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Hitting the snooze button

Little to chase

Monday in the FX market was just as electrifying as it had promised to be. Sterling was on average unchanged on the day and the week. The USD, EUR, JPY and NZD were flat against the pound. There was activity elsewhere but falls for equity and energy prices did not translate into meaningful currency moves.

It was not that investors had nothing to worry about. The widespread resurgence in Covid-19 infections increased the risk to health and brought with it more restrictions, curfews and lockdowns. Share prices almost everywhere went lower and WTI crude touched a three-week low. However, the usual pass-through to safe-haven currencies did not happen. The Swiss franc actually lost a third of a cent to sterling.

The other two usual suspects, Brexit and the hypothetical US stimulus package, did not trouble the headline writers. There was no reported progress on either. Britain’s Prime Minister was forced to deny that he was dragging his heels on a Brexit decision pending the outcome of the US election. The Speaker of the US House of Representatives repeated her mantra that agreement on a stimulus package can be reached before next Tuesday.


Less confidence, fewer houses

With no fiscal stimulus from Washington and no mental stimulus from political events it was left to the economic data to stir the market from its torpor. That did not happen either. German business optimism faded and new home sales fell in the States.

Germany’s IFO institute reported that “sentiment among business leaders has clouded over”, with the Business Climate Index falling half a point to 92.7 after five months of improvement. Separately this morning, the IFO said export expectations were “much worse” in October as a result of rising Covid infections around the world. 

In the United States, the Dallas Fed’s Manufacturing Outlook Survey revealed a fifth consecutive month of expansion for factory activity in Texas but the picture for the country as a whole was a little less bullish. The Chicago Fed’s National Activity Index suggested “slower but still slightly above-average growth in September”. US new home sales surprised on the downside, falling 3.5% in September where a 2.8% increase had been forecast.


The recession is over

Two Reserve Bank of Australia officials appeared this morning. Deputy Governor Guy Debelle’s words were arguably the most significant. He told a Senate committee that “it looks like the September quarter for the country probably recorded positive growth rather than slightly negative”. In other words, he thinks the recession is over.

The Aussie is a third of a cent firmer on the day but the gain had nothing to do with Dr Debelle’s commentary. Nor could it be linked to a speech by Assistant Governor Michelle Bullock about financial stability.

Today’s ecostats began with a wider trade deficit from New Zealand and continued with Spanish unemployment rising by a percentage point to 16.3%, a two-and-a-half-year high. Swedish trade and Eurozone lending complete the European agenda this morning. US data after lunch cover durable goods orders, house prices, consumer confidence and the Richmond Fed’s manufacturing index. Australian inflation comes out tonight.

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