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Money from Rishi

Mostly risk-on

Judging by the way equities moved on Tuesday, with America’s stock indices touching record highs, investors were generally enthusiastic about risk and lacked much of an appetite for safety. That played into currencies too, with the JPY and USD falling to the rear as the northern Scandinavian crowns led the way.

Positive vaccine news, the not-quite-but-almost acceptance of electoral defeat by the US President and the imminent inclusion of Tesla in the S&P500 were among the feel-good factors that shaped investors’ thinking. With the US dollar, the short squeeze sparked by Monday’s purchasing managers’ indices was quickly forgotten, as investors remembered that they were still not particularly keen on the currency.

The NZ dollar, which had prospered on Monday in anticipation of tighter monetary policy, dropped to the back after it dawned on investors that the tightening would not involve higher interest rates. Overnight, it was reported that the Reserve Bank of New Zealand would instead reimpose loan-to-value restrictions that had been relaxed six months ago. It would also seek government approval to impose debt-to-income limits.


German rebound confirmed

Investors had been warned by the provisional data a couple of weeks ago to expect an 8.2% third quarter rebound in German gross domestic product. They were therefore pleased to see growth of 8.5% reported for Q3. However, they were less enthusiastic about IFO’s business confidence readings.

IFO’s confidence measures for business climate, current assessment and expectations were all lower in November, with expectations at a six-month low. It was a similar story from France, where the “business climate in industry has slightly deteriorated”.

US ecostats were a little more numerous than Europe’s, though not exactly overwhelming. Indices from the FHFA and S&P showed house price increases of 7.8% and 6.6% in the year to September. The Richmond Fed’s manufacturing index revealed slower but still positive growth in November. Consumer confidence was more than five points lower in November at 96.1, according to the Conference Board.


Pre-Thanksgiving rush

The Thanksgiving holiday tomorrow and the buckshee day off on Friday means three days’ worth of US economic statistics arriving together today. The FOMC minutes for November are also on the American agenda. For sterling, the main event will be the Chancellor of the Exchequer’s Spending Review.

The lengthy list of US ecostats starts with durable goods orders, always difficult to forecast but expected to have risen by 1% in October. Personal income and spending appear at the same time, as does an update to Q3 gross domestic product. Weekly jobless claims are there too with the Michigan index of consumer sentiment a couple of hours later.

Rishi Sunak’s spending review will relate mostly to the financial year that begins next April, though in view of the current economic circumstances he might include more immediate actions. Taxation does not normally figure in a Spending Review. It is possible that the opposition will challenge Mr Sunak on a leaked Cabinet Office paper that considers the possibility of a “systemic economic crisis” arising from the combination of Covid-19 and Brexit.

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