Daily Brief

And then… nothing

Mostly calm on Monday

Two currencies moved on Monday; the NZ dollar and the Norwegian krone. The remainder of the major currency field hardly budged and the pound is on average unchanged against the other majors. The mood was on balance positive but not universally so. Equities moved higher while oil gave up more of last week’s gains.

Other than to dismiss it as a function of innate illiquidity, there is no simple explanation for the krone’s 0.9% gain and its position at the top of the class. The usual link between oil and the NOK did not work at all: WTI crude was back around last Wednesday’s lows and appears to be under continued downward pressure this morning.

The Kiwi’s place at the rear is, on the face of it, far more straightforward. Westpac’s economists published a paper yesterday projecting that the Reserve Bank of New Zealand will lower the Official Cash Rate to -0.5% by the end of the year, in response to a sharp economic contraction. There is evidently still sufficient traditional thinking among investors to link negative interest rates with currency weakness. (The same logic does not of course apply to the Swiss franc, which has strengthened by 17% since the Swiss National Bank lowered its benchmark rate to -0.75% five years ago.)


Easy money

In response to the slow take-up of the UK government’s Coronavirus Business Interruption Loan Scheme (CBILS) the chancellor announced a new scheme, aimed as small businesses, which will be 100% underwritten by the Treasury. “Microloans”, of up to £50k will be, “simple, quick [and] easy” to obtain through an online form.

The previously announced CBILS has proved as cumbersome as its name, mainly because commercial banks have to take 20% of the risk. That being the case, they cannot simply nod through loans unthinkingly. They have to observe prudent banking practice, which takes time and involves the risk that the credit does not prove strong enough to justify a loan. That is especially the case in light of the Covid-19-related loan loss provisions already being forced upon the banks.

Bank of England governor Andrew Bailey was one of many senior figures who had argued that the government had to go further and Rishi Sunak yesterday made that commitment on Monday. He will not, however, go all-in on the larger CBILS programme because of the burden it would place on, “the ordinary taxpayers of today and tomorrow”.


Better than expected

Whilst not all of the last 24 hours’ economic statistics came in ahead of forecast, a couple of them did. Japanese unemployment remained low and Spanish unemployment was less than expected, as were the March decline in Norwegian retail sales and the fading of French consumer confidence.

As suspected, the Dallas Fed’s manufacturing index came in lower than expected, 3.7 points lower on the month and 75 points down from February at -73.7. Japanese unemployment ticked up to 2.5% but there were still 1.39 vacancies for every job applicant. Norwegian retail sales were supposed to have tumbled 10% in March but in fact were only down by 0.9%. Although the eight-point drop in French households’ confidence to 95 was “unprecedented”, it was still better than the predicted 83 reading.

Still to come from Europe this morning are Swedish trade and retail sales as well as the Riksbank’s monetary policy decision and the European Central Bank’s bank lending survey. In Britain the CBI’s Distributive Trades Survey reports on retail sales for April. US ecostats cover the trade deficit, house prices, consumer confidence and the Richmond Fed’s manufacturing index. New Zealand’s trade figures and Australian inflation come out tonight.

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