Policy week

Brexit concerns reawakened

Having taken more hits than the opposition on Thursday the pound was on the ropes again on Friday, racking up a cumulative -1.7% average loss over the two days against the other dozen most actively-traded currencies. At the root of its problems was a re-emergence of Brexit worries.

The UK retail sales figures on Thursday were all better than expected: Sales in August dropped only -0.2% on the month, rather than the forecast -0.5%, and they were up by 6.2% on the same month last year. All the July numbers were revised upwards. The data were vaguely positive for sterling but their impact was muted by the imminent Bank of England rate announcement. The Monetary Policy Committee minutes stated that "a majority of members expect to support a further cut" if warranted by economic conditions. 

Although that comment cannot be held responsible for sterling's woeful performance at the end of last week it was not exactly helpful. The harder blows, however, came from politicians. Bloomberg reported that chancellor Philip Hammond had conceded Britain's membership of the single market would be inconsistent with immigration controls and EU president Donald Tusk said Britain's exit process will begin in January or February. So the old wounds were reopened and sterling's supporters ran for the hills.

Sales down, inflation up

The US ecostats on Thursday and Friday sent contradictory messages. Retail sales were weaker than expected, falling by -0.3% in August, while inflation rose to 1.1%. The first figure made a rate increase this week look less likely: the second made it more so. 

In the event investors took far more interest in the inflation numbers than they did in the retail sales data. The dollar moved swiftly higher, turning what had been a lacklustre day into a fairly good one. It strengthened by three quarter of a cent against the euro and by two cents against the wretched pound.

Beyond US inflation there was little on Friday's statistical front to entertain investors. Canadian manufacturing shipments increased incrementally in July and the Michigan index of US consumer sentiment was steady at a provisional 89.8.

Respect for the aged day

The National holiday in Tokyo meant a slowish start to a day that might well never accelerate beyond a leisurely pace. There are less than a handful of economic statistics on today's agenda, all of them relating to residential real estate.

Rightmove's index of asking prices for UK homes rose 0.7% in September, to stand 4.0% Higher on the year, while Chinese house prices were up by an annual 9.2% in August. Yet to come are the figures for €Z construction output and the US National Association of Home Builders Housing Market Index.

It will be central bank announcements that hog the headlines in the next few days. The two most important come from the Bank of Japan and the US Federal Reserve on Wednesday, even though neither is expected to result in a change to policy.