Daily Brief

Daily Brief

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Investors less nervous, honest!

Oh, how they cheered

When the bar is set low, the avoidance of defeat can be claimed as success.  So it was for sterling on Tuesday. Theresa May's cabinet supported the Brexit plan she will present to today's European Council meeting and the pace of UK basic wage increases exceeded CPI inflation by 0.004%.   

Never mind that the European Council has rejected the prime minister's plan countless times before. Ignore the glacial pace of real wage growth - actual earnings minus inflation. Both results exceeded expectations on Tuesday and that was good enough for investors. Immediate disaster had been averted and the pound did not go down.

Sterling was steady, on average, against the other ten most actively-traded currencies. It added a third of a cent each against the euro and US dollar and picked up two thirds of a yen and two thirds of a Swiss cent. One can only assume that investors continue to believe that Brexit victory will be snatched from the jaws of defeat.

Risk on

Investors' optimism was not restricted to Britain and the pound. US equities are up by 2% on the day, gold is 0.3% lower. The safe-haven Swiss franc and Japanese yen were consequently the weakest performers on Tuesday while the South African rand completed a hat-trick of first places.

The economic data offered no support for the newfound confidence. ZEW's surveys of investor confidence in Germany and Euroland saw deterioration in both regions: German sentiment was 14 points lower at -24.7 and in the euro zone it was 12 points softer at -19.4. US industrial production was up by an acceptable 0.3% while capacity utilisation was unchanged at 78.1%.

Although the rand, the yen and the franc all reacted predictably to the upbeat mood, the "commodity" dollars did not. The Aussie was flat against sterling while the Kiwi and the Loonie could make little more than a dozen ticks' headway. Guy Debelle, deputy governor of the Reserve Bank of Australia, said in a speech that the Australian "labour market is in pretty good shape" but offered no pointer towards tighter monetary policy.

Inflation in Europe

Today's mega-stats come this morning, in the shape of consumer price index figures for Britain and the euro zone. On the face of it, neither will have an immediate impact on monetary policy but both will have a psychological effect on investors' perceptions and expectations.

Headline UK inflation is pencilled in at 2.8%, up from 2.7%, while in Euroland the best guess is that it will be unchanged at 2.1%. However, the European Central Bank will be going nowhere until this time next year and the Bank of England is unlikely to budge until Brexit is sorted out, for good or ill.

This evening the US Federal Reserve will release the minutes of its policy meeting on 26 September, when it raised the funds rate by 25 basis points.  Investors will be looking for evidence that the Fed intends to continue tightening policy, whatever the  US president says about his "biggest threat".  

GBP steady on cabinet unity and faster wage growth

GBP steady on cabinet unity and faster wage growth

CHF lose ground as safe-haven demand fades further

CHF lose ground as safe-haven demand fades further

JPY lose ground as safe-haven demand fades further

JPY lose ground as safe-haven demand fades further

ZAR takes gold for a third consecutive day

ZAR takes gold for a third consecutive day

AUD flat after RBA official's speech

AUD flat after RBA official's speech

CAD creep ahead

CAD creep ahead

NZD creep ahead

NZD creep ahead

USD awaits Fed minutes this evening

USD awaits Fed minutes this evening

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