Weekly update 12th April 2019

GBP: Anticlimax

Britain did not crash out of the EU on 12 April. As expected, the Prime Minister asked for a postponement to the end of June. Also as expected, the European Council said a short delay would be pointless, and spent Wednesday evening arguing about how long the extension should be. The compromise date was 31 October, a godsend to headline-writers. For investors it was potentially the last bit of sterling-positive news in the pipeline and an air of anticlimax set in.

The UK economic data were no more than incidental to sterling’s progress, even though most of them were better than forecast. Manufacturing and industrial production increased by 0.9% and 0.6% respectively in February and the economy expanded by a provisional 0.2% in the month, all of those numbers perhaps inflated by pre-Brexit stockpiling. For sterling the result was an average weekly loss of 0.4% and it is down by 1.6% from a month ago.

EUR: Relief rally, with interruptions

While sterling faded, as it became gradually clearer that a no-deal Brexit was off the table, the euro moved mostly higher in recognition that the Euroland economic data were not as bad as expected. It was the top performer among the major currencies, strengthening by an average of 0.3%. The euro added two thirds of a US cent and went up by seven eighths of a cent against sterling.

Industrial production in Germany, France, and Italy all came in above forecast while France and Germany delivered better than expected trade figures. Italian retail sales and euro zone investor confidence also delivered positive surprises. The only real wobble for the euro was caused by the European Central Bank. At Wednesday’s press conference president Mario Draghi was less than upbeat about the outlook, saying economic weakness in the zone has been “somewhat longer-lasting” than expected. His reassurance that the bank has not run out of stimulatory ammunition made investors wonder whether he might have to use it.

USD: Still only simmering

Last Friday’s US employment data were mostly better than expected. Nonfarm payrolls increased by 196k in March. Including upward revisions to earlier months, there were 30k more people in work than analysts had predicted. On the downside, average hourly earnings growth slowed from 3.4% to 3.2% and the participation rate edged lower to 63.0%. Small business optimism was almost unchanged at 101.8%. Inflation was in line with forecast at 1.9% and the producer price index was up by an annual 2.2%, a higher number than expected.

The minutes of the Federal Open Market Committee ought not to have come as a surprise. They reiterated that “the Committee will be patient” in making adjustments to monetary policy. It seemed, though, that some in the market had been looking for hints of a possible rate cut. None was to be found and the dollar strengthened slightly. It is a fifth of a cent lower on the week against sterling.

CAD: Chasing oil

Canadian economic data were fairly plentiful but not particularly helpful to the Loonie. Friday’s employment figures did it no favours at all. Instead of adding the expected thousand jobs in March the Canadian economy lost a net 7,200 and the participation rate fell to 65.7%, though the pace of wage increases did pick up from 2.25% to 2.32%. The numbers for housing starts and building permits confused the picture by heading in opposite directions: Permits fell by a monthly 5.7% while starts were up by 15.8%.

Oil prices played the biggest part in the Loonies fortunes. Although it did not follow slavishly, the currency mostly moved in the same direction at the same time. WTI crude went up by a net 2.8% – not a lot in the oil world – and the Canadian dollar was flat against the USD. It is a quarter of a cent higher against the British pound.

AUD: No rate cut

Investors searched in vain for inspiration from the Australian economic data. They tried to use a 1.7% fall in the number of job advertisements as a reason to sell the Aussie but were not convinced. They tried to find an excuse to buy when mortgage lending rebounded in February. Then they totally ignored an improvement in consumer confidence as the Westpac index went up by 1.9% to 100.7.

They did, however, pay attention when the Reserve Bank of Australia’s deputy governor Guy Debelle made a speech to the American Chamber of Commerce, entitled The State of the Economy. He said that house prices in Sydney and Melbourne were falling in a “reasonably orderly way” and those declines are a key reason why consumption and growth are slowing. Importantly, Mr Debelle dismissed any idea that the RBA might be considering an interest rate cut to help the housing market. The Aussie is slightly higher against the US dollar and up by two thirds of a cent against sterling.

NZD: Slower manufacturing growth 

New Zealand is never the most fertile source of economic statistics. The last seven days were a particularly barren patch. The food price index went up by 0.5% in March and was unchanged after seasonal adjustment. Fruit and vegetables were the biggest risers, going up by 3.7%, while meat and fish were down by 1.3%. Visitor arrivals declined by 1.3%, much as expected, and electronic card retail sales, an early indicator of overall sales, unexpectedly fell 0.3%.

The most important economic indicator was the Business NZ performance of manufacturing index. It was a point and a half lower on the month at 51.9, having been expected to rise to 54.4. The decline was attributed to new orders and production, which were not entirely offset by a pick-up in employment. BNZ’s assessment was that the index is “still doing well in a global context”. The Kiwi is fractionally lower against the US dollar and a fifth of a cent stronger against sterling.

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