The nervousness of early in the week continues to discourage investors. Tighter anti-Covid restrictions in the UK have been accompanied by similar moves in France, Italy and Spain. Expectation of an early US fiscal stimulus package has been downplayed by the administration. The risk-off mood on Wednesday was clear.
Fed Vice Chairman Richard Clarida confirmed his boss’s view that US interest rates will not begin to move higher “until it sees 2% inflation for at least a few months and full employment is reached”. He also believes further broad fiscal stimulus will be necessary. Larry Kudlow, the US President’s economic advisor, is not so sure. He said yesterday: “I don’t think the V-shaped recovery depends on the package, but I do think a targeted package could be a great help.” It was not what investors wanted to hear.
New York share prices moved lower, and were followed down this morning by Sydney and Tokyo. Oil remained stalled, and gold fell further below its 3-month moving average, more than 10% off its August peak. The Norwegian krone was hardest-hit, falling 1.4% against sterling, and the antipodean dollars were both down by 1.1%. The USD beat the GBP by a nose, while the EUR and CHF shared a very close third place.
The provisional purchasing managers’ index readings did not improve the mood. Of the 14 from Europe and the US, only four – for French, German, Eurozone and US manufacturing – came in ahead of forecast and higher on the month. Britain’s PMIs were both roughly a point lower on the month.
Beyond the PMIs there was little statistical inspiration. America’s FHFA House Price Index delivered a second successive 1% monthly rise in July, matching the high of March 2013. The FHFA attributed the rise to cheap money, high demand and constrained supply.
Overnight New Zealand reported the first real annual trade surplus since 2014. Stats NZ said it was the result of a large fall in imports in August.
After furlough, what?
A big day for sterling today will centre on Chancellor of the Exchequer Rishi Sunak and what he proposes to do for the two and a half million people on furlough and the unknown number whose jobs are at risk as a result of renewed Covid containment measures.
There is no shortage of recommendations from industry groups about what he should do, nor any lack of guesses by media commentators as to what will transpire at midday when Mr Sunak goes to the despatch box. Whatever he comes up with will have major implications for the UK economy and the pound, the more so in view of the Prime Minister’s six-month horizon for anti-Covid measures and the three-month deadline for a post-Brexit trade deal with Europe.
In other news, interest rate decisions are due today from Switzerland, Norway and Turkey. Many economists believe Turkey’s central bank should raise rates; most think it will not. Economic data today cover German business confidence, UK retail sales, US jobless claims and new home sales. Tomorrow’s relate to UK and Italian consumer confidence, UK public sector borrowing and US durable goods orders.