Off to Brussels
With sterling out of the equation it was an unusually tidy day for the major currencies. The Northern Scandinavian crowns strengthened by an average of 0.6%. The USD, EUR, CHF, JPY, CAD, AUD and NZD were 0.2% weaker and just about unchanged against one another.
But of course sterling was not out of the equation. It was playing the role that it carries off so well; making everything else look good. Even the pound’s average loss of 0.6% appeared unattainably constructive during most of the day after the 1% thumping it took after London’s opening. A report in The Sun, not traditionally a conduit for market-moving news, had it that the Prime Minister “will call time if the EU refuses to budge from their ‘outrageous’ demands”. The story was entirely plausible and sterling dropped like a stone.
Sterling’s partial recovery came late in the afternoon, after an inconclusive phone conversation between Johnson and EC President Ursula von der Leyen led to his decision to travel to Brussels for a face-to-face meeting. Investors infer that he would not bother to make the trip unless he saw some prospect of a successful outcome.
The much-discussed but still-unformed US fiscal stimulus package is in the news again. A cross-party group is trying to sell to Congress and the administration a reduced $908 billion plan and it has not yet been shot down.
Successful passage of a stimulus bill would be negative for the USD, in that it would leave the world with one thing less to worry about, so a reduced incentive to hide behind safe-haven currencies. Therefore, because the package looks more likely to happen than it did a week or two ago, it weighs more heavily on the dollar.
The changing prospect of deals in Brussels and Washington had much more influence on currencies than did Monday’s relatively few economic data. Nevertheless, for the sake of completeness: UK house prices rose 7.6% in the year to November; Eurozone investor confidence improved by more than seven points to -2.7; Canada’s Ivey purchasing managers’ index fell a couple of points to 52.7; third quarter growth in Japan was upwardly revised to 5.3%; Australian house prices rose by an annual 4.5%; Australian business conditions and confidence improved in November.
There will be third quarter gross domestic product data this morning from South Africa and the Eurozone. Tonight, China reports on inflation. In between, there are few ecostats to affect currencies.
After plunging by 51% in the second quarter, South African GDP is tentatively forecast to have rebounded by 57% in Q3. The Eurozone’s recovery will look less dramatic. It has already been estimated that GDP grew 12.6% in Q3 after falling 11.8% in Q2. ZEW’s surveys of investor confidence in Germany and the Eurozone also come out this morning.
After lunch, the US data cover small-business optimism, nonfarm productivity and unit labor costs. Tonight come NZ manufacturing sales, Australian consumer confidence and Japanese machinery orders. Chinese inflation is pencilled in at 0%, down from 0.5%.