Hang on a minute

Investors were less ebullient on Tuesday than they had been at the beginning of the week. After the Reserve Bank of Australia (RBA) abandoned its yield curve control project, letting the three-year bond do what it may, investors focused on the government bond market, not just in Australia but around the world.

In the foreign exchange field there was a tendency to steer clear of the traditionally “risky” commodity-related currencies. The Norwegian krone (NOK) was the laggard, held back by sluggish oil prices and nursing an average loss of 0.9% for the day. In the lead, the US dollar (USD) picked up an average of 0.5% despite a dearth of helpful domestic ecostats or news. Externally, the Chinese government (CNY) rattled global optimism with its call for families to stock up with essentials for the winter. China’s zero-Covid strategy suggests that potential lockdowns are part of the reason.

After a generally hopeless day on Monday, the pound (GBP) found itself among the leaders yesterday. Although it lost a quarter of a US cent, elsewhere it was either unchanged or higher. Sterling was flat against the euro (EUR), the yen (JPY) and the Canadian dollar (CAD), and 0.3% firmer on average. The AUD, NZD and SEK were all down by an average of 0.2%.

New Zealand is working

The delayed purchasing managers’ index from the Eurozone manufacturing sector (EUR) was lower on the month, as predicted. It did not move the euro. Last night’s NZ employment data (NZD) were mostly better than expected, with unemployment matching a record low 3.4% in the third quarter. The NZD moved higher.

The Eurozone PMIs (EUR) were all positive, ranging from France’s 53.6 to the Netherlands’ 62.5. For the Eurozone as a whole, the manufacturing PMI fell to an eight-month low of 58.3 as – who would have thought it? – “supply issues” disrupted manufacturers. Output and new order growth both lost momentum and rates of inflation reached new records.

Overnight, Australia (AUD) delivered the first of today’s services sector PMIs. The end of many lockdowns allowed new orders and output to return to growth and there was an improvement in business confidence. The more striking numbers came from New Zealand (NZD) in the labour market report. “Key labour market measures showed an increasingly tight labour market, with unemployment and underutilisation near record lows, employment at an all-time high, and wage growth strong”.

Services PMIs and tapering

The main event today is this evening’s US Federal Open Market Committee’s monetary policy announcement (USD). Analysts confidently expect it to fire the starting gun for the central bank’s wind-down of quantitative easing asset purchases. Such a move would not amount to monetary tightening but it would mean less loosening.

In the meantime, there are the services PMIs to consider. Some aspects of the sector will have been adversely affected by supply problems but not to the extent of manufacturing. The UK (GBP) reading is expected to be two and a half points higher on the month at 58. Once again, the Eurozone numbers (EUR) will arrive a day late, tomorrow, because of All Saints’ Day. Nationwide’s house price index, already out, showed UK house prices (GBP) rising 0.7% in October, putting them 9.9% higher on the year.

It is unclear how investors will greet this evening’s Fed policy decision (USD). If the Fed does announce the beginning of tapering, they should take it in their stride, having had months to prepare. What everyone will be trying to work out from the statement, and from the chairman’s comments, is when interest rates will start to go up. They might well find that tricky.