Weekly Brief

Risk on/off


To say the pound’s week was an improvement on the previous one is to damn it with faint praise. Rather than losing an average of 0.8% to the other majors it was unchanged, a result of sorts but not one that will take sterling places. It was an inconsistent performance, with the GBP in last place on Friday and at the front of the field on Monday. The last place result was a function of all the same negatives that had made sterling’s life miserable during most of last week, typified by the government’s “Check change go” ad campaign that rubs businesses’ noses in the uncertainty of what happens after 31 December. Monday’s win followed news that Britain had come up with a potentially viable Covid-19 vaccine, though it was not clear how the medicine might beef up the currency.

UK ecostats were few and far between. Data on Tuesday showed that “the government borrowed more in the first three months of this financial year than it did in any full year except two at the height of the financial crisis.” Consumer confidence bumped along the bottom at -27. Retail sales increased by 13.9% in June, leaving them just 1.6% below the same month last year.



According to the European Commission, consumer confidence in Euroland was almost unchanged at a provisional -15. (Only in 2017-18 has it been above zero, peaking at 1.4.) Inflation in the euro zone picked up to 0.3% in June, as expected. The last time it hit its just-under-2% target was in November 2018.

The biggest news of the week – nay, of the year – for the EUR was the European Council’s approval of a €750 billion coronavirus recovery package and a €1,074 billion seven-year budget. Of the €750bn recovery fund, €390 billion of the money will go out as grants, and the €360 billion balance will be offered as loans. After two difficult months in the making, the deal came as a relief to Europhiles and supporters of the single currency. The European project has taken a politically and philosophically important step forward with the decision to embark on its first ever jointly-funded programme. For the EUR it meant weekly gains of half a cent against sterling and more than two US cents.



The dollar is not on top of its game. Among the major currencies it has put in the weakest performance over the last week (-1.3%), month (-2%) and quarter (-7.2%). On the week the US lost a cent and two thirds to sterling. There is no obvious single point of failure, rather a jumble of circumstances and factors that make investors wary, not least the continued spread of the Covid-19 epidemic. Even the President has been forced to accept that the pandemic in the States will “get worse before it gets better”. Trump’s warning was underlined by his U-turn on face masks, which were previously “unsanitary” but now represent “patriotism”.

Critics of the dollar are now also picking holes in the US economic data, which no longer look so world-beating. For example, June’s 17.3% jump in housing starts means they are still down by more than a quarter from the beginning of the year. The weekly count of new jobless claims has also begun to rise again, up from 1.3 million to 1.4 million.



Although there were daily fluctuations, there was little to choose between the Loonie, the Aussie and the Kiwi over the week as a whole. All three were roughly unchanged against sterling, with the CAD an insignificant fifth of a cent lower. The changing price of oil was more of an irritation to the CAD than a help or hindrance. WTI crude did firm by 2% but the net gain was rather disguised by a 6% rally and a 4% drop.

The Canadian consumer price index data came in above forecast, with headline inflation leaping more than a percentage point from May’s -0.4% to 0.7% in June. Core inflation was less spectacular, rising from 0.7% to 1.1%. The CAD was unaffected by the numbers. The same was true of the retail sales figures for May: the 18.7% monthly increase was close to the forecast 20% improvement. May’s 5.7% increase in Canadian wholesale sales was eclipsed by the retail sales numbers.



For most of the week the Aussie was kept aloft by the relaxed attitude of investors towards risk. It was the top performer on Tuesday as the safe-haven JPY was relegated to the back of the field, thanks largely to the EU’s €750bn Covid-19 recovery package. As the week wore on, the supply of positive news ran dry and on Thursday the yen was out in front again with the AUD struggling. In the end it booked a net gain of a sixth of a cent against sterling, not quite the stuff of legend.

The domestic ecostats were a mixed bunch. June’s retail sales figures were the only “hard” economic data and even they were only provisional numbers. They showed the rebound in sales slowing to 2.4% from May’s 16.9%. The “soft”, subjective, data were NAB’s Quarterly Business Survey and the provisional purchasing managers’ indices from Markit. NAB, not surprisingly, saw “a large deterioration in conditions” in the second quarter, with business confidence fading from -12 to -15. The PMIs for manufacturing and services came in a preliminary 53.4 and 58.5, the services reading being well ahead of the forecast 53.2.



With little to distinguish itself the Kiwi ambled through the week with no sense of purpose. Having initially lost ground to the more dynamic AUD it staged a recovery towards the end of the week as investors grow more cautious, eventually giving up a net fifth of a cent to the Aussie. The NZD also lost a fifth of a cent to sterling, leaving it one and a third cents firmer than a month ago.

There were four sets of NZ data. Business NZ’s performance of services index improved by 16.6%, putting it back in the expansion zone at 54.1. Credit card spending an early indicator of retail sales, was 9.2% lower on the year, a much better result than the forecast 24.7% decline. GDT’s dairy price index was 0.7% lower on the fortnight. The balance of trade figures for June showed the trade surplus narrowing as imports went up and exports fell.

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