Sterling cops it again

Pulling a dove out of the hat
The speculation ahead of the Bank of England governor's press conference on Thursday was that almost nothing he might say could do more damage to sterling than had already been done in the previous three weeks.  The "almost" bit turned out to be sadly prophetic.

There was a general expectation that the Monetary Policy Committee would keep interest rates unchanged at its six-weekly-meeting.  But there was also a suspicion that it could be what journalists described as a "hawkish hold"; nothing to announce immediately but an increase just around the corner.  That thought took the pound higher immediately ahead of Mark Carney's press conference.

In the event he turned out to be a dove in dove's clothing.  No rate increase now and none on the schedule unless things pick up.  Only two of the seven MPC members voted for a hike.  So investors marked sterling down by an average of 1%.  And it stayed down on Friday.

Trading blows

The threats about tariffs and counter-tariffs on American imports and exports continue to fly around.  A 20% tax on automobile imports was mooted by the Wall Street Journal.  However, over the weekend Donald Trump came out in favour of helping Chinese (Chinese!) electronics manufacturer ZTE, which is suffering as a result of US sanctions.

There is no shortage of confusion about the US administration's intentions and plans on the trade front.  The idea - straight from the president himself - that America should help ZTE ("Too many jobs in China lost.") came out of nowhere and left investors open-jawed at the new and unexpected development.  It suggests that Trump is inclined towards a trade compromise but investors will want to hear more before they make up their minds.

The economic data on Thursday and Friday mostly came and went without creating too many waves.  But Canada's employment figures were a little strange. The loss of a thousand jobs in April came as a surprise and a large 30k shift from temporary to full-time employment looked implausible.  The Loonie was Friday's biggest loser, down by two thirds of a cent to sterling.

More jobs

Employment will be the focus again this week, at least for Britain and Australia.  The other headline data cover North American retail sales, Euroland first quarter growth, and inflation in the euro zone and Canada.  Today's agenda is remarkable only for its brevity.

Today's list opened with a 22.0% annual increase in Japanese machine tool orders.  There is nothing else of any consequence until tonight, when the Reserve Bank of Australia publishes the minutes of  its policy meeting and China reports on retail sales and industrial production.

Other than the background Brexit noise there should be nothing to worry sterling until Tuesday morning, when the UK employment and earnings data come out.  It was these numbers a month ago that set sterling on the slippery slope that has cost it an average of 3%.