Weekly Update 17th May 2019

On the run

On Monday, Tuesday, Wednesday and Thursday sterling was either last or joint-last among the major currencies. It is down by an average of 1.5% from a week ago, its biggest loss being 2.1% to the Swiss franc. The UK economic data cannot be blamed for sterling’s rout. Almost every one of last Friday’s growth and output statistics either met or exceeded forecast. There were quibbles about the slight slowing of earnings growth revealed on Wednesday but unemployment at 3.8% hit a 45-year low.

So the ecostats were not a problem but the curse of Brexit certainly was. The potential annihilation of the Conservative and Labour parties at next week’s European election could conceivably pave the way to a populist government in Britain. The imminent defenestration of Theresa May could put Boris Johnson in Downing Street. At the moment investors can see no upside for sterling and they are running scared of the pound.

Germany gets a break

For the first time in a while it is possible to say the hard economic data from Germany were not bad. Exports grew at three times the pace of imports in March.

Inflation was steady at 2.1%. Crucially, gross domestic product expanded by a provisional 0.4% in the first quarter of the year after stagnating for six months.

The only fly in the ointment was ZEW’s survey of investor confidence. Having been tipped to improve, economic sentiment slumped five points to -2.1. The implication is that growth will remain “restrained” for the next six months.

There was also positive news for Germany and the rest of the euro zone from Washington. The US administration has decided to postpone for six months the imposition of protectionist tariffs on Europe-made motor cars. The decision will be more important to BMW and Mercedes-Benz than it will be to Citroën. It was not a great week for the euro though: it added a cent and a half against sterling while losing half a US cent.

All about trade

If the dollar had been entirely reliant on the US economic data it would not have had such a good week. The consumer price index numbers last Friday put headline inflation at 2.0%, slightly below forecast. Import prices were down by an annual 0.2% while export prices rose 0.3%, both lower than expected. Retail sales fell 0.2% in April and industrial production was down by 0.5%. On top of this there was speculation that the trade war could dampen economic activity sufficiently to require a rate cut by the Federal Reserve this year.

That notion was put to rest by New York Fed president John Williams. In a TV interview he repeated the Fed mantra that “the economy is in a good place”. He went on to say that “we have already seen… some boost to inflation” which “could get bigger” if tariffs rise further. The dollar is two cents higher against sterling.

Oil helps, eventually

It might have been on a one-way street higher against sterling but the Loonie experienced several reversals in its progress against the US dollar. Eventually the Canadian dollar was unchanged against the Greenback and it strengthened by three cents against the pound. Confused oil prices did it no favours in the first half of the week but when they eventually tilted upwards the Loonie felt the benefit of a net upward move of 2% for WTI crude.

Of the three sets of Canadian economic data two helped and one made no difference. The unemployment figures were good, with a record monthly addition of 106.5k jobs and a downward tick in the rate of unemployment from 5.8% to 5.7%, close to a 40-year low. Manufacturing shipments also impressed with a 2.1% monthly rise, almost double the expected lift. The CPI numbers were almost exactly in line with forecast, with headline inflation at 2.0%.

Keeping the pound company

Although sterling was clearly the week’s poorest performer the Australian dollar did not do a whole lot better. It added a third of a cent against the pound and lost one US cent – 1.5%. At the root of its problems were America’s trade dispute with China and the negative effect it is perceived to be having on China’s economy. Chinese data for retail sales, industrial production and business investment all indicated slower growth, implying fading demand for Australia’s exports.

The ecostats from Australia itself were also less than brilliant. Mortgage lending fell by more than expected in March. NAB’s measure of business confidence was no better than zero in April, well below average. April’s employment data also surprised on the downside: a 28.4k increase in total payrolls masked a 6.3k fall in full-time workers and the rate of unemployment rose to 5.2%.


The Kiwi was two slots away from last place for the week, ahead of the Aussie and the pound. It lost half a US cent and picked up a cent and three quarters against sterling. The track of the NZ dollar against sterling bore a remarkable similarity to that of the Australian dollar, suggesting that investors were treating the Kiwi as a clone of the Aussie. Although New Zealand is not as exposed to the Chinese economy as is Australia – even in difficult times the Chinese want food – there is still an element of guilt by association.

NZ economic statistics were typically few. The food price index was down by 0.1% in April. Visitor arrivals went down by 2.6% in March. Producer price data showed manufacturers’ costs falling 0.9% in Q1 while factory gate prices went down by 0.5%. The Business NZ purchasing managers’ index for April was disappointing, a point higher on the month at 53.0 but shy of the expected 54.5.

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