It’s like ‘Waiting for Godot’ in here
There is no other way to say it; G10 currency markets are duller than ditch water this morning with most pairs of developed nation currencies sticking rigidly and earnestly to prescribed ranges. The data picture isn’t helping particularly with the most recent announcements largely hitting the consensus estimate and therefore limiting the amount of volatility.
Export strength belies domestic softness
For sterling the CBI trends and total orders survey was an interesting one for both sides of the Brexit debate. Overall orders fell once again to fresh lows not seen since the recession of 2009. That is not the full story however; any manufacturer will have two order sets within his sales ledger – those for domestic consumption and those that are due to be exported and sold abroad.
While the overall order number increased, export orders rose to their highest level since August 2014. So while the goods that we export are becoming more popular unfortunately the other side of the coin is slackening of domestic demand.
Where are we in the UK?
A fair few UK economic data points have now been released since Brexit and a fair few of them have shown an immediate dip and then something of a rebound – enough to contain some of the fear but not sufficient to erase the initial decline. We still really have very little idea about what is really happening under the hood of the UK economy and the picture will only become truly clear as slower sides of the economy – inflation and jobs – start to react. This will take months.
Someone said to me this morning that commentators were overly negative on the UK economy in July and are now getting overly positive; we simply haven’t had enough data to work out which one is more right than the others.
In the meantime sterling is holding up well despite the record amount of money placed on bets that it will continue its fall. There is little more satisfying than being a contrarian and being right when the weight of money is going against you and sterling bulls will be looking for Friday’s UK GDP announcement to positively surprise and Fed Chair Yellen’s speech at the Jackson Hole Economic Symposium to be more dovish than markets are currently looking for. Both could see a run towards 1.33 in GBP/USD terms.
Today we will see what happened in the UK mortgage market in July; did people continue to buy houses? We’ll know by 09.30.
Europe growing well but a way to go
Elsewhere the sky remained blue, water is still wet and markets were relatively somnambulant. European PMIs showed that both the French and Germany economies are showing growth of around 0.3% on the quarter. Certainly we are not seeing any Brexit related risk in these measures as yet.
If there is a Brexit impact later on down the line it’s likely to first manifest itself in the political scenarios that we see play out in the Eurozone over the course of the next year or so, be that the Italian elections, the Dutch, the French or the German elections in the late part of next year. And that could start to see a fall-off in investment spending, as well as a fall-off in consumer confidence and capital expenditure of businesses.
Given the data calendar and the proximity to the event risk of Friday we expect that today’s markets will once again be deafeningly dull.