The same three topics continued to dominate discussion in financial markets on Wednesday. The tragic Covid-19 pandemic shows no sign of abating. Negotiations between Britain and the EU will recommence today. Agreement on a US fiscal stimulus package may or may not be within reach. And the winner is: Sterling!
For the pound, the key development was a reduction in the temperature of UK-EU relations. A series of emollient statements from Europe encouraged Downing Street to resume “intensive talks [which] will happen every day”, beginning this afternoon. Although the deal is by no means done, investors saw the development as positive for sterling and sent it higher on all fronts. The GBP was Wednesday’s strongest performer by far, with gains of 1.2% against the USD, the EUR, the CHF, and on average.
In Washington, the narratives about progress towards a fiscal stimulus bill grew more divergent as the day wore on. One angle was that the US President no longer expected an agreement despite ongoing discussions between the House Speaker and the Treasury Secretary. Another had it that there were hopes that “an agreement on stimulus was close”. The dollar’s lack of progress in either direction suggests that investors do not know which story to go along with.
Inflation up, oil down
Somewhat unfairly, the Canadian dollar slipped to the back of the field despite a half-decent set of domestic economic data. It was handicapped by a 4% fall in oil prices after WTI crude broke down through short-term trend support.
Canadian inflation beat expectations at 0.5% with the core measure rising to 1.0%. New house prices were strong, up by 1.2% on the month and 3.2% on the year. Retail sales disappointed, rising 0.5% in August and provisionally up by the same amount in September.
In the United States, the Federal Reserve’s Summary of Commentary on Current Economic Conditions by Federal Reserve District, better known as the Beige Book, saw “slight to modest growth”. “Changes in activity varied greatly by sector”, with residential real estate leading the way.
Brexit, Covid, stimulus
It is conceivable, if unlikely, that there will be a breakthrough from the triumvirate of repetition that has dogged the market this week. A stack of data today and on Friday will be punctuated by the occasional central banker and politician and, of course, by tonight’s US election debate.
Reserve Bank of Australia Deputy Governor Guy Debelle set the ball rolling with a speech about the FX Global Code. He did not touch on monetary policy. German consumer confidence faded “noticeably” in October. The Governor and Chief Economist of the Bank of England will be speaking this morning, neither of them apparently on the topic of policy and interest rates. The Chancellor of the Exchequer will deliver his Economy Update to the Commons. At lunchtime, the CBI reports on UK industrial orders and the weekly US jobless numbers appear. Further down today’s list are US existing home sales, EU consumer confidence and NZ inflation.
Friday brings the provisional purchasing managers’ index readings from around the world, starting with Australia. The UK retail sales figures come out ahead of London’s opening and after that, apart from Swedish producer prices, it is wall-to-wall PMIs. The 90-minute presidential debate starts at 0200 BST tonight and could well be the top talking point for Friday’s media.