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Covid concerns crush confidence

Random rout

There was a growing concern on Wednesday that the resurgence of the tragic pandemic would mean greater trouble for economies that are still suffering from the first round six months ago. Although it did not translate into a straightforward risk-off stampede, there was a noticeable exodus from commodity and energy-related currencies.

In Europe, Germany confirmed that new restrictions will come into effect on Monday, and France will be first to act on Friday A national lockdown is not an option in the Federal United States, at least as long as the current President remains in office, but US equity investors were sufficiently worried to take New York shares 3.5% lower, touching a two-month low along the way. On the principle that return OF capital is currently more important than return ON capital, German government bond yields headed further below zero.

Between the currencies, the pattern was at best random. Smaller, less liquid, currencies tended to fare worse than the big beasts. The TRY gave up another 1% while the oil-heavy NOK cut 1.5% as oil prices fell more than 3%. It was the USD and CHF (but not the JPY) that delivered the best results with average gains of 0.7%.

 

Dovish BoC

As expected, the Bank of Canada kept its benchmark interest rate at 0.25%. Describing that rate as “the effective lower bound”, the bank implied that it could fall no further. Yet the BoC was still too dovish for some, and the Loonie is a cent lower on the day.

Although close examination confirms that the BoC announcement and the CAD’s loss of ground were indeed cause and effect, it was not only the Canadian dollar that was heading south in the early afternoon. The NZD is a cent and a half lower on the day and the AUD is down by nearly two cents.

Sterling did not play much of a part. Flat against the EUR and JPY, and 0.2% lower against the USD and CHF, it strengthened by an average of 0.5%. Anecdotal coverage of the Brexit negotiations pointed towards progress in the talks but there was no official corroboration.

 

More central bank stickiness

This morning the Bank of Japan kept policy unchanged, as expected. At lunchtime, the European Central Bank is expected to do likewise. Nothing is scheduled from the Bank of England before the weekend.

ANZ’s Business Outlook confirmed a further improvement in NZ business confidence, though not quite as much as the provisional number had indicated. NAB’s take on Australian business confidence also showed a less-than-startling improvement. Spain reported this morning that inflation had fallen back to a four-year low of -0.9%. Further down this morning’s agenda are UK consumer credit and mortgage approvals as well as the EC’s confidence measures. After lunch comes the provisional US GDP data for Q3.

Friday’s list starts with NZ consumer confidence and Japanese unemployment. There will be third quarter GDP estimates from France, Germany, Spain, Italy and the Eurozone. The only UK ecostat will be Nationwide’s house price index, expected to show a 5.2% annual rise.

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