Daily Brief

Daily Brief

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Mostly looking on the bright side

Poll fault

Sterling demonstrated its sensitivity to the opinion polls last night when YouGov released its latest assessment. The pound swiftly lost three quarters of a US cent, which it has yet to recover. On average it is just about unchanged on the day.

Although the indication from YouGov is still that the Conservative party will win a parliamentary majority of 28 seats tomorrow, a hung parliament is within the margin of error. Perhaps the most interesting thing about last night's move was that it took place outside the London session. Investors in the Far East are usually reluctant to react to domestic UK events, preferring to wait until London opens in case they have got the wrong end of the stick. 

There was no such hesitation in this case. It seems that, for international investors, the certainty provided by a Tory win and a Johnson-style Brexit is preferable to the prospect of a second referendum that could follow a different result.

Unhelpful numbers

Britain accounted for the lion's share of Tuesday's ecostats. They could have been better. Only one measure - manufacturing output - exceeded expectations and even that was rubbish. The poll-driven pound was only briefly rattled.

UK manufacturing production increased by 0.2% in October and was down by 1.2% from the same month last year. Both numbers were better than expected but hardly qualified as a triumph. The broader measure of industrial production, which includes mining and power, rose by a monthly 0.1% and was 1.3% lower on the year. The trade deficit more than doubled to £5.7 billion.

Gross domestic product stagnated in the three months to October, according to the ONS. The NIESR estimated that it was also flat in the November quarter and expects 0.1% growth in Q4. Its pessimistic assessment is that "while some uncertainty could be resolved by the outcome of the general election, it is doubtful that this will provide businesses with the clarity needed to invest with confidence".

Optimism elsewhere

Confidence measures from Europe and the United States were more upbeat than expected. ZEW's indicator of German economic sentiment improved to 10.7, its best level in almost two years, and the NFIB index of small business optimism "posted the largest month-over-month gain since May 2018".

The ZEW result backed up the story told by Monday's Sentix survey: German investors have become significantly more confident. Moreover, small US firms are not perturbed by talk of recession and are "aggressively moving forward with their business plans". The euro is a third of a cent higher on the day and the dollar is a seventh of a cent ahead.

Today's agenda opened with a further softening of Australian consumer confidence, which had no impact on the Aussie. After South African inflation and retail sales this morning, the main source of news and data will be the States. The inflation numbers come out at lunchtime and this evening the Fed chairman holds a press conference to explain the Federal Open Market Committee's monetary policy decision. No change to US interest rates is expected. 

GBP: Poll result wobbles the pound

GBP: Poll result wobbles the pound

EUR: Confirmation of improved investor confidence

EUR: Confirmation of improved investor confidence

USD: No change expected from Fed tonight

USD: No change expected from Fed tonight

AUD: Unaffected by fading consumer confidence

AUD: Unaffected by fading consumer confidence

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