Don’t be afraid
Upon leaving hospital, less than a week after testing positive for Covid-19, the US President returned to the White House to continue his recovery and gave a speech where he urged the public, “don’t be afraid of Covid”. In anticipation of his release, investors had already cast aside their fear and stocked up on risky assets.
For a second day in succession, the safe-haven Japanese yen took last place, losing two thirds of a cent to sterling and falling an average of 0.3%. Also for a second day, the Norwegian krone took advantage of a buoyant oil price to lead the field. WTI crude rose 3.5% while the NOK gained an average of 0.5%. Sterling lost 0.3% to the NOK and took third place narrowly behind the euro, for an average gain of 0.2%. Although there has been no fresh progress on a trade deal with the EU, investors remain optimistic, tending to agree with German Foreign Minister Heiko Maas that a no-deal Brexit would be “irresponsible”.
Monday’s specific sterling-related events cancelled out one another. On the downside, Monetary Policy Committee member Jonathan Haskel told a conference that there is “some positive evidence that negative rates have benefited the economy [elsewhere]”. Conversely, the services sector purchasing managers’ index came in ahead of forecast at 56.1, for a third consecutive month of growth.
Mostly positive PMIs
With a few notable exceptions, the other services PMIs also came in above the dividing line at 50. Spain, Italy and France all missed the cut, holding down the overall Eurozone measure. The two US readings were comfortably within the growth zone.
In Spain, Italy and France, the services PMIs all missed the mark, most notably Spain’s 42.2 – a four-month low. Collectively they pulled the Eurozone services index down to 48, its lowest level since June, and took the cross-sector composite index closer to breakeven at 50.4. The Sentix index of investor confidence was only a touch lower on the month at -8.3 while the 3.7% monthly rise in Eurozone retail sales was the strongest in almost three years. The EUR was almost flat against the GBP.
The US services PMIs from Markit and ISM were both in the mid-fifties, with the ISM figure a point and a half higher than expected at 57.8. Markit’s composite index was only a little disappointing at 54.3.
Central banks abound
The central banks of Australia, Eurozone and the United States all have contributions to today’s agenda. Australia’s Reserve Bank has already spoken, leaving its benchmark Cash Rate unchanged at 0.25%. It remains to be seen how much longer it remains at that level.
The RBA statement said nothing to disabuse investors of their suspicion that there will be some sort of further policy relaxation next month. Rather, “it is confident that inflation will be sustainably within the 2–3 per cent target band [and] continues to consider how additional monetary easing could support jobs”. Ahead of London’s opening, the AUD moved lower as that message sank in.
Other central bank speakers today include European Central Bank President Christine Lagarde and Chief Economist Philip Lane. Federal Reserve Chairman Jerome Powell will also be up after lunch.