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Market shrugs off numbers as the bigger picture casts a shadow

The pound continues to live and die by the polls

The release of the weekend polls showing a commanding Conservative lead was good news for the pound yesterday, at points rallying above €1.17. However, as sterling lived by the polls, so too did it have to accept the flip side of responding by the latest numbers. A fresh poll from Kantar showed that the Conservative lead was narrowing, with Conservatives losing two points and the Labour Party gaining five, suggesting that momentum is with the Labour Party. The results reflected those of the ICM poll for Reuters which showed the Conservative lead slipping to 7% and increasing the likelihood of a hung Parliament. While the market appears to still have confidence that a Conservative majority is the most likely outcome, exchange rates are sensitive to the polls as analysts watch the progress of campaigns closely. 

While nerves crept in to the market over the polls, there was some good news from the CBI Distributive Trade Survey, which showed an improvement in November to -3% from -10% the previous month. However, the market appeared to shrug off the results while all eyes were on the polls, and are likely to pay as much heed to the October BBA Mortgages Approvals, the sole UK ecostat due out today. 

Risk on, risk off

The relatively gloomy outlook of the Eurozone weighed on the single currency yesterday as the single currency held a ten-day low in the market. A slight improvement in business confidence in Germany was not enough to boost the euro as analysts considered the uncertain outlook overall and the fact that to date, the stimulus measures from the ECB have yet to yield results – the euro has weakened 1.5% so far in November. 

Even good news about progress in the US-China trade war couldn’t help the struggling euro, but it was good news for the US dollar, which came in second place yesterday after sterling. Reuters reported that phase one of a trade deal was close to completion as Chinese officials refuted negative reports that the talks had faltered and spoke of a second and even a third phase. The US dollar made gains against a basket of currencies in late trading on Monday including gains against the safe haven yen as risk appetite was improved across financial markets. 

Policy priority over numbers

A mixed picture from Canada gave the Loonie little to work with. September retail sales had the second consecutive decline of -0.1%, although the silver lining was that it at least beat the forecast of -0.3%. Also exceeding expectations was Canadian wholesale trade which rose by 1% in September, reflecting a 0.9% growth in sales volumes and well above the 0.4% forecast. There was little response to the numbers, but they may provide some context for a response to the GDP figures due out from Canada at the end of this week. 

Similarly, the New Zealand dollar remained range bound despite quarterly retail sales data showing beating forecast by a significant margin. In the quarter to the end of September, seasonally adjusted retail sales include 1.6%, against an expected rise of 0.5%. Again, the market may be waiting for GDP data later in the week, but in addition, all eyes were on the kiwi’s cousin down under as Reserve Bank of Australia Governor Philip Lowe gave a speech which effectively ruled out the RBA following the same path as other central banks and introducing quantitative easing. As his deputy warned of low wage growth for the foreseeable future, Dr Lowe stated that the RBA – which cut interest rates to a record low of 0.75% in October – that QE could be an option, but only if the interest rate was at 0.25%. In his speech, Lowe also highlighted that negative rates were “extraordinarily unlikely” and that any potential QE program would most likely be the purchase of government bonds. Following the comments from the RBA Governor, the Australian dollar rose for the first time in five days, gaining 0.2% against the US dollar as the market weighed up the proposed approach to current challenges. 

GBP: Market keeps a close eye on the polls

GBP: Market keeps a close eye on the polls

EUR: Rise in German business confidence not enough to boost euro

EUR: Rise in German business confidence not enough to boost euro

USD: Hopes of an end to the trade war give the greenback a lift

USD: Hopes of an end to the trade war give the greenback a lift

AUD: Gov. Lowe rules out QE but acknowledges challenges ahead

AUD: Gov. Lowe rules out QE but acknowledges challenges ahead

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