Weekly Brief

Weekly Brief

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Mostly positive

GBP

A week of mixed fortunes eventually left sterling only 0.2% lower on average against the other majors. It was unchanged against the euro and added seven eighths of a US cent. On Wednesday, the pound shared last place with the NZ dollar and the following day it led the field. 

The trickle of UK economic data during the early part of the week was positive for sterling. House price measures from Halifax and the RICS both portrayed robust demand for residential real estate. Bank of England Chief Economist Andy Haldane described the residential property market as “on fire” and said the economy is “going gang-busters”. The BRC reported “strong retail sales”, with an 18.5% annual rise. Sterling’s only real stumbling block was Brexit. The EU told Britain that continued failure to comply with the withdrawal treaty would result in economic sanctions, and US President Joe Biden warned the prime minister not to imperil the Good Friday peace agreement. 

 

EUR

A broadly uninspiring set of Eurozone economic statistics included some quite striking numbers but almost all could be explained by Covid-driven lockdowns 12 months earlier. A 23.9% annual increase in Eurozone retail sales looked less impressive alongside the 3.1% monthly decline. There were similar dichotomies with German factory orders (up 78.9%, down 0.2%) and industrial production (up 26.4%, down 1%). Eurozone GDP shrank by a revised 0.3% in the first quarter, roughly in line with forecast.

The main event for the euro was Thursday’s European Central Bank monetary policy press conference. Following a statement that rates and asset purchases would not be adjusted, President Christine Lagarde explained that rates will not go up until the 2% inflation target is sustainably achieved. Because investors had been hoping (albeit unreasonably) for something a little more hawkish from the ECB, the euro lost ground on most fronts following her appearance. It is an average of 0.2% lower on the week.

 

USD

In a reversal of fortunes, the dollar moved from first to last place, giving back the average 0.6% gain that it had achieved during the previous seven days. It lost three quarters of a cent to the euro and fell 1.2% against the Australian dollar. Unlike last week, the economic data failed to paint a compellingly positive case for the dollar. For the second month in succession, the US employment report showed nonfarm payrolls increasing by fewer than expected. Together with revisions to earlier months, payrolls fell 64k short of forecast, not a huge miss but enough to send the dollar to the back of the field last Friday.

The other problem came with Thursday’s consumer price index figures. They showed prices rising 0.6% in May to put headline inflation at 5%, its highest level in nearly 13 years. Although investors had been prepared for a 4.7% number, they were still flustered. It took them a good couple of hours to conclude that the theoretically positive impact on interest rates would not translate into tightening action by the Federal Reserve, whereupon the dollar continued its downward drift.

 

CAD

If investors did not care much for the US employment figures, neither were they enamoured of the Canadian jobs data. The Loonie took less of a hit than the Greenback, though, because the direction, if not the scale, of the Canadian job losses had been predicted by analysts and the US numbers inevitably attracted more attention. For a fourth month in six, the Canadian economy suffered a net loss of jobs; 68k in May. Pandemic-related closures were to blame. The week’s other Canadian ecostats did not have much to say. The Ivey purchasing managers’ index rose four points to 64.7, remaining below the 10-year peak it reached in March. Canada’s balance of trade swung into surplus in April as imports fell more quickly than exports.

Ahead of the Bank of Canada’s monetary policy announcement on Wednesday, investors pushed up the CAD in anticipation that the central bank might announce a wind-down of quantitative easing. When the statement contained no such commitment, the Loonie was sent back whence it had come. It is an average of 0.6% lower on the week, two thirds of a cent lower against sterling and a fifth of a US cent to the good.

 

AUD

The Aussie and the Swedish krona shared second place for the week behind the Norwegian krone. With an average gain of 0.4% the AUD added nearly one US cent and went up by a cent against sterling. Over the last month, the Australian dollar’s performance looks less impressive: in last place alongside the NZ dollar it is down by an average of 0.9%.

In the last seven days, though, the ecostats lined up almost perfectly to give the Aussie a boost. Mortgage lending increased by a monthly 4.3% in April. New home sales rose 15.2% in May following April’s 54.4% decline, perpetuating the recent volatility, which has seen monthly changes range from +91.8% to -69.4%. AiG’s performance of services index delivered the strongest result in almost 18 years, as the index rose to 61.2 in May. NAB’s Monthly Business Survey “continues to point to strong outcomes in the [Australian] business sector, with business conditions resetting their record high for the second month in a row” at 37, up by five points on the month. At the same time, NAB reported a 2.2% monthly rise for house prices. The only negative note came from Westpac’s index of consumer confidence, which fell six points to 107.2.

 

NZD

The NZ dollar was unchanged on the week against sterling and the euro. It added nearly half a US cent and lost an average of 0.2% to the major currencies. In general it strengthened over the weekend and faded from Tuesday onwards. It enjoyed a typically low-profile run with the domestic economic data and there were no major pronouncements from the Reserve Bank of New Zealand.

Manufacturing sales grew by a modest 0.4% in the first quarter, confirmation of a return to reality after the 12% fall in Q220 and the 17.3% spike in Q320. Among the components, the biggest rise was in transport machinery and equipment, up 6.9%, and the largest fall was in petroleum and coal products, down 6.4%. Business surveys by ANZ and Business NZ found confidence falling by a provisional two points, despite a two-point lift in own-activity expectations, and “healthy levels of expansion” in the manufacturing sector. Electronic card spending saw “strong growth in May”.

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