At the beginning of the week, investors were stubbornly positive about sterling, ignoring the sleaze controversy in Westminster and the increasingly incendiary rhetoric about the unloved Northern Ireland Protocol. That burst of inexplicable enthusiasm put the pound in the lead on Monday, having taken last place on Friday. Over the seven days it all balanced out to leave sterling unchanged on average.
It was not easy to find reasons to be cheerful about the UK economy. The housing market remained buoyant, with the Halifax index 8.1% higher on the year in October and the RICS reporting that demand exceeds supply. The rest of the UK numbers were less upbeat. The BRC’s retail sales monitor put turnover in October only 1.3% higher on the year. Thursday’s raft of output data delivered mostly below-forecast results. Gross domestic product grew by a provisional 1.3% in the third quarter, a little less than forecast. Industrial and manufacturing production both delivered disappointing results. Manufacturing output grew by 2.8% in the year to September while the broader industrial production was up 2.9%.
The euro was one of four currencies that were unchanged on the week – or almost so – against sterling and on average. It remained within a one-cent range, showing no individual initiative but simply going with the flow of an FX market that was largely in thrall to the US dollar. The political scene had a half-term quietness to it and the European Central Bank did nothing to rattle investors’ cages. In its economic bulletin the ECB acknowledged that “inflation is expected rise further this year” but should decline “in the course of next year”. The same lack of inflationary concern was voiced in an interview by ECB Chief Economist Philip Lane.
Eurozone economic data did not add much to the debate. Retail sales fell 0.3% in September and were down by 2.5% on the year. Center for European Economic Research (ZEW) found economic expectations increasing among institutional investors in Germany. November’s nine-point improvement was the first since May, and put the indicator at 31.7. For the Eurozone as a whole the measure went up by five points to 25.9.
The dollar was the week’s clear winner, with an average gain of 0.9%. It did not come easily: although the dollar won the day on Tuesday, Wednesday and Thursday, it took last place on Friday and Monday. The dollar took a cent and a quarter off sterling and did proportionally as well against the euro, the Swiss franc, and the Canadian and NZ dollars.
Whilst there was no shortage of US ecostats, the ones that mattered were last Friday’s employment numbers and Wednesday’s consumer price index data. On its own, the employment report was met with surprisingly little enthusiasm by investors, even though the net growth in nonfarm payrolls was substantially bigger than forecast, with 224k more people in work than the market had bargained for. By contrast, the reaction to a 30-year high for inflation was massive. Having anticipated that inflation would accelerate to 5.8%, investors were surprised by a headline rate of 6.2%. The figure will probably not bounce the Fed into an early policy reaction: higher interest rates would do nothing to unblock supply chains. But nor will it discourage such thoughts.
The Loonie was another of the non-movers, holding steady against sterling and the euro. It lost three quarters of a US cent. Until Wednesday the CAD was roughly steady against the USD but it fell off a cliff following the surprisingly high US inflation figures.
Canada’s economic statistics were concentrated into last Friday. In the same way that investors refused to be impressed by good US jobs numbers, they overlooked better-than-expected Canadian employment data too. October’s Labour Force Survey showed that the dampening effect of more proof-of-vaccination measures was offset by the lifting of lockdowns. Employment held steady after a strong bounce in September. The 31k net increase in employment was bigger than forecast but not by enough to move the Loonie. Friday’s other ecostat was the Ivey purchasing managers’ index. It was 11 points lower on the month but still comfortably positive at 59.3.
Bank of Canada Governor Tiff Macklem indulged in some linguistic gymnastics at the weekend when he attempted to reassure Canadians “that we are going to keep inflation under control”. He said “I think transitory… means sort of not permanent… something like you know, transitory but not short-lived”. So that’s cleared that up then.
The Australian dollar fared less well than its peers, falling by an average of 0.4%. It lost one US cent and gave up two thirds of a cent to sterling. Although it is unlikely to have affected the currency directly, the performance of Prime Minister Scott Morrison at the COP26 conference and subsequently was not helpful. He has come under fire for alleged untruths about climate change and the submarine contract with France.
Australian economic data arrived in two flavours: confidence and jobs. At the beginning of the week NAB's Monthly Business Survey found business confidence more than doubling from 10 to 21 as lockdowns ended in New South Wales and Victoria. "Each of the trading conditions, profitability and employment subcomponents contributed to the improvement in conditions". The Westpac-Melbourne index of consumer sentiment improved by three quarters of a point to 105.3 in November. Australia’s labour force report missed the mark in almost every metric. Unemployment increased to 5.2%, employment fell by 12.8 million, underemployment went up to 9.5% and monthly hours worked decreased by 1 million.
Once again the Kiwi kept its nose clean, and was rewarded by a quiet week with a neutral outcome. It was just about unchanged, on average and against the pound. The NZ dollar lost three quarter of a US cent, declining steadily after making gains on Friday and Monday.
With the best will in the world it was impossible to make anything useful of the few NZ economic data. Electronic card transactions in October, a crude measure of retail sales, showed retail spending rising by a monthly 10.1%, while falling by 7.6% compared with the same month last year. The food price index fell 0.9% in October; after seasonal adjustment it was down by just 0.1%. Business NZ’s performance of manufacturing index improved by nearly three points to 54.3 in October. The increase in activity was “fairly evenly spread” across the subsectors.