Sterling second again

Friday’s leaders and laggards reprised their work on Monday. Norway’s krone won by a nose despite a $1 downward correction to oil prices. Japan’s yen was the clear loser as the risk-on mood continued. Britain’s pound took second place, accompanied this time by the Swiss franc and Canadian dollar.

There was nothing on Monday to reshape the FX debate so currencies carried on as before. National holidays took Canada, Gibraltar, Afghanistan, the United States, China, Vietnam and Serbia out of the game, economic statistics were few and central bankers were conspicuous by their absence.

Underlying the risk-on optimism, the long-awaited $1.9 trillion US fiscal package continued to stumble on towards final approval. With the non-event of Trump’s impeachment now out of the way, President Biden is trying to make sure that approval for it is cross-party, though if necessary the administration is prepared to force it through the Senate using the Vice President’s casting vote. In passing, the one-time Bank of England Governor, Mervyn King, urges politicians to frame any fiscal response as support rather than stimulus. He argues that “Support, not stimulus, is what’s critical in limiting the damage from the Covid restrictions while avoiding future inflation.”

Trade and production

A meagre package of ecostats left investors little wiser about the global economy. The highlight was Eurozone industrial production, one of the most easily-ignored statistics on the calendar.

Production fell 1.6% in December, putting the total for 2020 0.8% below 2019’s output. The national outliers were Portugal, where production increased by 1.8%, and Belgium, where it fell 1.9%. The Eurozone production data normally fail to grab the attention of investors, because most of the important components  are already known. The same is true of the Eurozone trade figures, which showed a €30.1 billion surplus in December.

Despite the national holiday, Canada manged to release data for housing starts and manufacturing sales. Both were a little stronger than forecast, though they did nothing for the Loonie, which is unchanged against sterling.

Down by 98.9%

The most eye-catching statistic was the 98.9 decline in NZ visitor arrivals between December 2019 and December 2020. It was also the most predictable, given the country’s closed-border policy.

Almost as startling was the 69.4% monthly fall in Australian new home sales. There was a technical reason for the drop: sales in December had surged by 91.8% as buyers hurried to beat a 31 December deadline for the $25k Home Builder grant, now reduced to $15k. The minutes of the Reserve Bank of Australia policy meeting were nowhere near as exciting, and contained no surprises.

The most important numbers today are for Eurozone gross domestic product in Q4. A quarterly decline of 0.7% is expected, with a 5.1% shrinkage for 2020 as a whole. ZEW will print its business confidence measures for Germany and the Eurozone. The New York Fed’s manufacturing survey is the only meaningful ecostat from North America.