Stay at home again
Sterling went into the weekend looking fairly comfortable and emerged from it on the defensive. The change of fortune was catalysed by the Prime Minister’s imposition of a new four-week anti-Covid lockdown starting on Thursday. It ought not to have come as a surprise but many investors had evidently not been paying attention.
Alongside the lockdown, the government will extend the furlough scheme, which was supposed to end on Saturday. Educational establishments can remain open, as can food shops and pharmacies, but non-essential shops must remain closed. Leaving the country or internal travel are only allowed if they are essential.
The UK measures are being matched by similar moves across Europe. Unfortunately for sterling, most of those European measures have either been in effect for a while or were well-flagged, so the pound took a quarter-cent hit when trading began in the Far East this morning. Even so, it is on average unchanged on the day, flat against the USD and CAD, and a third of a cent higher against the EUR.
On balance, more of the economic data – from Europe and North America on Friday and from the Far East this morning - beat expectations than fell short. The only real disappointment was a 5.1% monthly fall in French consumer spending.
The other side of that coin was an 18.2% expansion of French gross domestic product in the third quarter. Spain’s economy grew by a quarterly 16.7% and Germany’s by 8.2%. For the Eurozone as a whole, growth in Q3 was 12.7%, appreciably better than the forecast 9.4%. Eurozone inflation was unchanged at a provisional -0.3% in October. Nationwide’s UK house price index was a mixed blessing: The 5.8% annual rise was the biggest in five and a half years but “activity is likely to slow in the coming quarters, perhaps sharply”.
US personal income and spending showed expenditure (up 1.4% on the year) outpacing incomes (0.9% higher).The Chicago purchasing managers’ index was a point lower on the month at 61.1, though still above the breakeven 50 level after sitting below it for a year. The Michigan consumer sentiment index was higher on the month at 81.8, still well below the trend of the last five years.
PMIs, central banks, elections
The statistical highlights today and Wednesday will be the purchasing managers’ indices. Numbers already in from China and Australia look decent enough but Japanese manufacturers are still finding it tough going.
Another couple of handfuls of manufacturing PMIs will appear today, all of which are supposed to be in the growth zone above 50. The UK reading is expected to be three quarters of a point lower on the month at 53.3.
The first of three central bank policy announcements comes tonight, from the Reserve Bank of Australia. Analysts see every chance that the Cash Rate will go down from 0.25% to a record low of 0.1%. The second is due on Thursday from the Bank of England, followed a few hours later by the US Federal Reserve. No change is expected from either of those.