Central bank inaction

Surprise surprise

This morning's papers gleefully report that Lidl has recalled bags of peanuts, labelled "Peanuts", because the label does not warn that the bag contains peanuts. Shoppers allergic to peanuts, who bought them in error, can claim a full refund. Buyers of the dollar will be wishing they had a similar opportunity.

There were two surprises for investors on Friday. The first was early on when the Bank of Japan left monetary policy unchanged. Whilst there had been no guarantee that the BoJ would cut rates or step up its quantitative easing programme the market was geared up for an important announcement. In fact all the central bank did was tinker with the QE programme and promise a "comprehensive" review of policy next month. The yen was consequently the top performer and is up by 2.7% from Thursday morning's level.

The second surprise was US gross domestic product, which expanded by a provisional 0.3% in the second quarter. The figure was identical to the Euroland GDP number and half that of the UK. To say investors were disappointed would be to exaggerate their delight. The likelihood of a Federal Reserve rate increase this year slipped from evens to roughly 3/1 against and the US dollar became the weakest performer. It is down by -0.6% from Thursday morning's level.

Risk on

Overall it was the US GDP disappointment that had the broadest effect. Seeing less chance of a 2016 rate increase investors reacted in the time-honoured way, buying riskier assets and currencies. Even oil is up by 3% from Friday morning's lows.

The South African rand and the NZ dollar led the way on Friday, strengthening by 1.1% against sterling. Norway's krone was behind by just a nose, helped by the oil price rise, and the Canadian and Australian dollars were up by a worthwhile 0.5%.

There were slightly fewer UK mortgage approvals than investors had expected in June but consumer credit and personal loans made up for it by exceeding forecast. German retail sales were up by 2.7% on the year while in Greece they were down by -6.4%. The University of Michigan's index of consumer confidence improved by a whisker.

Manufacturing PMIs

As usual on the first of the month the ecostat agenda is dominated by the purchasing managers' indices from the manufacturing sector. France is expected to show the weakest reading but Britain's might not look much better.

The provisional UK manufacturing PMI released ten days ago came in at 49.1. Some analysts think that number could be revised upwards but few expect it to reach the breakeven level at 50. Figures from China this morning put big companies (the NBS measure) on 49.9 while smaller privately-owned firms (the Caixin PMI) were doing slightly better at 50.6.

Australia's 56.4 could turn out to be the strongest reading: it represented an improvement of four and a half points on the month. Euroland is pencilled in at 51.9 and the United States at 53.3.