Greek 10-year government bond yields fell below 1% on Wednesday. US share prices have risen on seven of the last eight days, with the DJ30 index touching a record high. Investors must be hugely optimistic about the global economy. Either that, or they are desperate to find something that provides a return, and even Greek bonds will do.
Whichever, they were not unduly concerned about exchange rates on Wednesday. The Canadian dollar strengthened by 0.3% and the euro lost 0.3%. The rest of the field were within a range of +/- 0.1% around sterling, which itself was on average unchanged on the day.
With the best will in the world, investors would have struggled to find anything genuinely tradable among the financial news. The most obvious potential lay with the coronavirus story but even a tragic rise in the number of reported cases was insufficient to create any new economic concern among investors. They assume that the new numbers have as much to do with methodology as with incidence. Their innate optimism probably also owes something to their physical remoteness from the situation. From London or New York, Wuhan is half a world away, so the problem is not on their doorstep. That relaxation might fade following the cancellation or postponement of trade fairs in San Francisco and Barcelona, as well as the Shanghai grand prix.
Central bankers tread water
Central bankers underplayed their opportunity to move things along. Sweden’s Riksbank left its benchmark interest rate unchanged at 0%. The ECB’s Philip Lane said that virus outbreaks typically have only a short-term impact on the economy. Federal Reserve chairman Jerome Powell added little to his previous day’s comments when he visited the Senate.
Continuing in this studiously noncommittal vein, the Reserve Bank of New Zealand’s Adrian Orr reaffirmed that the bank has a “genuine neutral bias” on monetary policy. At a joint appearance, the Bank of Canada’s Stephen Poloz and Philip Lowe, his opposite number at the Reserve Bank of Australia, emphasised the importance of not saying anything that might upset the applecart.
As anticipated, Wednesday’s few economic data provided little help. Euro zone industrial production was predictably feeble. There was a little help for sterling overnight, though, from the RICS house price balance. It noted “refreshed optimism” and a “continued pick-up in sales”.
With the RICS index out of the way, there are no further UK economic data to come before the weekend. There is however one statistic on Friday’s list that could help or hinder the pound, if only by way of comparison. Gross domestic product in the euro zone is expected to have grown 0.1% in the fourth quarter. At that pace it would beat Britain’s 0.0% quarterly result but would leave growth for calendar 2019 at 1.0%, a step behind the UK. It could work to the pound’s benefit.
As for the rest of the week’s data, today’s main releases cover German and US inflation. The REINZ index of NZ house prices comes out tonight, together with the Business NZ purchasing managers’ index.
Tomorrow morning German and Spanish inflation precede the pan-Euroland reading. After lunch come US retail sales and industrial production as well as the provisional Michigan index of consumer confidence.