Daily Brief

Vision

A good finish

At this point 12 months ago sterling was congratulating itself for starting January an average of 0.2% above the opening levels on New Year's Eve. The equivalent gain this morning is 0.7% and the pound is ahead against all the major currencies, even though it came off the boil in the Far East earlier on. 

As was the case last week, no obvious fundamental factor supported the move. The sole UK ecostat, back on Monday, was an increase in the narrow BBA measure of mortgage lending, which can have made no difference. Even the Prime Minister's heart-warming new year Brexit message contained nothing to stoke appetite for the pound. The most likely explanation is a combination of improved risk-appetite and a seasonally thin market.

The question, then, is whether a good finish to 2019 implies a good start to 2020, and the answer to that is a resounding "don't know". What is clear, as highlighted by the Financial Times, is that it is unlikely to go far in either direction. Volatility has evaporated and trading ranges for the major currencies in 2019 were the narrowest since the Bretton Woods fixed exchange rate system broke up nearly half a century ago.

Looking up

Most of the economic data at the beginning of the week delivered better than expected results. They had no particular impact on currencies though: what mattered there was sentiment.

Monday's agenda was monopolised by the States. The Advance Economic Indicators report showed wholesale inventories holding steady as the trade deficit narrowed. The Chicago purchasing managers' index rose more than two and a half points to a four-month high of 48.9. Pending home sales in November regained almost all of October's decline. The Dallas Fed's manufacturing index was the only disappointment, coming in at -3.2.

Tuesday morning's PMIs from China saw manufacturing remain steady at 50.2, just within the growth zone, while services faded by nearly a full point to 53.5. Over in America the FHFA's house price index was 5.0% higher on the year while the Case-Shiller index was up by 2.2%. Consumer confidence dipped slightly in December.

Manufacturing PMIs

Today is mostly about the purchasing managers' index reading for manufacturing. Australia opened the batting with a figure of 49.2, a record low (panic not, the index is less than four years old). Many more PMIs can be found here.

China's Caixin manufacturing PMI was a third of a point lower on the month at 51.5. Sweden's was a point and a half higher at 47.1 and Spain's was just about unchanged at 47.4.

Analysts expect most of the readings from Europe to be below the 50.0 breakeven level, with only France sneaking into the growth zone at 50.3. Britain is pencilled in for a 47.6, which would be a modest improvement. Both of the North American readings are forecast to be positive, with Canada at 51.9 and the States at 52.5.

GBP: Ends the year on a high

GBP: Ends the year on a high

USD: On average unchanged

USD: On average unchanged

AUD: Record low manufacturing PMI

AUD: Record low manufacturing PMI

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