Respite not recovery

Commodity concerns

With Iran refusing to play ball on cuts to oil production, Saudi Arabia is tightening its regime of economic austerity. Annual tax revenues will go up by £70bn and previously free services such as health care will be privatised. 

It is instructive to see that the world's second-biggest oil producer feels under pressure to act, despite its huge foreign reserves. There are those who argue that Saudi should devalue its riyal, which has kept its peg to the US dollar unchanged for three decades. However, in common with other oil producers, the leadership in Riyadh is sticking to the peg because 90% of the country's exports are priced in dollars.

There has been a correction of nearly 50% to the February-March oil rally. The sensation is that investors might not be as sanguine about the economic outlook as they had been thought to be. As a result, the commodity currencies were the poorest performers on Monday. The Canadian and Australian dollars lost a cent each to sterling, -0.5%, with the Norwegian krone beating them by only a whisker. South Africa's rand fell by twice that much and the NZ dollar brought up the rear with a daily loss of -1.4%. The safe-haven Japanese yen led the field for a second day.

Sterling gets lucky

Except in the rarest of circumstances, major currencies do not make spectacular gains or losses for days on end. So it was with sterling on Monday, when it took second place to the yen, strengthening by an average of 0.4% against the other dozen most actively-traded currencies.

There was no suggestion that investors had found new enthusiasm for the pound. It was more a case of them being unable to justify giving it another whack. There was little to chose between the pound, the euro, the franc and the Swedish krona and the US dollar was only a quarter of a cent behind them.

The US dollar took a small step forward overnight after Chicago Federal Reserve President Charles Evans spoke of two rate increases this year. The Kiwi took a step backwards in response to a 13-point fall in NZ business confidence, from 15% to 2%. The Aussie firmed when the Reserve Bank of Australia left its Cash Rate unchanged at 2%.

Services PMIs

Today's biggest topic will be the round of purchasing managers' indices from the services sector. Australia opened the batting with a less-than-inspiring 49.5 but investors were more interested in what the RBA hadn't done.

All of the European and North American PMIs are forecast to be in the growth zone above 50. The UK measure is pencilled in at 54, as is one of the US readings.

Other data on today's list cover Euroland retail sales, Canada's and America's balance of trade and the global dairy trade index. China's services PMI comes out tonight.