Or do nothing
The FX market completed on Friday a five-day flush of not very much happening. Among the majors the EUR fared least well, losing an average of 0.4% because it is quite close to Ukraine. The JPY did best, with a gain of 0.5% because it isn’t. The GBP was unchanged on average and half a cent firmer against the EUR.
Investors paid almost no attention to the slew of UK output data that kicked off London’s day. Sterling bulls and sterling bears could both find something among the numbers to support their views but they seemed to have no interest in doing so. Although the GBP did drift higher after the data came out, the timing of its move did not suggest cause and effect. Nor was there any adverse effect when the NIESR estimate of growth in the three months to January was less positive than expected. The institute expects gross domestic product to expand by 1% in the first quarter.
While there was some finessing of EUR and JPY holdings, there was still no concerted effort by investors on Friday to gear up – or down - for a Russian invasion of Ukraine. Washington says one is imminent, France is trying to defuse the situation, Germany has emerged from the shadows to play a part and Britain is grateful for the distraction provided by the stand-off. The problem for investors is that there is no sure or “safe” way to prepare for such a major geopolitical event that may or may not happen.
Never say never
The Reserve Bank of Australia has come a long way in the last few months. It has quietly ditched its commitment never to raise interest rates and, on Friday, Governor Philip Lowe told Parliament’s Economics Committee that “it is certainly plausible” that the bank will raise its benchmark Cash Rate this year.
The RBA governor is keen to chase employment below 4%, and he worries that a premature rate hike could threaten that goal. However, he and other central bankers have been spooked by the 7.5% inflation reported last week by the United States, and the suspicion is that all central banks are now leaning towards tighter policy. The most striking thing about the Bank of Ireland Governor’s comment that “The idea that we could hike interest rates in June looks very unrealistic to me” is that he felt the need to say it at all.
With the UK production data and German inflation out of the way early on Friday, the only other important ecostat was the provisional Michigan index of consumer sentiment. True to recent form, the reading was weaker than forecast. It came in at 61.7, an 11-year low.
Another uninspiring day could be on the cards, given the thin agenda. It will not be until Tuesday that the statisticians offer anything really useful to investors.
Business NZ opened the batting with its performance of services index. At 45.9 it was four points lower on the month and signified, according to the report’s author, “constant contraction”. The last time the index was in the growth zone above 50 was in July last year. There is nothing else worthwhile on today’s list. Tonight brings the near-useless NZ visitor arrivals figure, Japanese fourth quarter GDP and industrial production, and the RBA meeting minutes.
Ahead of London’s opening tomorrow the UK jobs data are expected to show an unchanged unemployment rate of 4.1% in December.