Weekly Brief

Ignoring the data

6 minute read


A poor start and a strong finish left sterling an average of 0.1% firmer against the major currencies; in other words just about unchanged. The euro had an identical outcome, and both lost 1.1% to the class-leading US dollar, though the two varied by more than a cent against one another along the way.

The UK economic data were a mixed blessing for the pound. Employment figures showed small increases in the number of employees, although, since February 2020 their number has fallen by 693k. The rate of unemployment fell to 5%. Wage growth remained strong at 4.8%, mainly because of the loss of more lowly-paid jobs and the payment of deferred bonuses. Investors were not enthused by the inflation numbers, most of which were lower than forecast. Factory gate prices were 0.9% higher on the year while consumer prices rose just 0.4%. Retail sales for February were in line with forecast, increasing by 2.1% on the month.



Unhelpfully for the euro, it was another week of political wrangling on vaccine production and trade dominating the euro’s narrative once more. It is hard to avoid the suspicion that investors are keeping the euro at arm’s length because they fear the EU will be left behind economically as a result of vaccine disarray. Considering the underlying concern that vaccine inefficiency could delay Europe’s economic recovery, the euro did well to hold steady against the pound this week.

There was no help from the Eurozone economic data, not because they were ugly but as a result of investors’ preoccupation with vaccines and lockdowns. Consumer confidence in Germany and the Eurozone both showed improvement, helped by the lifting of lockdowns. The provisional purchasing managers’ indices, early indicators of economic activity in the private sector, all came in better than expected. The consolidated Eurozone measure put manufacturing at a record high of 62.4 while the composite was back in its comfort zone at 52.5, an eight-month high.



Taking into account the difference between forecast and actual economic data, the US numbers were not outstandingly good. The composite PMI from Markit was 59.1, well ahead of the Eurozone’s 52.5 but half a point lower on the month at a two-month low. The manufacturing PMI was also lower than expected at 59.1. Other data that failed to pass muster were existing home sales, down 6.6% on the month, new home sales, 18.2% fewer, and durable goods orders, which fell 1.1%. Thursday’s statistics looked a little better, with fewer than expected new jobless claims and a tiny upward adjustment to fourth quarter gross domestic product.

Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen both visited Congress to address the House Financial Services Committee and the Senate Banking Committee. They told pretty much the same predictable story: more must be done by government to limit the economic damage done by the pandemic. As for inflation, the Fed Chairman stuck to his mantra that “our best view is that the effect on inflation will be neither particularly large nor persistent”. His bank is keeping an eye on it and will not tighten monetary policy until there is full employment and an average of 2% inflation. 



The Loonie took third place for the week behind the USD and JPY, strengthening by an average of 0.5%. It lost half a US cent and went up by three quarters of a cent against sterling. With Canadian data and political news vanishingly scarce, the CAD depended very much on the US economic picture to shape its fortune. That picture was by no means universally positive but investors remain captivated by the injection of trillions of dollars-worth of stimulus in America. They see it as inevitable that a goodly chunk of that largesse will flow across the border, given the relationship between the two countries.

Only one significant set of Canadian economic data appeared during the week: last Friday’s retail sales for January. Down by a monthly 1.1% they were not exactly brilliant, especially as they involved declines in six of the 11 subsectors. However, the result was better than analysts had forecast: they had expected sales to have fallen by 2.8% on the month. As ever, the difference between expectation and reality was of more importance than the exact number, and in this case it worked in the Loonie’s favour.



The Aussie did nothing wrong. It did not do much: investors’ attitudes were shaped more by their world view than by the domestic Australian minutiae. But it did nothing wrong, and it was perhaps unfair that it lost an average of 0.4% to the major currencies while the Canadian dollar moved roughly the same distance in the opposite direction. Overall the AUD lost one and a quarter US cents and fell one cent against sterling. Compared with a month ago it is down by an average of 0.3%. 

A lack of ecostats left investors nothing to work with at the fundamental level. The only data of any consequence were the provisional purchasing managers’ indices from Markit. They were the opening shots in the monthly round of preliminary PMIs and they set a good enough standard for the others to follow, beating analysts’ forecasts. Manufacturing at 57 was half a point higher on the month while services were nearly three points higher at 56.2. The improvements were attributed to the loosening of Covid restrictions, and a consequent surge in new work. 



At the back of the field, more than 1% behind the AUD, the NZ dollar lost an average of 1.5% to the major currencies. It gave up the thick end of two US cents and fell more than three cents against sterling. Some of those losses were technically-driven and some by domestic fiscal changes: they owed little to the typically-few economic data. Those data went no further than consumer confidence, credit card spending and international trade. All were unremarkable, with confidence little-changed, spending down year-on-year for a 12th successive month and falls for both imports and exports. 

The fiscal change related to the tax treatment of residential landlords. For long enough the NZ government has been agonising about “unaffordable” house prices. On Tuesday it announced measures that it hopes will improve the situation, limiting tax exemptions for buy-to-let investors. Although the prime minister accepts that “there is no silver bullet”, she said “the need for further action is clear”.


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