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Daily brief -Thursday 16 February 2017

By Daily Market Brief - Thu 16th Feb 2017

Good data, bad results

Dollar and pound bring up the rear

A pedant would argue that sterling avoided taking last place on Wednesday because it beat the US dollar by a handful of ticks. A pragmatist would contend that they shared the wooden spoon. Intriguingly, their joint failure occurred after apparently decent economic data from Britain and the States.

Jobseeker numbers, which were expected to have gone up slightly in January, actually fell by more than 42k and a record number of people were in work. Unemployment was unchanged at 4.8%. That was all well and good but the pace of wages growth slowed from 2.8% to 2.6% so the pound immediately came under fire. At that rate earnings could soon be overtaken by inflation, further lessening any upward pressure on interest rates.

The US numbers were less dichotomous. Retail sales rose by 0.4% in January and were up by 0.8% excluding cars. Consumer prices increased by 0.6% in the same month, lifting headline inflation from 2.1% to 2.5%. There was nothing there to discourage the Federal Open Market Committee from raising interest rates next month and the chance of that happening - as implied by futures prices - increased from 37% to 52%. 

Mystery selloff

As discussed yesterday, weaker wage growth was the proximate cause of sterling's downfall. It is unclear though why, after strengthening in the immediate aftermath of the US figures, the dollar was dumped just an hour later. 

Various reasons have been suggested for the dollar's three-quarter-cent drop, including concern that the US administration has been deeply wounded by its close links with the Kremlin. But it was no more wounded at half past two, when the move began, than it had been an hour or two earlier. What it did demonstrate, however, was that whilst investors might still believe in the president's tax and spending plans their faith is not unshakable.

At the head of the field the rand was quietly carving out a fourth successive win. It strengthened by 1.2% on the day despite inflation slowing to 6.6% and retail sales rising by only 0.9% on the year. Nobody really cared about Euroland's wider trade surplus: the euro was up by a little under half a cent against the US dollar and the pound.

Natural break

After two days of abundance the ecostat agenda is back in famine mode today. The most important figures - for Australian employment - are already done and dusted.

A net monthly addition of 13.5k full- and part-time jobs was rather spoiled by the loss of 45k full-time posts. The Aussie faded slightly on the news, leaving it a cent ahead on the day against the pound.

Yet to come are French and Swedish unemployment, US housing starts and building permits, weekly US jobless claims and, tonight, New Zealand retail sales and the Business NZ purchasing managers' index. Friday's highlight will be UK retail sales for January. Analysts are looking for a monthly increase of 1.0%.

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