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Hanging in the balance

GBP

The Brexit rollercoaster trundled along again this week, with less than 30 days to go until the deadline. Midweek doubt immediately sent GBP lower against the euro, while an apparent breakthrough on Thursday PM saw sterling hastily reclaim some of its losses. However, this was short-lived and we now head into the weekend on the uneventful news that a breakthrough is still to be found. The major non-Brexit headline was that the UK have ordered 40m doses of the recently-approved Pfizer vaccine and will begin rollout as early as next week. Experts are hoping for a return to some kind of normal by next Spring at the earliest. Although losing out to the euro, GBP enjoyed significant gains on the US dollar, climbing to a year high, though that may be more due to the weakness of the USD than the strength of the pound. Indeed, Goldman Sachs even went so far as to write that “the UK is a buy” because the country’s prospects are “not all negative”.

The pound was buoyed by UK money and credit data this week, a rare event. Net lending to individuals was £4.3 billion in October, in line with its pre-pandemic trend, while consumer credit declined slightly for a second month. Mortgage approvals were the impressive component, making the difference at 97.5k, a high not seen prior to the global financial crisis. Retail saw a number of casualties this week, including Bonmarché, Topshop and Debenhams, and is in desperate need of a pick-up. Despite “Wild Wednesday” falling short by 13.8% compared to purchases made on Black Friday, footfall was up 85% on last week as lockdown ended and shoppers returned to the high street. The only other economic data still under wraps are the construction PMI figures, due out later today.

 

EUR

The euro comes out of this week as the winner, up against a number of major currencies including the pound, US and Canadian dollars and the antipodeans. A hardline stance from the EU appears to have done the trick, with Chief Negotiator Michel Barnier declaring that a deal is “hanging in the balance”. It’s worth pointing out, however, that this trick has harmed sterling more than particularly benefited the euro. The anti-GBP view was compounded by the OECD, who in their December economic outlook stated that “reaching a free trade agreement with the EU is essential to limit disturbances to [Britain’s] exporting and importing industries".

On the economic front, it was a mixed bag for the Eurozone. According to the European Commission, economic sentiment was “markedly down” in November. This fell five points to -17.3, while consumer confidence dropped two points to -17.6 and industrial confidence was a point lower at -10.1. Even modest improvements in business climate (up from -0.73 to -0.63) were offset by a decline in economic sentiment, which faded three and a half points to 87.6. Also out this week, European HICP data put inflation at -0.9% in Spain, 0% in Italy and -0.7% in Germany. Data this morning revealed that German factory orders rose in October for the sixth month in a row, up 2.9% MoM. Other data on show today includes the French government budget balance and Italian retail sales figures.

 

USD

Despite a long weekend break for Thanksgiving, the US dollar had little to be thankful for this week. Losing out to either the pound or the euro seemed almost inevitable as the Brexit deadline looms closer, however surrendering to both is an extra kick in the teeth for the greenback. The major news out of Washington was the continued talks over delivering the fiscal stimulus previously agreed in July. A cross-party caucus is encouraging Congress and the administration to make progress, but Senate leader Mitch McConnell sees no political mileage in it. Despite investors favouring a stimulus package, there remains doubt over whether it would do enough to move the dollar ahead before Joe Biden’s inauguration in January 2021.

Data-wise, it was again a quiet week for the USD. The US purchasing managers’ indices, which, in provisional form, had offered a boost for the dollar two weeks ago, were not enough to correct the dollar’s downward trajectory. Markit and ISM reported strong readings of 56.7 and 57.5 but the element of surprise was absent. This was also the case with Fed Chairman Powell’s testimony to the Senate Banking Committee, which failed to prevent the dollar from falling by an average of 3.8% and giving up more than five cents to sterling. Investors will, however, be keeping a close eye on employment data and factors orders figures, released before the weekend.

 

CAD

The Loonie enjoyed a successful week, claiming wins against the USD and GBP. However, doubts are growing over the longevity of their economic recovery and the ambitious spending plans going forward. Despite a seemingly impressive 40.5% recovery in Canadian GDP in Q3 of 2020, investors have noted stagnation as the second wave of Covid-19 continues to spread. This poses a threat to the early successes achieved by Canada in their economic recovery, and comes in the same week as the government announced aggressive spending plans to combat the economic damage.

Also this week, Canada’s raw material and industrial product price indices (producer prices) revealed manufacturers’ costs rising 0.5% in October, at the same time as factory gate prices fell 0.4%. Employment data is due out later today, where a modest performance is expected.

 

AUD

If it wasn’t for investor fears over Australian-Chinese relations impacting trade, it would have been a much better week for the Aussie than expected. The biggest headlines out of Australia were both from The Reserve Bank of Australia’s Philip Lowe. The bank decided to keep its benchmark interest rate unchanged at 0.1%, while Mr Lowe expressed his expectation that the Australian economy will be “solidly positive” in the second half of 2020. While he warned of the recovery being “uneven and bumpy”, GDP data was positive enough and revealed a 3.3% expansion in Q3.

This recovery was driven by increased household spending following the lifting of Covid restrictions. Indeed, this morning retail sales showed a rebound, as turnover rose 1.4% in October, fuelled by a 5.1% increase in Victoria – a state only recently out of a prolonged lockdown. In other economic news, Australian manufacturing PMIs from AiG and Markit came in at 52.1 and 55.8, while there was also a 3.8% monthly increase in Australian building permits.

 

NZD

While both the antipodeans enjoyed a strong performance against the weaker-than-usual USD, when it came to each other, they ended the week almost exactly where they started – if not with the Aussie slightly ahead.

The highlight speech of the week was more significant for what it didn’t say rather than what it said. Reserve Bank of New Zealand Governor Adrian Orr chose to stay off the subject of negative interest rates. This helped ensure the Kiwi was on average unchanged.

Data-wise, there was plenty to be happy about. ANZ Business Confidence climbed to -6.9, fuelled by a 14.5 surge in manufacturing confidence. Housebuilding data revealed a boom in building consents, now at a 46-year high, while ANZ Commodity Prices figures showed a 0.9% growth MoM. Even a worse-than-expected GDT Price Index, or a below forecast (at -4.7%) Overseas Trade Index wasn’t enough to drag the Kiwi down.

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