Six and out

Context

Services sector companies in Britain, like manufacturers and builders, were more upbeat than expected when they replied to the monthly survey of purchasing managers.  The index rebounded by five and a half points to 52.9, its biggest jump in two decades.  Investors responded by swiftly marking up the pound, which hit a seven-week high against the US dollar.  And then they had second thoughts.

The services PMI's record leap in August offset its record fall in July but it did little more than that. It looks simply as though businesses have shaken off the overwhelming pessimism that overtook some of them following the EU referendum result. After all, at least half their domestic customers ought to be in a more optimistic mood, having got the outcome they wanted.

More work to do

There can be no denying that the pound has had a splendid run over the last three weeks, strengthening by an average of 5% against the other dozen most actively-traded currencies. Unfortunately that still leaves it nearly 10% below its position on Brexit Eve.

While parliament was on holiday there was little to be heard about the government's Brexit strategy and its economic implications. Opinions were plentiful enough but there was no meat on the bones. Now however, with MPs back at work, there should be more substance to the commentary from Westminster, giving investors a better handle on what lies ahead.

This is not to say the pound's Indian summer has run its course: the sky has not fallen in and confidence among businesses and consumers is relatively robust. As long as the UK ecostats are positive - and look likely to remain so - the pound should be able to hold its own. Another factor in its favour is the continuing high level of speculative short positions on US futures markets, which is probably symptomatic of similar positioning in the much bigger cash market. 

RBA on hold

At its board meeting this morning the Reserve Bank of Australia decided to keep the Cash Rate steady at 1.5% after cutting it in May and August. The governor's statement gave no hint of future cut but the Australian dollar still weakened slightly on the news.

The Aussie had gathered strength overnight ahead of the announcement, partly in anticipation that there would be no cut to the RBA's Cash Rate. The actuality of a no-change decision was therefore mildly anticlimactic.

Figures this morning showed Switzerland's gross domestic product growing by 0.6% in the second quarter, proving yet again that a weak currency is not the be-all and end-all of economic success. It will surely trump the Euroland GDP figure later on - forecast to show 0.3% growth - and the 0.4% Q2 expansion expected from Australia tonight.