Ripping each other apart
Investors did a splendid job of containing their enthusiasm at the end of last week. Currency ranges remained narrow with just 0.5% separating the front of the field from the back. Sterling in the middle was on average unchanged, level-pegging with the euro and the US and NZ dollars.
Unusually, investors were unenthusiastic about everything. With the spread of coronavirus said to be slowing in some quarters, there was no urgent flight to safety, but nor was there any rush to embrace risk. On trade, the imposition of increased US tariffs on EU aircraft and components was unwelcome but not unexpected.
Of somewhat greater concern for investors – though equally unsurprising - was the French foreign minister’s pessimistic prognosis for trade negotiations between Britain and the EU. Jean-Yves Le Drian anticipates that Britain’s deliberate divergence from European standards will make progress difficult to achieve and that the two sides will “rip each other apart”. Those negotiations are far enough into the future to have minimal immediate impact on sterling, hence the lack of reaction.
America shines brighter
As usual, the economic data at the end of last week tended to cast the United States in a better light than Europe. Inflation, growth and consumption all looked better on the other side of the Pond. Britain’s only contribution was the Rightmove house price index, which saw further upwards progress.
German consumer price index data on Thursday morning showed inflation holding steady at 1.7% in January. In the United States, meanwhile, prices rose 2.5% in the year to January, a faster pace of growth than the 2.3% reported a month earlier. Core inflation, ignoring food and energy, was steady at 2.3%.
Friday’s numbers were similarly tilted in favour of the States. Germany’s economy stalled in the fourth quarter as exports fell and imports increased. Gross domestic product expanded by 0.3% in calendar 2019. Inflation in Spain was 1.1% according to both measures. Gross domestic product for the euro zone as a whole expanded by 0.1% in the fourth quarter. In 2019 as a whole, growth was 0.9%. In the United States, retail sales went up by 0.3% in January and industrial production delivered the only disappointment with a 0.3% decline. Michigan university’s survey of consumers delivered a provisional confidence reading of 100.9, close to the expansion peak of 101.4 set two years ago.
Japan came out with the first worrying data this morning when it reported a 1.6% quarterly contraction in GDP. Shrinkage of 0.9% had been expected. The remaining agenda is more than sparse and the US will be taking the day off for what is alternatively known as Presidents’ Day.
This morning the EU reports on December’s construction output, while ECB chief economist Philip Lane will be speaking. Germany’s Bundesbank is due to release its monthly report at some point. After lunch, Statistics Canada reveals December’s international investment flows.
And that is all until tonight, when the Reserve Bank of Australia publishes the minutes of its last policy meeting. They come out at half past midnight.