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Sterling survives gloomy fiscal outlook

Stall warning

Just a couple of days after the excitement surrounding the provisional US purchasing managers’ indices it all went a bit flat on Wednesday. The NOK remained in the lead and the USD brought up the rear for a second successive day, while the rest of the major currencies bumbled around within the 0.8% gap between them.

It would be convenient to attribute the krone’s success to the continued upward progress of oil prices. In the last week, WTI crude has gone up by 10% and the NOK has strengthened by an average of 1.4%. However, that other traditional beneficiary of higher oil prices, the CAD, lost ground yesterday and is just about unchanged on the week.

A general air of reflective caution was fed by some disappointments among the slew of pre-Thanksgiving US data. Durable goods orders looked alright, rising by a monthly 1.3% both with and without transportation items (trains and boats and planes). There was an uncomfortable mismatch between personal income and spending, as income fell 0.7% in October while spending went up by 0.5%. Consumer confidence was five points softer on the month at 76.9. Jobless claims rose for a second week, to 778k. Gross domestic product grew at an annualised pace of 33.1% in Q3, a number which makes more sense when expressed as quarter-on-quarter growth of 8.3%.


Economic gloom

Chancellor of the Exchequer Rishi Sunak’s Spending Review turned out roughly as expected. The UK economy is going to suffer its biggest annual decline since 1709 and it will take two years or more for GDP to recover pre-pandemic levels. Nevertheless, investors bought into it and the pound held steady.

Sterling was generally higher after the chancellor’s speech than before, and is on average flat on the day. It picked up two fifths of a US cent and is all but unchanged against the EUR, CHF and, for no obvious reason, the AUD.

The United States monopolised the ecostat agenda, doubling down with the minutes of the November Federal Open Market Committee meeting. They indicated that “many” participants are inclined to alter the shape of the Fed’s asset purchase programme, but did not specify whether this meant more purchases or a change in the maturity profile.


Quietly into the weekend

The US holiday today will be leveraged by many into a four-day weekend. There are no high-profile economic data on the list for today or Friday and few appearances by central bankers. It is therefore likely that the lack of action on Wednesday will persist into the weekend.

Consumer confidence readings this morning showed weaker sentiment in Germany, France and Sweden. Sweden’s Riksbank is expected to announce this morning that is has kept its benchmark interest rate unchanged at 0%. There are European data for Italy’s balance of trade and Eurozone money supply, as well as the Accounts (expurgated minutes) of the European Central Bank’s policy meeting. ECB Chief Economist Richard Lane and Executive Board Member Isabel Schnabel will make appearances around lunchtime.

NZ consumer confidence comes out tonight. Friday begins with Nationwide’s UK house price index, Norwegian retail sales and German import prices. There will be revised GDP readings from France and Sweden tomorrow morning, as well as Swedish retail sales and Norwegian unemployment. The European Commission will publish its measures of consumer, investor and business confidence.

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