Not bad enough

As noted briefly on Friday, Britain’s gross domestic product fell by 9.9% in 2020, the largest yearly fall on record. In any normal universe that would be seen as an unfortunate outcome, and sterling would take a hit. But in today’s altered reality it was a good result and sterling went up.

It was not sufficient to take the pound to the front of the field though. Another strong day for oil took WTI crude $5 further ahead, a good chunk of that move coming when it gapped 75¢ higher when the Far East opened this morning. Norway’s krone made the most if it, taking the lead and strengthening by an average of 0.7%. The similarly oil-related Canadian dollar did not feel the same benefit. For some reason the NOK and CAD appear to take it in turns to react to the oil price.

The pound nevertheless prospered. It took second place, 0.2% behind the krone, for an average daily gain of 0.5%. It added one US cent, and today’s pre-opening (0600h) level of Cable was the highest since April 2018. Sterling also picked up one and a third Japanese yen, one Swiss cent and three quarters of a euro cent. Those three, along with the US, were Friday’s weakest performers. The risk-on mood allowed the commodity-oriented CAD, AUD and NZD all to deliver above-average results.

Soggy sentiment

Other than oil prices, there was little on Friday or overnight to support the currently-fashionable reflation theory. European consumer prices, Canadian wholesale sales, US consumer confidence and NZ services sector activity all managed to convey some level of disappointment.

Inflation in Switzerland was higher in January and above forecast but, at -0.5%, it was still not exactly what the Swiss National Bank would have been hoping for. In Spain, consumer prices (the European standard HICP measure) fell 0.4% in January and were up by 0.4% from the same month last year. Canadian wholesale sales fell 1.3% in December, the first decline after seven months of growth. However, like the UK’s GDP number, the result was better than the forecast 1.6% drop and “sales for the month were still 3.0% higher than levels observed before the… pandemic”.

Friday’s most important ecostat was arguably the Michigan Index of Consumer Sentiment. At a provisional 76.2 for February it was down by nearly three points on the month at the lowest level since October.

Holidays

There are holidays all over the place today. In the States it is Presidents’ Day, in Canada Family Day, and in China and much of the Far East the Lunar New Year celebrations continue. The financial agenda is far from action-packed.

The two sets of data delivered overnight did not mesh neatly together. Japan’s GDP expanded by 3.0% in the fourth quarter, beating the 2.3% forecast and leaving the economy 0.2% bigger on the year; not enormous growth but by no means embarrassing in the context of the global shrinkage. Business NZ’s performance of services index for January was less resilient, down by 1.2 points on the month and, at 47.9, in contraction for the third consecutive month.

In Britain, the Rightmove index of house asking prices rose 0.5% in February to put prices 3.0% higher on the year. There was some surprise at the increase, given that transactions agreed now will miss the stamp duty break that has encouraged activity over the last few months. Other data today cover the Eurozone balance of trade, Eurozone industrial production and Canadian manufacturing sales. Australian new home sales and NZ visitor arrivals come out tonight.