The last straw
There was a conspicuous lack of enthusiasm on Tuesday for almost everything, everywhere. An “improved” economic outlook from the IMF still envisages a 4.4% contraction in the global economy this year. EU and UK politicians are affecting a bring-it-on bravado about a no-deal Brexit decision tomorrow.
After days of indifference regarding the risks facing Britain, investors could no longer maintain the pretence and the pound lost ground on all fronts. It was by far the weakest performer, falling against every major currency and losing an average of 0.7%. Specific losses included half a euro cent and one and a half US cents.
There were suggestions that yesterday morning’s UK employment data did the damage but that looked unlikely. Although they were not great, the numbers were not bad enough to provoke a sell-off and, if they had, it would have begun a lot earlier than it did. GBP/USD and GBP/EUR peaked three hours after the jobs numbers, offering no evidence of cause and effect. It looks more as though the pound gave way under the relentlessly growing weight of negativity, the last straw being a concern that neither London nor Brussels dare step back from the brink for fear of a domestic backlash.
At the other end of the ladder, the success of the NZ dollar was built on nothing more concrete than the pound’s failure. The NZ ecostats were hardly cause for celebration and the only comment from the Reserve Bank of New Zealand was more negative than positive. However, the Kiwi strengthened by an average of 0.5%.
As reported yesterday, the NZ residential property market is strong, as were electronic card retail sales in September. But neither was enough to justify the NZD’s steady upward progress against the euro and the pound. And comments this morning from RBNZ Assistant Governor Christian Hawkesby were actively unhelpful. He told a conference that the bank’s consideration of negative interest rates is “not a game of bluff”. He cited Sweden’s Riksbank as a good example of a central bank that had used negative rates effectively.
The only other relevant ecostats on Tuesday were the ZEW surveys of German and Eurozone investor confidence. Economic sentiment deteriorated in both areas, in Germany by 21 points to 56.1 and in the Eurozone by 21 points to 52.3. The euro did not budge. It did lose ground to the USD later though, after US inflation edged up to 1.4%.
On today’s agenda, appearances by central bankers are more numerous than significant economic statistics. Some are operating under their own steam, others are taking part in the virtual IMF/World Bank meeting on the ether.
In chronological order, the players are: President Christine Lagarde, Yves Mersch and Philip Lane of the ECB; Federal Reserve Vice Chairman Richard Clarida; Bank of England Chief Economist Andy Haldane; Deputy Governor Timothy Lane of the Bank of Canada; Fed Governor Randal K. Quarles; Reserve Bank of Australia Governor Philip Lowe. IMF Managing Director Kristalina Georgieva and World Bank President David Malpass will be taking part in their own event, as will Saudi Arabian Monetary Authority Governor Ahmed Alkholifey.
This morning’s ecostats cover Spanish inflation, Eurozone industrial production and South African retail sales. US producer prices come out after lunch and Australian data tonight include new home sales and employment.