No relief for sterling

Unscientific method

On the 329th anniversary of Isaac Newton's Philosophiæ Naturalis Principia Mathematica scientists have used Newton's principles to put a satellite into orbit around Jupiter after a 2,800,000,000km journey that took five years. Would that the rigour and duration of the Article 50 brexit process could be so certain. 

Partly because it isn't, businesses are considerably less upbeat than they were before the referendum. A survey for the Centre for Economics and Business Research a fortnight ago found 25% of businesses feeling pessimistic about the UK economy: a similar poll carried out following the Brexit vote almost doubled that number to 49%. 

It was a similar story for sterling on Monday. Although it had no fresh challenges to face the pound suffered further erosion as investors stayed away in droves. Its -0.4% decline was not startling or scary but it extended to -10% the pound's average loss since Referendum Eve against the other 10 most actively-traded currencies. 

Confused market

The pound's downshift coincided with a rethink among investors which saw equity prices falling in most centres. Although the yen rose to the top of the pile with a 1% gain against sterling it was not wholly a risk-off move: the commodity-sensitive Norwegian krone and antipodean dollars shared second place.

It would be convenient to blame the heightened caution on Britain's construction sector purchasing manager' index which, at 46.0, was the lowest reading in seven years. However, although it cannot have improved the mood, there was no clear evidence of cause and effect on the exchange rate front. Sterling was already looking soggy before the figure came out, as was the FTSE100 index.

Nor could Monday's few other ecostats be held individually culpable. They were not too hot: only NZ business confidence delivered an improvement. But the decline in Euroland investor confidence cannot have come as a surprise and the falls in Canada's and Australia's manufacturing and services PMIs were too small to matter.

Central banks

This morning the Reserve Bank of Australia left its benchmark Cash Rate unchanged at 1.75%. Before lunch the Bank of England governor will introduce the bank's semi-annual Financial Stability Report and this evening the president of the New York Federal Reserve will be speaking. 

The RBA's no-change decision was exactly what most analysts had predicted. A statement by the governor contained no hint of a cut on the horizon and the Aussie dollar was unaffected. Mark Carney's appearance at 11 o'clock might not be so ripple-free. Whilst his topic will have more to do with bank regulation than with the economy in general, Dr Carney will be loath to miss an opportunity to pontificate about Brexit and how the Old Lady is handling it.

In any-other-business there will be a generous sprinkling of ecostats for investors to ponder. Most of them are PMIs from the services sector in Europe and the United States. The only one flagged to come in below the 50 breakeven level is France.