A sprightly finish to the week saw sterling share first place on Friday with an average gain of 0.3%. It was unchanged against the yen and minutely higher against the euro and Swiss franc. The resurgence of concern about coronavirus had no coherent effect on currencies, though it did affect other risk-assets.
Gold and equities headed in opposite directions. In US dollar terms, the price of gold touched a seven-year high while America’s DJ30 equity index fell 1.6% and it looks as though the FTSE100 index will be down by a similar proportion when London opens this morning. The Japanese yen, which had begun to look a little shaky at the end of last week, seems to have regained its safe-haven status and is all but unchanged against the Swiss franc. The biggest currency losers were the Norwegian krone and Canadian dollar, both hurt by a 2.2% drop in oil prices.
The twin concerns about coronavirus are the tragic loss of life, which continues to grow, and the way it is able to pop up in new locations without warning. At the weekend, the focus was on South Korea and on Italy, a country not renowned for its Chinese connections. In Italy, the authorities closed down the Venice carnival and Austria briefly halted its rail connection with Italy. Whilst the long-term impact on the global economy is unknowable, the short-term effect could be severe, especially in the services sector. A cancelled visit to a restaurant or cinema is lost to the economy forever: people will not double up once the panic is over.
At least investors did not have to worry too much about the economic statistics. More of them beat forecast than fell short. That was also true of the UK data, though none of the figures had much impact on the pound.
One of those that punched below its weight was retail sales for January, which went up by 0.9% after two months of decline. The pound went down following (though not because of) the news. An improvement in the manufacturing climate was equally unhelpful. A smaller-than-expected public sector debt repayment failed to do any damage while the provisional purchasing managers’ index readings for manufacturing (above forecast) and services below forecast) cancelled one another out.
The provisional PMIs from Euroland were all better than expected “despite many companies having been disrupted in various ways by the coronavirus”. In the States, however, both readings were softer than expected and lower on the month, with output falling for the first time since October 2013. The news hurt the dollar at the time but it later recovered most of its losses. On average it is unchanged on the day.
The highlight of sterling’s day will be BBA mortgage approvals for January, a subset of the Bank of England’s mortgage numbers. No, it is not much of a highlight.
New Zealand opened the batting with fourth quarter retail sales and credit card spending for January. Neither was remarkable and the Kiwi was unmoved.
Ahead of BBA mortgage approvals, IFO will report on German business confidence. After lunch, Canadian wholesale sales and business activity indices from the Chicago and Dallas Federal Reserves are expected.