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A busy start to the month

New-found belief

After a twitchy end to last week, investors rediscovered their faith in a Brexit deal on Monday. From last place on Friday, the pound moved into the lead, gaining an average of 0.4% with no losses. For no compelling reason, the SEK took last place, 0.9% behind sterling.

There was no compelling reason for investors to assume a Brexit deal either, beyond their long-held belief that no-deal would be a wilful act of self-harm. Optimistic op-ed media pieces were plentiful enough but they were all lacking in official substance. Indeed, the combative narrative from the negotiations suggested that the whole thing was about to founder on the rock of fishing zones. The reassuring thing here is that both sides need an agreement. Without one, Europe will reject British-caught fish, leaving UK fishers unable to sell their catch and Europeans without the mackerel and herring that they crave.

On the wider stage, there was little sense of purpose. Equity prices followed domestic, not global leads: Japan, Canada and Australia moved higher while the United States, South America and most of Europe lost ground. The sensation was of month-end position management rather than fresh inspiration. Among the currencies, the CAD and NZD shared second place behind the GBP while the safe-haven CHF and JPY tied for the penultimate slot ahead of the SEK.

 

Mortgages motivate sterling

It is not often that the UK money and credit data move the pound but the empirical evidence suggests that they did yesterday. At 0930, when they came out, sterling reversed a two-hour-long decline at what turned out to be the low of the day.

Net lending to individuals was £4.3 billion, in line with its pre-pandemic trend, while consumer credit declined slightly for a second month. The only really impressive component, and the one that presumably made the difference, was mortgage approvals. At 97.5k, they were back up to a level not seen since 13 years ago, before the global financial crisis.

The rest of Monday’s mostly run-of-the mill ecostats passed by without notice. European HICP data put inflation at -0.9% in Spain, 0% in Italy and -0.7% in Germany. Canada’s raw material and industrial product price indices (producer prices) showed manufacturers’ costs rising 0.5% in October while factory gate prices fell 0.4%. The Chicago purchasing managers’ index fell three points to 58.2 and the Dallas Fed’s manufacturing index softened by eight points to 12.

 

Manufacturing PMIs

On the first of the month, the barrage of purchasing managers’ index readings begins. Australian manufacturing PMIs from AiG and Markit opened the scoring at 52.1 and 55.8 with Japan way behind in the contraction zone at 49.0. Today also brings a variety of other Markit PMIs.

The busy pre-London ecostat agenda included a 3.8% monthly increase in Australian building permits, a 7.2% quarterly rebound in Swiss gross domestic product and a 6.5% annual rise for UK house prices. Apart from the PMIs, the other statistics on today’s list relate to German unemployment, Eurozone inflation, and Canadian and Australian GDP.

Central bankers are out in force. The Reserve Bank of Australia’s Philip Lowe has kept his benchmark interest rate unchanged at 0.1% as expected. After lunch Federal Reserve Chairman Jay Powell will talk to the Senate Banking Committee about the economy as his predecessor, Janet Yellen, begins her preparations to take up the post of Treasury Secretary. Fed Governor Lael Brainard will be speaking, as will the European Central Bank President, the RBA Governor and Reserve Bank of New Zealand Governor Adrian Orr.

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