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Still optimistic

Different sorts of breakthrough

Investors remained positive on Tuesday, preferring the potential of riskier assets to the protection of safe-havens. The atmosphere was less frenetic than on Monday, with no new presidents or vaccines to cheer, though there were a couple of significant developments, in Europe and New Zealand.

The big news from Brussels was confirmation that the European Parliament and the European Council had agreed details of the €1 trillion 2021-2027 budget that had been grinding slowly ahead since July. Being a pan-EU project, it is not yet a done deal, and ratification by national parliaments will take time. It will eventually be part of a larger €1.8 trillion package to rebuild a post-Covid Europe that is “greener, more digital, more resilient and a better fit for the future”. The breakthrough made not the slightest difference to the EUR, which is steady against the USD and three quarters of a cent lower against the GBP.

In New Zealand, the Reserve Bank announced this morning that it will provide additional monetary stimulus through the Funding for Lending programme, starting next month, and that it will keep the Official Cash Rate at 0.25%. The RBNZ also said it had made progress on its operational ability to deploy “a negative OCR”. However, Governor Andrew Orr downplayed the imminent likelihood of negative rates, so the NZD enjoyed a relief rally that took it to the front of the field. The Kiwi strengthened by an average of 0.7%, taking half a cent off sterling.

 

Mostly less confident

Surveys of German and Eurozone investors, US small businesses and Australian consumers found confidence varying greatly in October and November. There was nothing else of any consequence on the ecostat agenda.

ZEW’s measures of investor confidence were all uglier than analysts had predicted. Economic sentiment in Germany experienced a “sharp decline… plummeting 17.1 points” to 39.0. Sentiment in the Eurozone plunged by an equally dramatic 19.5 points to 32.8. Both numbers were still well above the March lows. NFIB’s measure of US small-business confidence was unchanged in October at 104, in line with pre-pandemic levels.

Westpac’s survey of Australian consumers put the index at a seven-year high after a rise of 2.5%. A rate cut by the Reserve Bank of Australia, an easing of Covid restrictions in Victoria and rising property prices all contributed to the result. Australians are said to be looking forward to a “normal” Christmas.

 

Central banking forum

With the RBNZ rate decision out of the way there is little to look forward to on today’s agenda. The main event will be the European Central Bank’s self-referential “Forum on Central Banking”.

The two-day forum’s programme includes, not surprisingly, a fair few central bankers. Those appearing today include Vice President Luis de Guindos and Chief Economist Philip Lane of the ECB, together with three members of the executive board. President Christine Lagarde will take part in a panel discussion this afternoon alongside Andrew Bailey from the Bank of England and Federal Reserve Chairman Jay Powell

During the London session, no economic data are on offer beyond the NIESR’s estimate of UK gross domestic product and weekly US mortgage applications. NZ house prices and visitor arrivals come out tonight, followed by Japanese machinery orders and Britain’s RICS House Price Balance for October.

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