An abundance of shortages (GBP)
Yesterday, with the Labour Day holiday in the US and British parliament returning from its summer hiatus, the economic calendar was light to start the week and, as expected, GBP and USD continued to lack much direction. However, PM Boris Johnson was likely preparing for the storm to come. With the UK all but ready to put the pandemic and the plethora of Brexit teething problems behind it, Johnson now faces the job of cleaning up. Having signalled his intention to increase National Insurance tax to aid the UK’s recovery, backlash has commenced from within even his own party.
Sterling (GBP) will likely remain sensitive to Johnson’s next moves throughout the week, alongside the ongoing issues around inflation, Covid-19 cases, supply chains and worker shortages. Yesterday brought data reporting the weakest August car sales since 2013 (a 22% slump), and now the construction industry reports paralysis over a shortage of building materials and the subsequent soaring cost of supplies.
German bounce back comes with caution (EUR)
It was a broadly positive 24 hours for the Eurozone. European shares (EUR) climbed to near record highs, spurred by technology stocks which surged to their highest levels this year thanks to the rise in German factory orders. Fears surrounding its ability to fulfil the orders are also eased this morning, with the news that German factory output bounced back in July with a 1% rise after three consecutive monthly drops. ING’s Carsten Brzeski is a little more downbeat, describing the upturn as “signs of life rather than a performance explosion”, and warns that “supply chain frictions remain a bigger threat to the German industry than the pandemic”.
Elsewhere in Europe, the Organization for Economic Cooperation and Development (OECD) released an optimistic Economic Survey of Italy (EUR). Here it predicts the Italian economy will grow by 5.9% in 2021, and return to its pre-Covid levels by the first half of 2022. These projections were revised upwards from May’s figures thanks to a “stronger-than-expected second quarter”.
RBA tapering plans (AUD)
Early nerves around this morning’s Royal Bank of Australia (RBA) September monetary policy announcement appear to have been somewhat misplaced, as the RBA kept the official cash rate (OCR) steady at 0.10% - a record low. Moving forward, the central bank’s previously stated plans to begin cautiously winding back its bond-buying program remain in place – a decision that indicates a certain level of confidence that the Australian economy (AUD) will bounce back.
The expectation was that the current outbreak of the Delta variant in Melbourne and Sydney and the subsequent continued lockdowns within the two main cities would delay any decision to begin tapering. But, RBA Governor Philip Lowe and his board instead decided to proceed with the taper, reducing the amount of government asset purchasing, down from $5 billion a week to $4 billion a week until at least February 2022, an extension from the original November 2021. The commitment shows the central bank’s acknowledgement that Australia’s Covid-19 recovery is likely to be more challenging than expected, but that recovery is within reach.