Growing concern

Ever-decreasing circles

Yesterday the Office for National Statistics announced a long-awaited breakthrough; another house price index. The newly-fangled "official" index puts the average transaction price at £209k, £99k below the average price that Rightmove sellers are asking. The gap might help explain why fewer houses change hands today than 20 years ago.

Financial markets are suffering a bit of sticker shock too, a situation exacerbated by the growing fear that Britain could vote to leave the EU next week. A recent side-effect is that investors are too busy filling sandbags to have much time for trading. Oil, for example, remained within a 50-cent range during most of yesterday's London session, an almost unheard-of phenomenon. Currency ranges were not as narrow as that but the net difference between the Swiss franc and US dollar sharing the lead and the Norwegian krone at the rear was less than 1%. 

It was a fairly relaxed day for the pound, which was microscopically firmer on average against the other dozen most actively-traded currencies (though none was exactly active yesterday). Perhaps the most interesting mover was the euro, It did not go far, losing just half a cent to the pound and four fifths of a US cent, but it looked as though it, too, was beginning to suffer the effect of a possible Brexit: Britain's departure from the EU would be destabilising for the European Union and the single currency.

Data largely ignored

With bigger fish to fry, investors paid minimal attention to Tuesday's ecostats. The headline rate of UK inflation was unchanged at 0.3% and US retail sales increased by 0.5% in May, slightly more than expected.

Even if British inflation had printed at 1.3% investors would not have seen the figure as pointing to higher sterling interest rates. The referendum blocks the monetary policy horizon. Yes a Remain vote would ease the Bank of England's progress towards a rate increase but a vote to Leave could easily force it to cut.

Similarly, the better-than-expected US retail sales figures did not increase the chance of an imminent rate hike by the Fed. The weak jobs data earlier this month put paid to that idea.

Jobs and rates

The two main non-events today will be the UK employment data this morning and the Federal Open Market Committee's rate announcement at dinner time. Britain's jobs numbers would have to be well out of line to have any effect on sterling and there is zero expectation of a US rate rise today.

Given the way global markets are reacting to the Brexit threat the Fed is most unlikely to risk making investors even more edgy than they are already. An unexpected rate increase today would do exactly that.

Further down the list of things that won't make any difference are the €Z balance of trade, US producer prices and the New York Fed's manufacturing index. That does not necessarily apply to tonight's NZ first quarter growth data or the Australian employment figures.