The smell of freedom

Investors are broadly in favour of the Prime Minister’s confirmation yesterday that most of the UK's Covid restrictions will end in a fortnight’s time. Investors knew it was coming, so the reaction was not dramatic: sterling had a gently positive day.

The logic behind sterling’s upward move is that the removal of restrictions will allow businesses to get back to normal operations. Although many might choose not to do so, at least until the end of the summer, the Prime Minister’s pledge of no more lockdowns should encourage businesses to plan for the best, not the worst.

Earlier in the day, Britain’s services sector purchasing managers’ index for June had been a mixed blessing. At 62.4 it was ahead of the forecast 61.7 but half a point lower on the month. That said, the 62.9 scored in May was a 24-year high, and for the June reading to come in close to that was no mean achievement. Sterling added half a US cent and picked up a third of a cent each from the euro and Swiss franc.

Pressing ahead in Europe

Although the services PMIs from the Eurozone were not exactly wobble-free they were almost all multi-month or multi-year highs. The odd one out, ironically, was Ireland, whose 63.4 was simultaneously a two-month low and higher than all its peers.

The supposed disappointment at Germany’s below-forecast 57.5 was more than a little contrived. It actually represented an almost five-point monthly improvement and it was a 10-year high. Taking all the Eurozone PMIs together, the composite reading was slightly ahead of forecast at 59.5, a 15-year high. Released at the same time, the Sentix index of investor confidence came in at 29.8, a three-and-a-half-year high.

Two other business surveys appeared in the last 24 hours. The Bank of Canada’s Business Outlook Survey pointed to “continued improvement in business sentiment [and] an important broadening in the recovery ahead”. In New Zealand, the NZIER’s Quarterly Survey of Business Opinion reported a sharp increase in confidence. The news helped propel the NZD into first place for a second day.

RBA on hold

The Reserve Bank of Australia announced this morning that it will probably keep interest rates unchanged until 2024. Governor Philip Lowe followed up with a speech in which he said that the next round of bond purchases will be much smaller and more short-lived than the one ending in September.

Investors interpreted the RBA’s move as hawkish, and sent the AUD higher. It is a touch firmer on the day against sterling. Investors did not react when New South Wales Health Minister Brad Hazzard made some bizarre comments on the vaccine programme.

For the rest of the day the highlight should be the delayed US services sector PMIs this afternoon. Ahead of that, ZEW will present its surveys of investor sentiment in Germany and the Eurozone, and Eurostat will report on Eurozone retail sales. The sole British ecostat is the construction PMI.