Daily Brief

Covid and growth

Not to be ignored

Having for a couple of weeks turned a blind eye to flare-ups in Covid-19, investors cottoned on to the idea that the route out of the tragic pandemic will not be an easy one. Equities fell across the board on Wednesday, as did oil prices. The traditional safe-havens shared second place behind the US dollar.

New York, New Jersey and Connecticut said on Wednesday that they will require arriving travellers from southern states with high rates of infection to quarantine for 14 days. The announcement forced investors to confront the reality that this is far from over. As if to fan the flames of economic concern, the Trump administration let it be known that it is considering another $3.1 billion of import tariffs on European goods.

For good measure, the International Monetary Fund updated its World Economic Outlook, the bottom line of which is that global gross domestic product will shrink by 4.9% in 2020. Growth in 2021 is projected at 5.4%, leaving 2021 GDP 6½ points lower than in the pre-Covid projections of January. Individual predictions for this year include -8% for the USA, and -10.2% for Euroland and Britain.


October Brexit target

Following the warning last week that any post-Brexit trade deal must be fleshed out by October, Brussels and Downing Street are preparing for a new round of talks next week. Investors got the impression yesterday that both sides genuinely believe a deal to be possible but practicalities could yet prevent it happening.

A Reuters poll found a consensus that a trade deal will be achieved, and that the economy will expand by 5.5% next year after contracting by 8.7% in 2020. Sterling held its own during the morning but lost ground after lunch to the US dollar, the euro and the safe-haven franc and yen. It is down by one US cent and a fifth of a euro cent, and unchanged on average against the other majors.

There was little to learn from the ecostats on Wednesday. The improvements in German business and consumer confidence were roughly in line with expectations.


Low-profile pound

The paucity of UK economic data ahead of the weekend should allow sterling to keep its head down and avoid conflict. Most of the ecostats will come from the United States, the most prominent being this afternoon’s weekly jobless claims and monthly durable goods orders.

This morning’s Distributive Trades Survey from the CBI will give a feel for UK retail sales in June. There should be an improvement on the month, if not on the year. The Bank of England will release the Financial Policy Statement and the European Central Bank will publish a precis of the last monetary policy meeting. After lunch, analysts expect a 10.6% monthly rise in US durable goods orders and 1.3 million new jobless claims.

Friday starts with NZ consumer confidence and stumbles on through Swedish retail sales and US personal income and expenditure to the finalised Michigan index of consumer sentiment. At lunchtime the Bank of England prints its Quarterly Bulletin.

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