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Boris and Ursula

Staying positive

Sterling did not exactly take the day off on Tuesday. It covered relatively wide ranges against most of its peers - more than a cent relative to the USD, EUR and CHF for example. However, in the majority of cases it was a round trip that delivered little net change on the day.

There were signs of movement on the Brexit front. Downing Street said it would abandon its controversial plan to renege on the Withdrawal Agreement via the Internal Market Bill, and the Prime Minister booked a ticket to Brussels, for dinner with the European Commission President. Investors mostly chose to see these developments as positive signs that a Brexit deal is closer. Pessimists argued that they could simply be preparatory steps towards a no-deal Brexit.

Sterling came out of it with a few bruises but no more than those suffered by the US dollar and the euro. The three were unchanged against one another and not materially different against the Swiss franc and yen. Despite recent wobbles, investors still cling to the notion that something will turn up and that many of the downside risks of no-deal are already priced into the pound.


Rand rejoices

The market took its hat off to the South African rand after a report that the ZA economy expanded by 66.1% in the third quarter. The rand strengthened by 1.3% to a nine-month high against sterling.

The devil was in the detail though. Like the United States, South Africa reports changes to gross domestic product on an annualised basis, meaning they are not directly comparable to European quarter-on-quarter readings. Thus, the 51.7% slump in Q2 and the spectacular 66.1% rebound in Q3 look less dramatic when translated to -16.6% and +13.5%. Statistics South Africa is considering a change to its presentation of the data.

There was no such casuistry with the Euroland GDP numbers. The economy grew by 12.5% in Q3 after shrinking 11.8% in the previous quarter. At the same time employment went up by 1% in Q3, blowing away the forecast that it would have fallen 2.8%. ZEW’s survey of economic sentiment found marked improvements, with Germany up 16 points at 55 and the euro zone nearly 12 points better at 54.4.


A sniff of stimulus

While investors wait to discover how Boris and Ursula’s dinner date panned out they can perhaps follow the progress – if any - of the US fiscal stimulus bill. Treasury Secretary Steve Mnuchin is back in the mix, advocating a $916 billion package.

At $916 billion the administration’s proposal is a mere shadow of the $2.4 trillion originally advocated by the House of Representatives. It is however not a mile away from the package proposed last week by a cross-party group in Congress.

Today’s ecostats are a fairly dull bunch. China has already reported a further slowing of inflation to -0.5%, down from 2.7% four months ago. NZ manufacturing sales rebounded by 17.3% in Q3 and Australian consumer confidence reached a ten-year high of 112. The main event today is the Bank of Canada’s monetary policy statement, which is not expected to deliver any change to the 0.25% benchmark interest rate.

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