Well-managed expectations

How low can you get?

Deep within the Daily Mail are two shining examples of investigative photojournalism. One is a cloud that "looks like the Queen", the other a rock on Mars that "looks like Donald Trump's head". Coming soon, a piece of lettuce that "looks like a chart of Australian dollar interest rates". 

To nobody's enormous surprise the Reserve Bank of Australia announced this morning that it would be cutting its benchmark Cash Rate from 1.75% to 1.5%, an all-time low. In its statement the RBA suggested the decision was intended to address inflation that remains "quite low" and "a very large decline in business investment". The central bank does not foresee the rate cut pushing house prices higher.

As usual, investors felt obliged to sell the Aussie dollar when the RBA made its announcement but it did not fall far. On the day the Australian dollar is the weakest among the major currencies, down by a cent and a third against sterling, but it is unchanged on the week against the US dollar.

So much for the upward revision

Some economists had been looking for an upward revision to Britain's manufacturing sector purchasing managers' index yesterday.  Not only did they did not get one, they discovered instead that it had been revised down from 49.1 to 48.2. 

It looked as though investors had not shared the analysts' optimism. The pound was drifting lower before the release of the data and it continued south for an hour. When it did rebound sterling recovered some of the lost ground and since lunchtime on Monday it has gone nowhere in particular. 

The pound is just about unchanged on the day, on average, against the other dozen most actively-traded currencies. It is firmer against most of the commodity-related currencies and lower, by between half a cent and one cent, against the US dollar, the euro, the Swiss franc and the yen.


In the gap between the world's manufacturing PMIs on the first of the month and the services PMIs on the third the only statistic of any domestic importance is the UK construction sector PMI. The NZ dollar could be affected by the fortnightly GDT milk price index.

Analysts are holding out no great hopes for today's construction PMI, which is generally expected to be a couple of points lower on the month at around 44. In the light of what didn't happen yesterday the figure would have to be well out of line to have any major impact on the pound. The same is true of the BRC shop price index which comes out at midnight.

There are European ecostats this morning for Spanish unemployment, Switzerland's retail sales and its manufacturing PMI and Euroland producer prices. South Africa reports on unemployment too. The North America data include Canada's manufacturing PMI and US figures for personal income and spending. API's weekly count of US crude oil stocks appears after lunch: the statistic is currently quite fashionable.