Daily Brief

Daily Brief

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Safe havens safe for now?

Trade joy

In theory, the improving trade story was positive for risk, bad for safe-havens. In practice, equity prices did well enough in North America and Europe but the mood did not carry over into currencies. Sterling was flat against the euro and just about unchanged against the Japanese yen on average.

The story from Washington is that the White House and Beijing are "actively considering" the rollback of some tariffs as part of a trade deal. They are also discussing where to sign that deal, if and when it comes, given that the original venue has been cancelled. Investors are optimistic that, at last, the US President is coming to see the trade war as a political disadvantage.

US bond yields rose, as did share prices. The logical corollary was that investors would at the same time unload the safe-haven Swiss franc and Japanese yen but that did not happen. The yen is all but unchanged against sterling and the franc is a quarter of a cent stronger.

PMI and RBA relief

The delayed set of manufacturing sector purchasing managers' indices might not have been great in absolute terms. However, they were all better - or at least less bad - than forecast. France topped the Euroland table with a 50.7. This morning, the Reserve Bank of Australia left its cash rate benchmark unchanged at 0.75%, as expected.

Germany confirmed its position as the sick person of European manufacturing with a PMI of 42.1, close to its lowest level in ten years. For the euro zone as a whole, the score was 45.9. The Sentix survey of Euroland investor confidence produced an index of -4.5, more than 12 points up from the previous month.

The RBA's decision to keep interest rates unchanged came as no surprise. Governor Philip Lowe's statement did raise some eyebrows though. He referred once again to the economy's "gentle turning point" and spoke of inflation returning to its 2% target. The overall impression was that although the RBA "is prepared to ease monetary policy further if needed", Mr Lowe does not really want to go there. The Aussie strengthened on the news and is a third of a cent higher against sterling.

Some services delayed

Friday's holiday will have a knock-on effect on today's services sector PMIs, in that Europe's readings will be delayed until Wednesday. The most important data will be the quarterly employment numbers from New Zealand tonight.

The CBI's take on UK retail sales was that in October they were up by a minor 0.1% from the same month last year. It was better than September's 1.7% decline but missed the forecast 0.5% increase. Britain's services PMI this morning is forecast to deliver a small improvement to a still-recessionary 49.7. The two US measures are pencilled in at 51 (Markit) and 53.4 (ISM).

Tonight's quarterly NZ jobs data are expected to show the number of workers increasing by 0.3% in Q3 and the participation rate little-changed at 70.3%. Despite that, the rate of unemployment is predicted to have risen from 3.9% to 4.1%.

USD: Narrow lead as trade narrative improves

USD: Narrow lead as trade narrative improves

JPY: Unworried by risk-on mood

JPY: Unworried by risk-on mood

CHF: Stronger despite trade relief

CHF: Stronger despite trade relief

EUR: Flat after PMIs beat forecast

EUR: Flat after PMIs beat forecast

AUD: Firmer after bullish RBA statement

AUD: Firmer after bullish RBA statement

NZD: Employment data due tonight

NZD: Employment data due tonight

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