On Monday sterling moved lower following an unexpectedly weak purchasing managers' index reading from the construction sector. Yesterday it fell after the services PMI came in stronger than forecast. So much for efficient markets.
At 51.3 the services PMI was a point higher on the month and more than a point above forecast. No, 51.3 is not a stunning result but investors might have given sterling the benefit of the doubt. They did not: within half an hour they had begun to send the pound lower. It lost a cent to the US dollar and more than half a cent to the euro. And then, immediately after lunch, it began to recover. On average sterling is unchanged on the day. It is a dozen ticks higher against the euro and two dozen lower against the US dollar.
The pound's late morning fall had no single cause. The word on the street suggests it was a combination of political nervousness, technical factors and the Bank of England governor's talk about no-deal Brexit preparations. Justification for the pound's recovery is easier to fathom: it should not have gone down in the first place.
Prizes for everyone
It was not only the UK services sector PMI that surprised on the upside. Every one of the measures from Euroland beat forecast, as did one of the two US readings. In fact most of the last 24 hours' statistics exceeded expectations, which made it doubly difficult for those which didn't.
None of the PMIs was below the breakeven at 50. Even Italy and France managed to scrape into the growth zone at 50.4 and 50.2 respectively. In the States, Markit's 56.0 was only just short of forecast while the ISM's 59.7 was more than two points ahead. Euro zone retail sales matched the international trend, rebounding by 1.3% in January. Italy's GDP contracted by 0.1% in the fourth quarter but even that beat the -0.2% forecast.
Just about the only loser was Australia. Gross domestic product expanded by 0.2% in the fourth quarter and by 2.3% in calendar 2018. Investors had expected 0.3% and 2.5%. The news came shortly after Reserve Bank of Australia governor Philip Lowe had delivered another of his don’t-worry-about-house-prices speeches. Investors were not convinced. More than one bank is now predicting RBA rate cuts this year and the Aussie found it tough going this morning, losing two thirds of a cent to sterling.
BoC decision time
This afternoon the Bank of Canada is expected to keep its interest rate target unchanged at 1.75%. Investors will be interested to hear what governor Stephen Poloz's statement might have to say about rates in the future.
There will also be rate decisions from the central banks of Turkey, Poland and Croatia. Among those three it is Turkey that will attract most attention. With the central bank's benchmark rate at 24.0% and inflation moving below 20% the lira has looked fairly comfortable in recent months. That could change if the central bank abandons its tilt towards further tightening.
There are no UK economic data today, and nothing from Euroland either. Potentially the most amusing statistic will be the US trade deficit, which has widened as a result of the president's economic policy.