It was an interesting week for British politics and the pound. The Brexit process stumbled again and the screws were tightened on sterling in a way not seen for a month and a half. The pound took last place among the major currencies with an average decline of 1.4%. It did so despite some decent statistics from the UK economy. Inflation ticked up to 1.9%. Unemployment fell to a 44-year low of 3.9% and wages were up by an annual 3.4%. Retail sales surprised on the upside, increasing by 0.4% in February.
But Brexit got nasty. The speaker of the House of Commons ruled that the government cannot bring back "substantially the same" meaningful vote again and again. The prime minister harangued MPs for not bending to her will. The EU refused to extend Brexit Day to the end of June, setting 12 April as the deadline if parliament rejects her deal again. So investors have no idea how it all will end: at least that hasn't changed since last week.
The euro had a moderately successful week, profiting from the misfortunes of others rather than crafting its own prosperity. It added two thirds of a US cent and went up by a cent and a half against sterling. On average the euro lost 0.2% to the other major currencies.
Among the economic data the most important were for (finalised) euro zone inflation and investor confidence. Pessimism declined in Germany from -13.4 to -3.6 and in Euroland as a whole from -16.6 to -2.5. Inflation came in at 1.5%, as expected. Euroland's trade surplus widened to €17 billion. Of itself that was not remarkable but the zone's surplus with the United States and its deficit with China grew bigger, potentially increasing tension in both directions: Europe has already announced its wish to balance trade with China and the US president is well-known to be on Europe's case, especially with regard to German cars.
Most of the US economic data either matched forecast or fell short. A couple surprised on the upside: the University of Michigan's consumer sentiment index for March improved by four points to a provisional 97.8 and the Philadelphia Fed's manufacturing index jumped nearly 14 points to 13.7. Among the most disappointing was the 0.1% increase in factory orders, which matched last week's similarly-sized uptick in industrial production.
The dollar's main problem was the Federal Open Market Committee, which left its benchmark interest rate unchanged, as expected. What investors had not bargained for was the Fed chopped away any prospect of a rate hike this year. Instead, market pricing now gives almost a 50/50 chance to a cut within 12 months. That development was expensive for the dollar, which lost 0.5% to the euro. It did however add a cent against the beleaguered British pound.
An analysis by Bloomberg last Friday suggested that the "good times may be a thing of the past" for the Loonie. "Prospects for the Canadian dollar have shifted considerably to the downside over the medium term", according to TD Securities, and "the positives are hard to find". That was certainly the mood among investors during the week: the Canadian dollar was the second worst-performing currency, adding half a cent against sterling and losing a third of a US cent.
The economic data were good enough but there were not enough of them to lighten the gloom. Although manufacturing shipments went up by 1.0% in January the increase was only sufficient to correct the previous month's 1.1% decline. Wholesale sales were better though, rising 0.6% in January on top of December's 0.3% increase.
The two sets of economic statistics which most interested investors related to house prices and employment. One was less than positive, the other was undeniably negative. House prices in Australian capital cities fell an average of 2.4% in the fourth quarter of 2018, leaving them 5.1% lower on the year. It marked the longest run of losses since 2011. Eight years ago the Reserve Bank of Australia responded by cutting interest rates, eventually taking the Cash Rate down from 4.75% to 1.5%, the record low where it currently sits. That leaves little room for further rate cuts this time around.
The employment data were, on the face of it, alright. Unemployment fell to 4.9%, its lowest level since 2011. However, less than 5,000 of the jobs were new ones and there was a 15k swing from full-time to part-time employment. Investors were not totally impressed. The Aussie strengthened by two cents against sterling and added a quarter of a US cent but lost an average of 0.4% against all the major currencies.
The NZ dollar had a better week than the US dollar and the British pound but that was not a huge achievement: every other major currency except for the Canadian and Australian dollars did at least as well. The Kiwi added two fifths of a US cent and strengthened by two and a half cents against sterling. It was just about unchanged on average against the other ten most actively-traded currencies.
There was not much help from the NZ economic data. Westpac's survey found consumer confidence softening in the first quarter, with the index falling five points to 103.8. Gross domestic product expanded by 0.6% in the fourth quarter, in line with forecast and double the 0.3% growth achieved in Q3. However, growth for calendar 2018 was less than expected at 2.3%. There was a boost for the Kiwi when the US Federal Reserve indicated that there will be no interest rate increase this year but the NZ dollar was unable to hang onto all of the gain.