After days of uncertainty and caution, equity investors piled back into stock markets on Monday. Brussels, Paris and Amsterdam were microscopically lower but in North America, and most of Europe, the prices of shares and other “risky” assets moved higher. The Northern Scandinavian crowns led the currencies while the safe-haven Japanese yen fell to the rear.
Sterling took third place behind the SEK and NOK, adding an average of 0.4%. Rightly or wrongly, investors still seem to be assuming that some sort of post-Brexit arrangement will be agreed between Britain and Europe, and that the recent argument about the Internal Market bill is just posturing. That might turn out to be a rash assumption. The government made clear yesterday that it has no intention of backing off from a re-writing of the Withdrawal Agreement, and its insistence is an obstacle to a deal. However, the majority of investors are still expecting an agreement of some form.
Sterling’s progress on Monday also owed something to the Bank of England’s lack of collective enthusiasm for negative interest rates. Deputy Governor Dave Ramsden yesterday echoed his boss’s observation that the Old Lady is “not about to use negative interest rates imminently”. There were no UK economic data to shape opinion about the pound, though the developing Covid lockdown narrative did have an increasingly negative tone.
It is not just Britain that has a problem with Brussels. Hungary and Poland will set up a joint body to monitor “the rule of law” across the EU even as Germany proposes a “scheme that links access to EU money, including the 750 billion euro recovery fund, to respecting the rule of law”.
The two factions are coming at the same issue from different sides. Populist nationalist governments in Poland and Hungary face regular criticism of their tight direct control of courts and judges, media and academics, NGOs and rights groups. Warsaw and Budapest think they are being picked on. Hungarian Foreign Minister Peter Szijjarto declared he has “had enough of some western European politicians using us as a punchbag”.
It is all a bit too arcane and technical to affect the euro immediately, but the “good guys” are taking sides against the “bad guys”. It is a matter of national political opinion which are which. On average the euro is just about unchanged on the day, down by a third of a cent against sterling and two fifths of a US cent to the good.
The great tax debate
On today’s agenda the biggest event does not take place until the early hours of Wednesday, when the contender and the incumbent take part in the first of three pre-election US presidential debates. It is possible that the subject of the President’s tax records will be raised.
It would be remiss to assume that these debates change the minds of voters. There is general agreement that Hilary Clinton won her exchanges with Trump four years ago yet failed to win the election. Nevertheless, these debates have a great reputation for theatre.
Monday’s ecostats had little bearing on currency values. Sweden’s krona won the day despite an unexpected trade deficit and a monthly decline in retail sales. The Norwegian krone in second place completely ignored a 4.9% slump in retail sales. An upbeat manufacturing survey from the Dallas Fed did not prevent the USD falling by an average of 0.3% and giving up nearly a cent to the GBP.
The ecostat agenda today is fairly lengthy, ranging from Spanish inflation through UK mortgage approvals, Eurozone confidence and German inflation to US trade, house prices and consumer confidence. Central bank speakers include the Bank of England’s Andrew Bailey and four high-ups from the Federal Reserve.