There was payback yesterday for sterling’s mysterious rally on Tuesday. Just as there was no convincing reason for the pound to have led the field two days ago, nor was there any clear rationale for its relegation to joint last place on Wednesday. Yet there it was, alongside the Australian dollar.
There have been attempts to explain the pound’s poor showing. The best suggestion is trade differences. EU negotiator Michel Barnier, in his speech to French students, made clear just how important the “level playing field” will be for a trade deal. In doing so, he made equally clear that Britain will not get frictionless access to the single market if it digresses from the standards of that market, which is apparently the government’s intention. The Prime Minister is expected to confirm today that he intends to do exactly that. And investors will be reminded that a no-trade-deal Brexit (they call it an Australian-style deal) is still very much on the cards.
A supplementary reason for investors’ nervousness was a plausible story that next month’s Budget will not be the whole deal, but the first in a set of three fiscal presentations. The poor economic backdrop makes it difficult for the government to make good on its big manifesto promises and the coronavirus outbreak only complicates matters further. Sterling lost an average of 0.4% on Wednesday, giving up two thirds of a US cent and one euro cent.
Nothing to fear
The US President made a rare appearance in the White House briefing room to reassure Americans that his administration will protect the nation from coronavirus. “The risk to the American people remains very low”, he said. The World Health Organisation was not convinced and nor were investors who gave equities another knock.
The day’s top performers were the safe-haven Swiss franc and Japanese yen, accompanied by the euro. The US dollar put in an average performance while the Aussie shared last place with sterling.
Wednesday’s economic data were not even vaguely interesting. US new home sales jumped 7.9% in January and nobody cared. New Zealand’s trade deficit made no difference to the Kiwi. There was some negative reaction, though, to ANZ’s Business Outlook. Headed “Sound the alarm”, it showed business confidence falling six points to -19.
The coming two days bring a veritable cornucopia of economic statistics to the table. They are not all intrinsically important but quantity should make up for quality. Britain’s contributions will be consumer confidence (GfK) and house prices (Nationwide).
The numbers to watch today are the European Commission’s confidence measures, US durable goods orders and pending home sales and the Kansas Fed’s manufacturing index. Arguably more important than any of those, but also the most out of date, will be the first revision to fourth quarter US gross domestic product.
Friday starts with a raft of Japanese trade and inflation data and moves on to Australian private sector credit. It starts to get interesting with German inflation, followed by US inflation. Canada reports on fourth quarter gross domestic product and the University of Michigan publishes its finalised consumer sentiment index.