Weekly Brief

Plunging and plummeting


Norway’s krone and South Africa’s rand both had a considerably worse week than the British pound. Against the top tier major currencies, however, sterling flagged, with an average loss of 0.5%. It was a departure from sterling’s recent run of relative success. Compared with a month ago the pound is still an average of 3.4% firmer: among the ten most actively-traded currencies only the Australian dollar and the krone did better. Sterling’s setback came on Tuesday, with a sudden attack of political nerves among investors. The situation was not improved when the Foreign Office insisted that 31 December remains the deadline for ending the Brexit transition period, trade deal or no deal.

The UK ecostats varied between decent and dreadful. Rightmove’s index of real estate asking prices was 2.1% higher on the year but there was insufficient data to make the number meaningful. Employment statistics for February/March have been overtaken by events. The 1.5% headline rate of inflation for March is irrelevant. The numbers that did matter were the provisional purchasing managers’ indices, which were predictably shocking, the CBI’s measure of manufacturing activity which “plunged” 27 points to -56, and GfK’s index of consumer confidence, which dropped from -9 to -34 as expected.



A slightly below-average performance by the euro left it 0.2% below the other major currencies and flat against the Swiss franc. The euro strengthened by a third of a cent against sterling. As in Britain, the Euroland ecostats fell broadly into two categories; out of date or ugly. Ugliest of all were the recent measures of confidence and economic activity. Markit’s provisional purchasing managers’ index readings all either “plunged” or “plummeted” in April as the tragic Covid-19 pandemic forced the closure of whole swaths of the European economy.  The French services sector returned a 10.4 on a scale of 0-100 where 50 represents stagnation. Markit’s commentaries were riddled with negative superlatives. Consumer confidence measures from the EC and GfK were even more dismal than forecast, with GfK’s figure for Germany at an all-time low. At first glance ZEW’s economic sentiment for Germany looked pretty good, rising from -49.5 to +28.2. However, it represented no more than a slight reversal of March’s extreme bearishness.

Away from the economic data, investors’ focus was on the European Council and what collective financial recovery package it might agree at Thursday’s meeting. There was no great surprise when it agreed nothing, other than that something needs to be done. It looks as though the European Central Bank will once again have to step in at next week’s Governing Council Meeting.



Some of the US economic statistics were again healthier than their equivalents across the Atlantic but the advantage is less striking.  With the PMIs, for example, the provisional American readings of 36.9 and 27.0 for manufacturing and services were undeniably better than the Euroland equivalents of 33.6 and 11.7. They were not, however, remotely good figures; just less nasty. In fact it was difficult to find a good US number anywhere. The Chicago Fed’s National Activity Index fell four and a quarter points to -4.19, suggesting that growth “decreased substantially” in March. Existing home sales fell 8.5% on the month and new home sales were down by 15.4%. The week’s killer blow, once again, was the number of people signing on for unemployment benefit. This time it was 4.4 million. In four weeks more than 23 million Americans have become jobseekers.

A statistic that normally goes unnoticed, the Baker Hughes oil rig count, achieved greater significance in the light of oil price movements. For the first time ever, the future contract for West Texas Intermediate crude traded below zero, at -$40 per barrel. Supply so exceeds demand, and storage is so scarce at the oil hub in Cushing, OK, that speculators had to pay buyers to take it off their hands. The panic was positive for the dollar, which was jointly the week’s top performer alongside the Japanese yen. It added a cent and a half against sterling.



Canada’s dollar took fourth place behind the US dollar, the yen and the Australian dollar. It strengthened by a cent and a third against sterling and lost a quarter of a US cent. The Loonie was surprisingly unaffected by the plunging oil price, perhaps because it was seen as a technical peculiarity specific to the United States.

The Canadian economic data all related to March or earlier, so failed to reflect the full impact of the global shutdown. Wholesale sales for February rose 0.7% for a third monthly gain. Retail sales for the same month were only affected to a “negligible” extent by the pandemic, increasing by a monthly 0.3%. Inflation slowed markedly from 2.2% to 0.9%, driven by lower energy prices. The new housing price index was up by 0.9% in the year to March and was apparently unaffected by Covid-19.



The Aussie built on the previous week’s success to take third place behind the USD and JPY. It took two cents off sterling and gave up an insignificant tenth of a US cent. Domestic economic data had a less damaging effect on the Australian dollar than upon some other currencies, perhaps because there not so many of them. The most surprising number was March’s 8.2% monthly increase in retail sales. It was “the strongest seasonally-adjusted rise ever” with “unprecedented demand” for food. As with the Brits, the Aussies were stockpiling products such as “toilet and tissue paper, and rice and pasta”.

The provisional PMIs were less edifying, though not as bad as some in Europe. Services slumped 19 points to 19.6 while manufacturing escaped serious damage, down from 49.7 to 45.6. The composite PMI came in at 22.4. The best set of data were for international merchandise trade. Exports were up by 29% in March while imports rose 10%. Exports to China recovered strongly and there were also large increases in the value of coal, gas and petroleum exports.



The Kiwi delivered a similar performance to that of its Canadian cousin, strengthening fractionally on average against the other majors. It lost a quarter of a US cent and went up by a cent and a half against sterling. NZ economic data had little to do with the Kiwi’s movements. Inflation at the end of March sat at 2.5%, up from the 1.9% measured for calendar 2019. Dairy prices fell 4.2% in the two weeks to 21 April. Credit card spending declined by 8.2% in the year to March.

On successive days the Kiwi was the leader and the laggard. It went to the front of the field after Prime Minister Jacinda Ardern said the Covid-19 lockdown would end in a week’s time. It came down to earth with a bump when Reserve Bank of New Zealand governor Adrian Orr said he “would not rule out the Reserve Bank directly lending money to the Government, rather than only buying central and local government bonds on the secondary market [‘traditional quantitative easing’] from other investors”. Investors are not altogether comfortable with the idea of central banks printing money to finance government spending, even though the Bank of England has been doing exactly that for a fortnight.

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