Daily Brief

Daily Brief

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Little victories

Ooh, a customs union!

In that it was not at the bottom of the heap, sterling had a good day on Tuesday. The pound was on average unchanged against the other ten most actively-traded currencies.  Investors got very excited - very briefly - about a story that the EU might offer Britain a customs union.

Even if a customs union would be good for Britain (and some say it would not), the prime minister would have to sell the idea to the ultra-Brexiteers in her party, no easy task when the Moggites are on record as calling such an arrangement "an utter disgrace". Nevertheless, the first reaction of investors was to mark sterling higher.

As it dawned on them that a customs union would not be a political shoo-in, the pound returned whence it had come. Where the upward move had taken less than ten minutes, the return to ground level took three hours. The end result for sterling was a quarter-cent gain against the US dollar; it was unchanged against the euro and the Swissy.

Manufacturers surveyed

The Confederation of British Industry's Industrial Trends Survey and the Richmond Federal Reserve's Manufacturing Index survey were both lower on the month. The CBI's measure was down from -1 to -6 and the Richmond Fed's from 29 to 15.  

The result are symptomatic of a general economic twitchiness.  Trump's trade war, Merkel's electoral erosion, Conte's budget, Xi's slowing growth and of course May's Brexit are just a few of the factors that are combining to undermine sentiment. 

And the sentiment cycle is speeding up. As the pound has shown, investors who were positive yesterday will be worried tomorrow. The performance of that great safe-haven-of-choice, the Japanese yen, says it all: In the last four days it has placed first, last, first and last among the majors.

Canadian rates

Today marks the beginning of the monthly purchasing managers' index season. At this stage the numbers are all provisional ones but they usually provide a fairly accurate steer. This afternoon the Bank of Canada is widely expected to raise its benchmark interest rate and tonight New Zealand reports on the balance of trade.

Japan opened the PMI batting with a half-point improvement to 53.1. Of the dozen yet to come today, all but one - US services - are expected to be lower on the month. Other ecostats from Europe cover UK mortgage approvals and Italy's trade balance. New Zealand is expected to show a small trade deficit in September.

At three o'clock the Bank of Canada will release its Monetary Policy Report and Rate Statement. There would be astonishment all round if the bank were not to raise its benchmark interest rate from 1.5% to 1.75%. The real conundrum is not the decision itself but the way the Loonie reacts to it.  Classically, if everyone expects a rate increase the currency will fall after the hike is delivered: "Buy the rumour, sell the fact". 

Pound unchanged against top 10

Pound unchanged against top 10

Brexit, Merkels election and Conte's budget

Brexit, Merkels election and Conte's budget

Raising the benchmark

Raising the benchmark

Reporting trade balance

Reporting trade balance

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