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Biden Bounce


The data and news from Britain were by no means great but they were enough to keep the pound afloat. It moved higher in the early part of the week and settled back as the weekend approached, strengthening by an average of 0.2% against the other major currencies. The GBP is just about unchanged from a month ago.

According to the British Retail Consortium, “October saw another month of strong [retail] sales growth”, though the 5.2% increase was less than forecast. Data from the ONS showed unemployment rising from 4.5% to 4.8%, a three-and-a-half-year high and in line with expectations. Earnings growth picked up in September but remains slow in comparison with the last five years. Gross domestic product expanded by 15.5% in the third quarter after shrinking 19.8% in Q2. Figures for September indicated monthly increases of 0.2% and 0.5% for manufacturing and industrial production. All three of those numbers fell short of analysts’ forecasts. The RICS house price balance rose six points to 68 in September, a 21-year high, with RICS stating, "However, there is understandably more caution about activity looking beyond the first quarter of 2021.”



An unremarkable week for the euro left it all but unchanged against the US dollar and British pound, and microscopically firmer on average against the majors. Against the US dollar, the euro started this Friday very close to its three month moving average at $1.1790. It received little help from the Eurozone economic data, which tended to be disappointing without delivering any real shocks. Surveys by Sentix and ZEW found investor confidence fading in November: the Sentix index was a point and three quarters lower at -10 while ZEW’s reading was more than a third lower on the month at 32.8. Industrial production fell 0.4% in September and was 6.8% below the same month last year.

At a pan-EU political level there was good news in two directions. From Brussels there was confirmation that the European Parliament and the European Council had agreed details of the €1 trillion 2021-2027 budget that had been grinding slowly ahead since July. At the same time the EU offered a second €17 billion tranche of its SURE jointly-issued Covid recovery bond, which was met by bids for ten times as much.



Last weekend it became clear that Democrat challenger Joe Biden had beaten the incumbent in the race for the White House. The president is unhappy with the result. He continues to insist that the vote must have been rigged against him even though Fox News, arguably his biggest media supporter, is among the majority believing his claim is false.

Last weekend’s news of the result was positive for global risk-appetite and a Biden Bounce sent equities and commodity currencies higher on Monday and Tuesday. It did nothing for the USD though, which was left behind along with the other safe-havens. On Wednesday and Thursday the dollar staged a recovery, on news of a resurgence of Covid-19 infections in the United States. With their eyes still on Trump and the resurgent pandemic, investors could not get excited about the US economic data. Nonfarm payrolls increased by 638k in October and inflation was a touch lower at 1.2%, both roughly as expected.



Though it made no obvious errors the CAD was the third weakest performer among the major currencies, losing an average of 0.4%. It gave up two fifths of a US cent and lost one cent to sterling. The Biden Bounce that helped revive risk-appetite among investors did not have much effect on the CAD, perhaps because of its close economic relationship with the United States. A 7% increase in the price of WTI crude did influence the tilt of the Loonie but did not carry it far.

All of the week’s Canadian economic data arrived last Friday. October’s Labour Force Survey showed employment growth being slowed by the implementation of new Covid-19 restrictions. Unemployment was slightly lower at 8.9%, still three percentage points above pre-pandemic levels. The Ivey purchasing managers’ index was a point higher on the month at a seasonally-adjusted 54.5.



Like the Loonie, the Aussie was left behind in the rush to embrace riskier assets probably because of what it did not do, rather than what it did. There were no major economic or political stumbles and the very few data that did appear were positive. Even so, the AUD was anything but positive, falling by an average of 0.2% and finishing in the back half of the field. It lost a third of a US cent and gave up four fifths of a cent to sterling.

There were no “hard” Australian economic data, just three surveys of confidence and expectations. NAB was first up with its Monthly Business Survey, which showed business confidence rising to its highest level since the middle of last year. The end of Covid restrictions in Victoria played major part in boosting sentiment. Westpac’s survey of Australian consumers put the index at a seven-year high after a rise of 2.5%. Last week’s rate cut by the Reserve Bank of Australia, the easing of Covid restrictions in Victoria and rising property prices all contributed to the result. Australians are said to be looking forward to a “normal” Christmas. The Melbourne Institute’s monthly survey found most people expecting consumer prices to rise in the coming year by 3.5%. (The last time inflation touched that level was in autumn 2011.)



New Zealanders seem to be more realistic than Australians at judging inflation. The Reserve Bank of New Zealand’s survey revealed that they expect inflation to be 1.59% in two years’ time, not too far from the 1.4% reported for Q3. The RBNZ itself saw no reason to disagree, though it would still prefer prices to rise more quickly. Accordingly, it announced on Wednesday that it will provide additional monetary stimulus through the Funding for Lending programme, starting next month, and that it will keep the Official Cash Rate at 0.25%. The RBNZ also said it had made progress on its operational ability to deploy “a negative OCR”. However, Governor Andrew Orr downplayed the imminent likelihood of negative rates.

By taking negative rates off the table, at least for the moment, the RBNZ allowed the Kiwi to rally. It strengthened by an average of 0.7% over the week, taking second place to the Swedish krona. The NZD went up by 0.9% against the AUD and took a cent off the GBP.

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