Most numbers don’t matter
Equity markets were fairly composed on Wednesday and oil was down by no more than 4%. For currencies, however, the ride was anything but smooth. Cable was knocked back and forth across a range of more than three cents and GBP/EUR was equally frantic. Amazingly, sterling was on average just about unchanged and the krone took first place again.
As suspected, the UK inflation data were dismissed by investors as irrelevant. More than a fifth of the “shopping basket” used to calculate CPI relates to recreation and restaurants. Spending in those areas will be severely limited in the immediate future. The same is arguably true of this morning’s retail sales figures for February. They were less than sparkling, with a monthly fall of 0.3% leaving sales unchanged on the year, but next month’s numbers will look a whole lot worse.
Yesterday’s US durable goods orders for February were perkier than forecast, with a 1.2% monthly rise. Today’s revision to fourth quarter gross domestic product is likely to confirm annualised growth of 2.1% (quarterly 0.5%), another meaningless historic curiosity. The number to watch will be weekly initial jobless claims. It is likely to be well north of a million.
After nearly a week of acrimonious political wrangling, the US Senate has unanimously approved a $2 trillion package of stimulus. It is certain to be approved by the House of Representatives on Friday and it has the support of the President. The news has not helped the US dollar, which is flat against sterling and a cent lower against the euro.
In Frankfurt, the European Central Bank is considering what else it can do to deliver the Euroland-wide stimulus that governments are unwilling to provide. Because collective government financing is not an option (Germany, the Netherlands and others will not commit to shared borrowings) the ECB is looking at Outright Monetary Transactions, a tool constructed during the European debt crisis in 2012. It differs from quantitative easing in that it is unlimited and can be targeted at the countries most in need of support.
In London, the Bank of England’s Monetary Policy Committee will hold its scheduled meeting. Following a letter yesterday to the commercial banks, encouraging them to play their part, it is unlikely that the bank will make any new change to monetary policy. It is expected that the chancellor will reveal this afternoon how he plans to look after self-employed and zero-hours workers who are not covered by the support measures announced previously.
Stimulus or jobs?
Ahead of the weekend investors will have two spectacular US statistics to weigh against one another. The $2 trillion federal stimulus and the two million jump in unemployment. Both are already out there but that does not rule out the possibility of a reaction when they become reality.
If there is one certainty about the current state of financial markets – especially the FX market – it is that liquidity is in short supply. Sterling’s gyrations on Wednesday were a classic example of how a thin market can produce exaggerated movements for no obvious reason.
With that in mind, it will be a toss-up between whether investors are reassured by the passage of the biggest stimulus bill in history or panicked by a record jump in joblessness. In either case, the pound could take another buffeting.