Daily Brief

Three out of five ayes

A third lower

The Canadian dollar was not the luckiest currency over the last 48 hours. On Tuesday it came last in anticipation of a rate cut by the Bank of Canada. Yesterday it came last again because the BoC cut its benchmark interest rate from 1.75% to 1.25%. Britain and NZ are yet to move.

Normally, the “sell the mystery buy the history” theory would have minimised the impact of the BoC’s move. Investors anticipating a rate cut would short the currency ahead of the event and take profit by buying it back after the announcement. In this case, they evidently misjudged the scale of the central bank’s determination, discounting only a 25 basis point reduction when the BoC actually delivered a half-percentage-point cut and hinted at the possibility of even lower rates in the future. The Loonie is a cent and a third lower on the day, though unchanged from a week ago.

An unwanted by-product of the rate cut could be further inflation in Canadian house prices. Although Vancouver might miss out in the short term as a result of reduced travel from China, lower mortgage rates and the onset of spring are expected to drive demand and push prices higher.


The new governor

Andrew Bailey, the man who will succeed Mark Carney as Bank of England governor in less than a fortnight, appeared before Parliament’s Treasury Committee for his first official grilling in that capacity. He did not get an easy ride but investors were happy enough with his performance and the pound moved higher.

Some of that satisfaction was perhaps the result of Mr Bailey’s reluctance to commit himself to following the Fed and the Bank of Canada in slashing interest rates. With a 0.75% Bank Rate, the Old Lady has more room for movement than the European Central Bank and the Bank of Japan, both of which already have at least one of their benchmark rates zero. However, the chance of a 50-basis-point cut is remote. Mr Bailey would rather see direct financial support for businesses whose cash flow has been disrupted by Covid-19.

Investors liked what they heard, and were not unduly disappointed that the UK services sector purchasing managers’ index narrowly missed forecast at 53.2. It still beat Euroland’s 51.6 and the equivalent US measure at 49.4, though not the ISM’s 57.3. Sterling somehow emerged as the day’s top performer, strengthening by an average of 0.5%. It added two thirds of a US cent and three quarters of a euro cent.


North American jobs

Other than the Halifax house price index tomorrow, there are no serious UK economic statistics ahead of the weekend. The most important numbers come on Friday, with the employment data from Canada and the States. US nonfarm payrolls are forecast to have increased by 175k in February.

Today’s rather dull agenda offers BBA mortgage approvals (UK), Challenger job cuts (US), American factory orders and, tonight, AiG’s Australian services sector PMI. This afternoon, BoE governor Mark Carney will address “The Economist’s Society” in London.

As well as Canadian and US jobs, Friday’s list includes German factory orders, Italian retail sales, US wholesale inventories and Canada’s Ivey PMI. Nonfarm payrolls it is then.

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