Going round in circles
Trading the pound last week was not a relaxing job. Almost from hour to hour it changed direction as a post-Brexit trade deal was agreed, then impossible, on again, then off again. Astonishingly, sterling is on average just about unchanged from last Monday, and from Friday morning, but it has been round the block several times along the way.
To an extent, it ought not to matter to sterling whether there is or is not a deal. The government itself concedes that “time is running out”, and urges businesses to “make sure you’re ready”. But ready for what? With little more than three weeks to go, firms are no wiser than they were four and a half years ago about the tariffs they might incur. Trade with Europe is going to take a hit in any event, if only because the uncertainty discourages businesses from getting involved.
Yet still the conventional wisdom is that a no-deal Brexit would be the most economically-damaging, hence the pound’s defensive position this morning. Michel Barnier’s last word on the matter was that “the ball is now in the British Prime Minister’s court”, which did not fill investors with optimism. What has become clear in the last few days is that to follow slavishly the stream of rumour from Brussels and Downing Street is to go round in unproductive and expensive circles.
US jobs disappoint
The Brexit circus so dominated the show on Friday that nobody paid much attention to the monthly US employment data, which usually capture investors’ attention. From the Greenback’s point of view this was no bad thing, because the numbers were not as good as they could have been.
Nonfarm payrolls rose by 245k in November, by far the smallest increase in seven months and little more than half what investors had been led to expect. There was a negative reaction from the dollar but within a couple of hours it had been corrected and the USD had regained its composure. It was little changed on the day against the EUR, CHF and JPY, and a third of a cent firmer against the GBP.
What did attract investors’ attention, in a compare-and-contrast sort of way, was the Canadian employment data which emerged at the same time as the US numbers. Employment there rose by 62k in November, more than three times the expected number. From May to September, it grew by an average of 2.7% a month, taking the rate of unemployment down to 8.5%, a seven-month low. The Loonie pushed ahead on the news, winning the day easily with an average gain of 0.7%.
And on it goes
There are no prizes for guessing what the focus will be for investors today. As London opened, the media quoted a report in The Sun newspaper that the Prime Minister was about to abandon negotiations with the EU.
It would be tempting to think that a final jump over the cliff edge would seal sterling’s fate for good. Well, not good, but permanently. However, in this game, where British officials described today’s talks as “the last throw of the dice”, even the end is negotiable.
There are some ecostats on today’s agenda, for UK house prices, Swedish industrial production and whatever, but they are of no consequence. The news from Brussels and Downing Street is everything.