With investors’ attention focused mainly on the Federal Reserve and the Covid Omicron variant, sterling was able to maintain an uncharacteristically low profile. Political events that might have raised concern in the past about the currency were brushed off as simply more of the same. The Bank of England brought nothing new to the table. Sterling was buffeted but unbruised, eventually losing an average of 0.2%. It is up by an average of 0.4% from the beginning of November.
There were no surprises from the few UK economic data. The Bank of England’s money and credit monthly showed a sharp decline in mortgage approvals in October. The number of approvals hit a 16-month low after the “distortive effect” of the stamp duty holiday ended. Nationwide’s house price index rose 10% in the year to November. The manufacturing sector purchasing managers’ index hit a three-month high of 58.1, as domestic orders rose and new export business fell for a third successive month. The report cited “a challenging operating environment… as severely stretched supply chains disrupted production schedules and drove up input prices to the greatest extent in the 30-year survey history”.
Tuesday’s Eurozone consumer price index data should have been the most important factor for the euro. They showed inflation rising to a provisional record high of 4.9%, but the silence from the European Central Bank was deafening. A couple of days later, two ECB policymakers stuck to the party line, insisting that the Central Bank must remain “patient” and resist the temptation to react to what it believes is short-term inflationary pressure. Investors evidently swallowed the story: the euro was in the leading part of the field with an average gain of 0.5%. It went up by seven eighths of a cent against sterling. It is up by an average of 1% from the beginning of November.
If investors could not get excited about a record high for inflation, there was no way they were going to fuss about the other Eurozone ecostats. The EC’s monthly survey of business and consumer confidence found economic sentiment easing and employment expectations rising further. Producer prices in October were 21.9% higher than the same month last year, but as with consumer prices, the ECB showed no sign of caring. Markit’s manufacturing purchasing managers’ index described “broadly stable growth… as factories battle with harsh supply headwinds”.
Where the ECB continues to turn a blind eye to inflation, the Federal Reserve appears to be taking it seriously at last. Fed Chairman Jerome Powell and his predecessor, Treasury Secretary Janet Yellen, made two visits to Congress to address the Senate Banking Committee and the House Finance Committee. In the first of those appearances, he followed on from his printed script to tell senators that the bank will consider speeding up the wind-down (“tapering”) of its asset purchase programme. Going further, Mr Powell said he would no longer use the adjective “transitory” to describe inflation. The following day, he told the House that “Inflation has been more persistent and higher than we've expected” and “we can’t act as if we are sure” that it will fade next year. So not only is inflation no longer transitory, it might actually be persistent.
Against that background, most of the US ecostats faded into insignificance. House prices rose by either 18.5% or 19.5% in the year to September. Consumer confidence fell two points to 109.5. Manufacturing PMIs from Markit and ISM were not far from forecast and healthily positive at 58.3 and 61.1. The dollar was not much changed on the week either against sterling or on average. Over November as a whole, it took second place to the year with an average gain of 3.2%.
The emergence of Covid Omicron and the possibility of faster tightening by the Federal Reserve tended to work against “risky” investments, energy prices and the commodity-related currencies. Left to its own devices, the Loonie might have had a better week. As part of the global drift, it found itself among the laggards, only narrowly missing out to the Aussie in the competition for the wooden spoon. The CAD lost an average of 0.9%, giving up more than half a US cent and falling by more than a cent against sterling. From its position at the beginning of November, the Loonie is just about unchanged on average.
There was little to be had from the domestic economic statistics. The most important among them was Q3 gross domestic product, which saw a 1.3% quarterly expansion. The main drivers were household spending and exports, and the whole picture was improved by the phasing out of Covid restrictions. Building permits increased by 1.3% in value and commercial building permits rose 10.1% for the month. Markit’s manufacturing PMI saw a “robust rate of growth”, though “severe supply constraints persist”. The index came in at 57.2, a half-point lower on the month.
As noted, the Australian dollar brought up the rear of the major currency pack. It lost an average of 1%, giving up two thirds of a US cent and falling by a cent and a half against the pound. From the beginning of November, the Aussie is down by an average of 2.7%; only the Norwegian krone had a worse run. The AUD had been declining steadily against the US dollar since the beginning of November, and the stories about Covid Omicron and possible Federal Reserve tightening did nothing to improve its appeal.
The domestic economic data were not particularly helpful either. Third quarter GDP data were in stark contrast to the Canadian numbers, with a 1.9% quarterly contraction. It was of some consolation that the decline was smaller than the expected 2.7%, and with the various lockdowns in New South Wales and Victoria, the number was always going to look ugly. However, a loss is a loss and the numbers did not help the Aussie’s case. Markit’s PMIs for manufacturing and services both showed faster expansion in November with easing of the restrictions which had throttled growth in Q3.
Having bashed the Kiwi during the previous week, in punishment for the Reserve Bank of New Zealand’s failure to be more aggressive with its rate hike, investors backed off and allowed it to lick its wounds. It came away with the best result among the Commonwealth commodity dollars, losing 0.5% on average against the majors and giving up two thirds of a cent to sterling. Compared with a month ago, the NZD is an average of 2.2% lower.
NZ ecostats were in even shorter supply than usual. Building permits in October fell by 2% in number for a second month, though in the year to October they were up by an annual 26%. The only other numbers came in ANZ’s final Business Outlook. Headline business confidence fell three points to -16.4, a 13-month low. Some activity measures did improve slightly but “inflation pressures remain intense”.