Daily Brief


Off the pace

There was a distinct absence of purpose to currencies – and, for that matter, to financial markets in general – on Friday. The US dollar, the yen, the Swissy, the Swedish krona and the euro all wandered in pretty much the same direction. They were followed by the Commonwealth dollars, the Norwegian krone and the British pound. Sterling was the overall loser but not by much.

The lack of direction owed much to a shortage of new news. The growing number of new Covid-19 cases was uncomfortably high in many places, but not markedly different from Wednesday or Thursday. The Federal Reserve’s stress tests on US banks produced results that were not disclosed in detail to investors and were criticised by some as being out of touch with the current situation. Nevertheless, the very lack of detailed results meant investors had nothing specific to worry about. They were just vaguely uneasy about the whole thing, as they had expected to be.

Economic data on Thursday and Friday were uncontroversial. The CBI’s Distributive Trades Survey of UK retail sales was no more gloomy than expected. “Retail sales fell sharply in the year to June, albeit at a slower pace than last month (balance of -37%, from -50%).” US durable goods orders in May were up by 15.8% from April. US consumer confidence was a touch below forecast at 78.1 and six points higher on the month.


Its inflation, honest

Towards the end of last week the European Central Bank carried out a charm offensive to disarm German critics of its quantitative easing activities. The account of the Governing Council’s June meeting and a speech by executive board member Isabel Schnabel both went out of their way to emphasise the “proportionality” of the bank’s actions.

At the beginning of last month the German Constitutional Court had set itself against the ECB and the European Court of Justice by demanding that the bank justify its purchase of bonds and other assets. Any such purchases must be “proportional”. The meeting account therefore stressed the relationship of the asset purchase programme to the low inflation rate, which the bank is obliged to raise over time from its current level of 0.1% to its target of “at or just below 2%”.

The central bank’s real concern however is the deep economic slowdown that has followed the tragic Covid-19 pandemic. At least the ECB could be seen to be playing the game, and on Saturday Ms Schnabel made her own protestation that monetary policy is “necessary, suitable and proportionate.”


UK credit and lending

This morning the Bank of England reports on personal loans and mortgage approvals. Rebounds are expected for May after very low numbers in April. After lunch MPC member Gertjan Vlieghe will be talking about the technicalities of asset pricing.

During the London session Spain and Germany will report on inflation, and the United States on pending home sales and the Dallas Fed’s manufacturing index. The EC will publish its measures of consumer and business confidence.

Tonight Japan reports on unemployment, industrial production, construction orders and housing starts, and Australia on private sector credit. China sets the PMI ball rolling with the CFLP purchasing managers’ indices for manufacturing and services. ANZ will print its activity outlook and business confidence measure.

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