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Dive! dive! dive!

Markets focus on equities

Currencies played second fiddle yesterday to equity and bond markets. After drifting lower for several days share prices plunged in the States, leaving the DJ30 index 4.4% lower on the day. Britain's FTSE100 fell 2.8% and Tokyo's Nikkei is down by 4%. Almost needless to say, the yen was the biggest beneficiary.

The US president blamed the sell-off on the Federal Reserve's steady interest rate increases, saying "I think the Fed is making a mistake. They're so tight. I think the Fed has gone crazy." He then backed off a little from that criticism, conceding that "It's a correction that we've been waiting for, for a long time." The president did not mention his tax cuts and trade wars, or the upward pressure they exert on inflation.

In currency terms, the biggest losers were those of emerging markets and commodity exporters. The Australian dollar was down by 1.1%, the Canadian dollar by 1.3% and the South African rand by 1.8%. Japan's yen was up by 0.3% but the US dollar did not do at all well; it is 0.5% lower on the day and it is wearing a weekly loss of 2.3%, nearly three cents.

More Brexitology

Once again the pound received help from talk of an imminent withdrawal agreement between London and Brussels. It ignored some so-so UK economic data and hardly flinched at the Democratic Unionist Party's threat to bring down the government. On average sterling strengthened by 0.5% against the other ten most actively-traded currencies.

Investors were heartened by news that Michel Barnier, the EU negotiator, reckons a deal can be done by the middle of next week. The caveat is that the Conservatives' coalition partner, the DUP, reserves the right of veto. If it does not like the deal it will vote down the government's budget at the end of this month. Were it to do so, a general election would be the likely outcome.

But investors saw that as a long shot. They also paid scant attention to the UK ecostats on Wednesday morning. Manufacturing production unexpectedly fell by 0.2% in August, the trade deficit widened and GDP growth in August was zero.

US inflation

Top billing on today's agenda goes to the US inflation data. Beyond those, there is little else to pitch at. The only UK item is the Bank of England's Credit Conditions Survey.

Inflation figures already released this morning put the headline rate in France at 2.5% and in Spain at 2.3%. Sweden has yet to report; analysts think it will be  2.2%. For the United States the forecasts are 2.4% for the headline rate and 2.3% for the "core" measure, which ignores food and energy costs.

US weekly jobless claims come out this afternoon, as does Canada's new housing price index. Tonight Business NZ will release its purchasing managers' index, Australia will report on mortgage lending and the Reserve Bank of Australia will publish its semi-annual Financial stability Review. 

GBP higher on talk of a Brexit deal by Wednesday

GBP higher on talk of a Brexit deal by Wednesday

ZAR and commodity dollars hurt by equity sell-off

ZAR and commodity dollars hurt by equity sell-off

USD gets no help from president

USD gets no help from president

JPY in demand as equity prices plunge

JPY in demand as equity prices plunge

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