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A tale of two halves

Outbreak of optimism

It was not quite a binary currency choice for investors on Monday but it was heading that way. The big four – USD, EUR, JPY and CHF – lost ground together while the risky commodity currencies – AUD, NZD and NOK (and ZAR) – made the running. Sterling was somewhere in the middle, trying to make its mind up.

A huge outbreak of optimism swept financial markets, driven by a perception that the tragic Coronavirus pandemic is nearing its peak and that, once it has done so, life and the economy can return to normal. Equity markets reacted positively. The upbeat mood was encouraged by news that Austria and Denmark are laying plans to relax containment measures. Britain’s peak is predicted to come on Easter Sunday.

 

Plunge or plummet

Had it not been for the prime minister being in intensive care, sterling might have gleaned more advantage from the risk-on swing. As it was, investors were discouraged by the inconclusive transfer of power from Johnson to Foreign Secretary Dominic Raab, who has not been in the foreground of government presentations recently. The pound lost an average of 0.5% and strengthened by 0.3% each against the US dollar, euro, franc and yen.

In contrast to the optimism sweeping financial markets, the slack handful of confidence-related data and assessments on Monday told a very different story. It was not about whether the world was more worried, it was about how much more worried it was.

UK builders were first to stake their claim, with the construction sector purchasing managers’ index. It showed business expectations slumping to the “weakest since October 2008”. Next came the Sentix index of Euroland investor confidence, which plunged 26 points to -42.9. The Bank of Canada’s Business Outlook Survey was less dramatic, largely because it was carried out before the pandemic really hit home. Nevertheless, business sentiment had already softened, especially in the energy sector. Without the BoC survey the Loonie might have done better: in the event, it strengthened by three quarters of a cent.

A hiatus followed, with no other hard news or data until NZIER published its Quarterly Survey of Business Opinion. Faced with the choice of plunge or plummet, NZIER opted for “Business confidence plummets”, in no way an exaggeration as the index fell 49 points to -70%. AiG went the other way with its summary of Australia’s services sector PMI: “Services sector plunges as pandemic hits in March”. The index fell eight points to 38.7. The Aussie nevertheless managed to dodge the bullet to become the day’s top performer, strengthening by three and a half cents, 1.7%.

 

If not Coronabonds…

Economic statistics are not in short supply today but most of them are only of passing interest. The agenda item with the greatest potential – though it may be unrealised – is the Eurogroup meeting of Euroland finance ministers.

Norwegian manufacturing output fell 0.5% in February while Germany’s broader industrial production increased by 0.3%. Australia’s trade surplus narrowed in March after France’s deficit narrowed in February. Canada’s Ivey PMI this afternoon as vaguely interesting, as are tonight’s Australian mortgage lending numbers.

When the Eurogroup holds its TV meeting it will be discussing a “coordinated response to the economic fallout of the COVID-19 pandemic”.  Thus far, coordination has looked unachievable, given the philosophical gulf between the German/Dutch axis and the progressive approach France and its allies. All will be revealed in a press conference this evening.

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