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Skinny deals all round

US retail sales down sharply

There was something for just about everyone on Wednesday but, forced to pick a focus, it would have to be the United States. The US economic data were mostly weaker than expected and the Fed brought no new monetary assistance to the party. There were, however, signs of progress towards a fiscal stimulus bill.

It looks increasingly likely that Congress will come to an agreement on a $900 billion relief package in time for it to pass into law by the end of the week. It will be a significantly smaller amount than the House of Representatives called for five months ago, and will include scant aid to state and local governments. However, even this “skinny” bill would ease the pain for businesses and, indirectly as “paycheck protection”, for laid-off workers.

Retail sales in the States fell 1.1% in November, nearly four times as much as forecast. “Economists said the declines were ‘warning signs’ that the economy was entering a rough patch and in need of a jolt from another round of government stimulus”. Markit’s provisional purchasing managers’ indices showed US recovery momentum “waning amid rising virus cases and supply delays”. At the same time, German manufacturing scored a 34-month high. UK manufacturing beat expectations with a 37-month high but services missed the cut at 49.9.

 

Central banks

The Federal Open Market Committee left policy unchanged last night. The Bank of England, the Swiss National Bank and Norges Bank will probably do likewise today, as will the Bank of Japan tomorrow.

As expected, the Fed left “the target range for the federal funds rate at 0 to 0.25 percent” and it will continue to spend at least $80 billion a month on the purchase of Treasury notes and bonds. The “dot plot” in the bank’s economic projections shows that only one FOMC member expects rates to move higher before the end of 2022. Having strengthened ahead of the announcement, the USD went into retreat, eventually giving up a cent to sterling and losing an average of 0.4%.

With the end of the Brexit transition period only a fortnight away, and the cavern of economic uncertainty yawning, the Bank of England can realistically do nothing today. It might, however, offer soothing comments about possible supportive measures in the future.

 

Fish or cut bait

It will feel strange going into a weekend without an imminent Brexit deadline dangling over the pound. Sterling certainly appreciates the respite, and has strengthened by an average of 1.3% since last Friday morning.

Investors have become steadily more confident that the Prime Minister and the EC President will not jump together over the cliff edge, and that a compromise “skinny” deal will be found. Ursula von der Leyen sees fish as the main remaining problem, Johnson sticks to his mantra that no-deal is the most likely outcome and Parliament is heading off on holiday. However, the government “will recall MPs and peers to legislate for a deal if one is secured”.

Economic data on today’s agenda include Eurozone inflation, US housing starts, building permits and jobless claims, and Canadian new house prices. Friday’s ecostats cover New Zealand’s trade balance and business confidence, UK consumer confidence and retail sales, German business confidence and Canadian retail sales.

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