Daily Brief

Daily Brief

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Mainly optimistic

Unshocked

UK economic data at the end of last week were fairly run-of-the-mill. The provisional purchasing managers’ indices beat expectations while the other statistics missed forecast but not by a mile. Sterling came out of the three-day weekend ahead on most fronts despite a growing clamour about the prime minister’s advisor.

Markit’s provisional PMIs came in at 40.6 for manufacturing and 27.8 for services. Investors had been looking for 36 and 25 so were pleasantly surprised. The “rapid downturn” in private sector output continued in May but the speed of decline eased since April. Although activity is still slowing, it is slowing more slowly. The CBI thought differently: According to its Industrial Trends Survey, “manufacturing output volumes in the three months to May dropped at the fastest rate on survey record (since July 1975)”. The -62 reading was eight points lower on the month but only three points below forecast. GfK’s index of UK consumer confidence was steady on the month at -34 with one component higher, one lower and three unchanged.

Friday’s UK retail sales figures for April were just as awful as investors had anticipated. Overall sales were down by 22.6% after falling 5.8% in March. It was a record decline that affected all but online retailers and alcohol sales. Public sector net borrowing at £61.4 billion for April was a theoretical shock compared to the predicted £35 billion shortage. However, furloughs, grants and subsidies have been scattered like confetti in recent weeks and ridiculously large deficits are the new normal. Sterling is a fifth of a euro cent to the good since Thursday and all but unchanged against the US dollar and yen.

 

Unworried

With lockdown measures being progressively relaxed around the world investors are inclined more towards optimism than pessimism. The main currency beneficiaries over the weekend were the Commonwealth dollars.

New Zealand’s dollar added two thirds of a cent against sterling despite mixed ecostats. Retail sales fell 0.7% in the first quarter after levelling out in December. The goods trade surplus widened in April in comparison with the same month last year as imports fell by five times as much as exports. Canadian retail sales “plunged” 10.0% in March, exactly as predicted. The Loonie nevertheless strengthened by 0.4% against the pound, as did the Australian dollar, which had no domestic data to affect it one way or the other.

German data on Monday were uncontroversial. Gross domestic product contracted by a quarterly 2.2% in Q1 as previously estimated. Two of IFO’s three business confidence measures improved in May with only the current assessment lower, by half a point.

 

Sales and prices

Half of the ecostats on today’s agenda relate either to sales or prices. The sole UK statistic is the CBI’s Distributive Trades Survey for May, which is pencilled in at -50%. That would be an improvement on April’s -55%.

Data already released in Europe put German consumer confidence at -18.9 for May, four points better on the month. Switzerland’s trade surplus widened slightly in April with exports falling 24% on the month and imports down by almost 30%.

After lunch the US data cover house prices, new home sales, consumer confidence and manufacturing in the Dallas Fed district. Governor Poloz and deputy governor Wilkins of the Bank of Canada will be speaking this evening, as will the Minneapolis Fed’s Neel Kashkari.

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