Weekly Brief

Deteriorating data


There was a moment of nostalgia last Thursday when the ONS published the latest UK output figures. Gross domestic product grew by 0.1% in the three months to February while manufacturing and industrial output increased by 0.5% and 0.1% on the month.

Any joy was short-lived: the NIESR estimated that GDP shrank 4.8% in the first quarter and could contract by 15% to 25% in Q2. The Office for Budgetary Responsibility is even more pessimistic. It sees growth collapsing to -35% in the current quarter.

That being the case, and with the government continuing to insist that Covid-19 is no reason to extend the Brexit transition period beyond the end of December, sterling had a surprisingly successful week. Over the eight-day week it strengthened by an average of 0.5%, losing out only to the puzzlingly mismatched Australian dollar and Japanese yen. It added one euro cent and one and one eighth US cents, a 0.9% gain in both cases.



After weeks of hand-wringing and horse-trading the Eurogroup of euro zone finance ministers managed to reach an agreement on financial support. For (principally) Italy and Spain in time for the long weekend, the €500 billion relief package is for European countries hit hardest by the tragic Covid-19 pandemic.

The plan involves tapping the European Stability Mechanism for about half the amount, the balance coming from the European Investment Bank and the European Commission. In some quarters there is disappointment that the Netherlands and others remain resistant to the notion of shared debt but at least they managed to get something off the blocks.

The economic statistics from the euro zone was wholly forgettable. German inflation slowed from 1.7% to 1.4%, as expected. Euroland industrial production declined by 0.1% in February and was down by 1.9% from the same month last year. The euro was equally dull, holding steady against the US dollar and losing a cent to sterling.



In view of the relentless stream of dire US economic ecostats, the US dollar did well to hold steady with the euro and lose little more than a cent to sterling. If it is an exaggeration to say that every one of the data was bad, it is not much of one. Weekly jobless claims last Thursday numbered 6.6 million and this week another 5.2 million job losses were reported.

Surveys of sentiment and activity threw up some shocking results. The Michigan index of consumer sentiment “plunged 18.1 points, the largest monthly decline ever recorded”. The New York Fed’s manufacturing index “plummeted” 57 points to -78.2, its lowest ever level. The NAHB Housing Market Index of builder confidence “plunged” 42 points to 30, in its biggest ever monthly decline. Housing starts and building permits suffered monthly declines of 22.3% and 6.8% respectively.

In contrast to the stream of sickly statistics, some of the anecdotal evidence was more positive. Towards the end of this week Boeing was said to be planning to reopen its Seattle factories and the US president was canvassing state governors for their support in ending the lockdown. There was even a report that a US pharmaceutical firm had come up with a treatment for Covid-19. 



An extended OPEC+ meeting ran into last weekend before there was an eventual agreement to cut oil production. Ministers eventually settled on an output reduction of 9.7 million barrels per day. Analysts expect the cut to take oil prices up to the mid-$40s by the end of the year but the immediate effect varied from none to negative. Prior to the agreement WTI crude was above $25. This Friday morning it was close to $18, at an 18-year low. The Canadian dollar did not follow the oil price slavishly (unlike the Norwegian krone, which was battered and bruised) but cheaper oil did no favours to the Loonie. It did fractionally better than the US dollar and lost a cent and a half to the pound.

There was an interesting reaction to last Thursday’s Canadian employment data. Despite the loss of a million jobs in March and a jump in the rate of unemployment from 5.6% to 7.8%, the Loonie gained ground following the news. Apparently investors were relieved that the numbers was not worse.



After a string of losing performances the Aussie pulled it out of the hat last week, beating the Japanese yen into second place by 0.9% and strengthening by an average of 1.7% against the other major currencies. It picked up one and a third US cents and gained two and a half cents from sterling. The Aussie’s success came in two waves, last Thursday and this Thursday. In both cases investors’ optimism was boosted by anecdotal evidence that proved to be more influential than the poor or mediocre economic data.

Business confidence “saw its largest decline on record and is now at its weakest level in the history of the NAB Monthly Business Survey”. Consumer confidence also saw its biggest ever monthly decline to 75.6, its lowest level since the early 1980s. The Australian employment statistics were better than forecast, with the addition of 6k jobs in March where 40k were expected to be lost. However, investors were well aware that the next set of data will look less pretty.



As the Australian dollar breezed into the lead the NZ dollar was left to keep company with the Canadian and US dollars in midfield. It did nothing to distinguish itself, starting the week well enough but losing heart on Tuesday, apparently as a result of a risk-off mood among investors. The Kiwi lost a cent and three quarters to sterling and was unchanged against the Greenback and Loonie.

Domestic ecostats were few. Visitor arrivals in February were down by 10.8% on the same month last year and are likely to show even bigger declines in subsequent months as a result of travel bans. REINZ’s national house price index was up by 0.7% in March and 9.3% higher on the year.   

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