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GDP flash in the pan

Is a deal at hand?

After two days of bullish enthusiasm, investors paused for breath on Wednesday. The Norwegian krone and Japanese yen swapped ends, the yen sharing a 0.4% advantage with the US dollar while the krone dropped to the back for the first time this month. Sterling was on average unchanged (basis 0600h – 0600h).

The unchanged pound shared third place with the NZD behind the USD and JPY, despite a lack of fundamental economic data. More than one commentator inferred that the Reserve Bank of New Zealand’s reluctance to take interest rates negative yesterday morning would influence the Bank of England’s Monetary Policy Committee to be similarly circumspect.

There was no shortage of speculation about the goings-on in Downing Street. The resignation of the government’s chief PR man Lee Cain, a key member of the Leave campaign, and the silence of Number 10 on Brexit matters in recent days, are seen by some as evidence that the Prime Minister might be about to capitulate and agree to a trade deal. He has until the European Council meeting in a week’s time to do so. Should that not happen, the two sides would surely come up with a new deadline, but only seven weeks remain until the 31 December cliff edge.


The usual suspects

The first day of the European Central Bank’s Annual Forum did not really bring anything new to the monetary policy debate. The second day is likely to mean more of the same. UK data this morning were mixed.

In her keynote speech to the forum, Christine Lagarde was predictably cautious about the shape and pace of the eventual economic recovery. “It is clear that downside risks to the economy have increased.”

This morning’s UK growth and output data showed gross domestic product expanding by 15.5% in the third quarter after shrinking 19.8% in Q2. Figures for September indicated monthly increases of 0.2% and 0.5% for manufacturing and industrial production. All three of those numbers fell short of analysts’ forecasts. The RICS house price balance rose six points to 68 in September, a 21-year high. “However, there is understandably more caution about activity looking beyond the first quarter of 2021.” Collectively, the data sent the pound a quarter of a cent lower ahead of London’s opening.


Central bankers abound

There are almost as many central bankers as ecostats on the agenda for the coming two days. Many of them will be taking part in the ECB forum. Among the statistics, inflation data are due from Germany, Sweden, the United States, France and Spain.

Bank of England Governor Andrew Bailey is scheduled to make two appearances today, the first at 0800h this morning and the second at 1645h. Deputy Governor Jon Cunliffe will also be speaking this afternoon. The US consumer price index data at lunchtime are forecast to put headline inflation at 1.3%, a tick lower on the month.

On Friday, it will be the Eurozone’s turn to report on third quarter GDP. No change is expected to the 12.7% growth provisionally reported two weeks ago. In the States, the preliminary Michigan index of consumer sentiment is pencilled in at 82, just about unchanged on the month.

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