EU’s Michel Barnier was “disappointed and concerned”, while Britain’s David Frost said he wanted a deal which “ensures we regain sovereign control of our own laws, borders, and waters”.
Investors worry that ideology is taking precedence over pragmatism in the British camp, especially now that the deputy prime minister, by his own admission, is devoting all his efforts to a no-deal Brexit. And since that was the last word on the subject on Friday, that is how sterling found itself once again on its knees, with a daily loss of 0.7%. For the week as a whole, the picture was rather brighter, with sterling an average of 0.3% ahead as a result of its endeavours on Monday, Tuesday and Wednesday.
Another recurring theme popped up on Friday when the pound lost ground in the aftermath of uncontroversial UK economic data. It first happened on Wednesday with the inflation numbers then on Friday following the retail sales and public sector borrowing figures.
Public sector borrowing for July was a touch lower than expected at £25.9 billion. That amount took total UK public sector debt (excluding publicly-owned banks, etc.) above £2 trillion for the first time. The retail sales figures for June showed a monthly rise of 13.9%, which took total sales back up to pre-pandemic levels. Provisional purchasing managers’ index readings for August were also better than forecast, with manufacturing two points higher at 55.3 - a six-year high - and services up by three and a half points at 60.1.
The UK PMIs were more impressive, both absolutely and relative to forecast, than its peers’. America challenged, with 53.6 and 54.8 for manufacturing and services. Euroland disappointed with 51.7 and 50.1. Canada had the edge with retail sales, reporting a 23.7% monthly increase in June, which helped the Loonie to reverse the morning’s decline. The CAD was the second best performer on Friday, narrowly behind the USD and two cents firmer against sterling.
Waiting for tomorrow
Today is a global statistical desert. At a practical level the only numbers that matter are NZ retail sales, already out, and the Chicago Fed’s national activity index.
NZ retail sales were predictably poor in the second quarter as a result of the country’s lockdown and self-isolation. They were down by 15% over the three months after falling 1.2% in Q1.
Beyond the Chicago Fed’s index, even looking further afield there is little to entertain or educate. Singapore inflation came in at -0.4% this morning. Finnish producer prices fell 5% in the year to July. Yet to come are South African unemployment, Polish money supply and Israeli interest rates (no change expected to the 0.1% benchmark).