Bad is good

There was a reversal on Friday of the recent risk-on mood. The US dollar had a comfortable win with an average gain of 0.9%, while in the middle of the field, the GBP was roughly steady against the safe-haven CHF and JPY.

Investors had rather too many considerations to juggle at the end of last week. Following Wednesday’s protest on Capitol Hill, opponents of the President argued among themselves whether or how to remove him from office. The USD continues to turn a blind eye to developments in Washington; with little more than a week to go until the inauguration, the longer-term implications for the currency are limited.

Paradoxically, disappointing US employment data on Thursday and Friday were taken to be positive for the dollar. The unconventional logic there was they would provide additional encouragement for the incoming administration to roll out fiscal stimulus. While Thursday’s 787k initial weekly jobless claims were slightly fewer than forecast, they were still way above the typical 210k - 230k pre-pandemic level. Friday’s 140k monthly fall in nonfarm payrolls was a bigger blow relative to the forecast 60k increase. With adjustments to previous months, total payrolls were 65k fewer than expected. The Canadian jobs numbers, which appeared at the same time, were at least as mediocre. Some 63k jobs were lost in December, almost three times as many as forecast.

UK internal market

A week after the end of the Brexit transition, there is good news and bad news from the economic front. Whilst the feared multi-mile queues of trucks outside ports have failed to materialise, traffic is exceptionally low as a result of goods movements being postponed or cancelled. Firms are, in effect “self-censoring trade for fear of being tied up in loss-making border hold-ups.

Merchants are especially perplexed by unforeseen arrangements for commerce with Northern Ireland. Britain’s geographical Schrodinger’s Cat is simultaneously within the UK internal market and inside the EU single market. A highly-publicised casualty of the Brexit trade deal is M&S Percy Pigs. Although made in Germany, once they have entered the firm’s UK supply chain they incur a tariff if re-exported to Ireland.

Investors are not particularly surprised that such anomalies have cropped up. After all, importers and exporters had less than a week to digest the requirements of the Trade and Cooperation Agreement before it came into effect. They are nevertheless conscious that if the situation remains unresolved, UK trade will suffer even more than they had previously bargained for. Sterling was held back by the circumstances.

Negative interest rates

Potentially the most interesting agenda item today is a “speech” by Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee. Its title is “Let’s talk about negative interest rates”, and its text will appear on the bank’s website at 1400h.

The bank has been flying this kite for months, and has canvassed the financial institutions for their thoughts on the practicality of such a move. It is most unlikely that there will be any official announcement from Ms Tenreyro, however, she presumably has something constructive to say on the subject.

Today’s ecostats kicked off with Australian retail sales which increased, as expected, by a chunky 7.1% in November. It did the AUD no good at all; the Aussie is 0.5% lower on the day (as is the NZD) as a result of the risk-off mood. A doubling of Norwegian inflation from 0.7% to 1.4% was equally unhelpful to the krone. It joined the antipodeans at the back of the field. The Bank of Canada’s Business Outlook Survey and Eurozone investor confidence are the only two remaining agenda items.