Volatility: it's official

Pound rebound

Traditionalists bewail the decline of manufacturing. They grumble that making stuff is more worthwhile than flipping burgers. But anyone who doubts the worth of services should take note that Alphabet (née Google) is now the most valuable company in the world. And what does it make? Ones and zeros.

That is not to say there is no longer any value in manufacturing. Investors clearly see its benefit, as demonstrated by the reaction of sterling yesterday to the UK manufacturing sector purchasing managers' index. The PMI came in at 52.9, a point higher than analysts had forecast. On its own, the UK figure was not enough to send the pound north but it was accompanied by an increase in mortgage approvals and followed by a story that the prime minister had made progress in his negotiations with the EC.

Britain's PMI reading was not the class leader: it was beaten by Sweden, Spain and Italy. But the €Z and German readings were lower at 52.3 and the two US measures bracketed the breakeven line at 52.4 and 48.2. In the end sterling came away as the top performer among the major currencies, more than offsetting Friday's losses and strengthening by an average of 0.8%.


In its statement this morning the Reserve Bank of Australia noted "heightened volatility" in financial markets and "uncertainty about the global economic outlook". "Thank goodness somebody else has noticed", said sterling. The RBA confirmed that it would hold its Cash Rate at 2% for a tenth month.

Mindful of its need to keep the Australian dollar under control the RBA also slipped into its statement an observation that "continued low inflation may provide scope for easier policy" in the future. That phrase cost the Aussie a cent but investors were not really convinced and it later regained ground for a daily loss of just under two cents. The Canadian and US dollars made proportionally-similar losses, due at least in part to their disappointing PMIs.

When Mario Draghi addressed the European parliament he said nothing to alter his hint last month that the European Central Bank would consider further loosening of monetary policy at next month's council meeting. The ECB president did, however, chuck in a comment that keeping Britain in the EU "would boost confidence".

NZ milk and jobs

Investors will have few ecostats to get their teeth into during the London day. On recent form that should not prevent them continuing to swerve between risk and safety, chasing yield one minute and safety the next.

There are employment figures this morning from Spain, Germany, Italy and Euroland as well as Britain's construction sector PMI and Swiss retail sales. There is nothing of any consequence from North America.

The Kiwi dollar will face two tests this evening; the fortnightly GDT [milk] price index and the quarterly NZ employment figures. So far this year the GDT index has been negative. A positive number today would help the NZ dollar.