Although sterling was slightly rattled after the Prime Minister called off negotiations with the European Union on Thursday, it still managed to beat the Norwegian krone on the day. The pound maintained this resilience through Friday night, despite Moody’s downgrade of Britain’s credit rating.
It had been clear in a couple of days before the Prime Minister’s “deadline” that the UK government would “walk away” from talks because the EU had refused to accede to its demands. It had also been fairly obvious that Johnson would create up a new deadline, perhaps in November, to allow him to walk back after an appropriate pause. What had not been at all clear was that the government would consider rewriting the more controversial parts of the Internal Market Bill. Yet that now seems to be the case.
So sterling starts the week looking fairly perky, despite the rating downgrade from Aa2 to Aa3 (equivalent to Belgium and Hong Kong). Compared with Friday morning, it is minutely softer against the CAD, NZD and SEK and firmer against the rest of the field. The JPY’s position at the back of the field, 0.5% lower against the GBP, confirms a broadly risk-on attitude among investors.
In Washington, the fight goes on to roll out a new round of fiscal stimulus to replace the one which ended two months ago. It has become a three-sided affair between the House, the Senate, and the administration. House Speaker Nancy Pelosi says there must be agreement by tomorrow if the measure is to pass before the election.
Just as investors seem not to be unduly fussed about a no-deal Brexit, neither are they apparently particularly bothered about the swift passage of a US stimulus bill, or lack thereof. They are assuming a Biden presidency in January, perhaps also with a Democratic House and Senate. With those three in place, the stimulus would go through on the nod.
The risk-on mood did not help the USD but most of Friday’s US data did. Retail sales increased by a healthy 1.9% in September and consumer sentiment improved to a provisional 81.2. Both numbers beat forecast, unlike the 0.6% decline in industrial output. The USD lost a third of a cent to the GBP and was flat against the EUR.
The polite election
As widely expected, Jacinda Ardern and the Labour Party scooped the pool at Saturday’s NZ general election. With 64 of the 120 seats in the House of Representatives, Ms. Ardern could form a majority government but is still said to be considering coalition.
A total lack of surprise value took most of the potential wind out of the Kiwi’s sails this morning. It shares the lead with the CAD and SEK but only by the tiniest of margins. A three-point improvement in the Business NZ’s performance of services index to 50.3 was helpful but not decisive.
On Sunday, Bank of England Governor Andrew Bailey made a case for assertive action, rather than caution, in the face of uncertainty. He touched on the subject of negative interest rates but did not sound wholly enthusiastic about using them right now: “they probably appear to work better… in a nascent economic upturn”. Data this morning from Rightmove showed house asking prices rising by an annual 5.5%, after a 1.1% uplift in October. China reported a 2.4% quarterly expansion of gross domestic product in Q3, less than the forecast 3.2%.