Weekly Brief

Decisions postponed

GBP

As expected, the Prime Minister’s deadline for a Brexit agreement came and went with barely a ripple from the FX market. The government “walked away” from the negotiations while “leaving the door ajar”. After a few days, and some emollient text from Brussels, Downing Street reopened the door and negotiations recommenced on Thursday. Sterling reacted strongly to the news of renewed talks, leading the field on Wednesday. It fell back on Thursday, trailing the pack, as investors reconsidered their euphoria. Overall it was a good week for the GBP, with an average gain of 0.5% and no losses.

The UK economic data did not get in the way. Rightmove reported another strong month for residential property, with monthly and annual rises of 1.1% and 5.5% for its house price index. Inflation ticked back up to 0.5% as the Eat Out to Help Out restaurant subsidy ended. Public sector borrowing was only slightly more horrendous than expected. Retail sales for September were sterling-neutral, ahead of forecast on the month and behind on the year at +3.0%.

 

EUR

Data-wise it was an unexciting week for the euro, and the big wheels of the European Central Bank spoke a lot while saying little. One of President Christine Lagarde’s appearances was at an online event called “ECB Listens”. The other was an interview with Le Monde which, among other things, touched on the lack of accord among the EU 27 about how to distribute the €750 billion recovery fund that was approved three months ago. The data which did appear showed inflation slowing further to -0.3%, German consumer confidence “fading noticeably” and not much else.

The event that did make investors sit up and take notice was the EU’s first collective issue of debt, tied to that Covid recovery plan. It offered €17 billion of “Coronabonds” for sale, with maturities of 10 and 20 years. Investors bid for a total of €233 billion, 14 times the available amount. Demand at future auctions seems assured, despite the ample supply in the pipeline. It all added up to an unremarkable week for the euro and it was, on average, unchanged.

 

USD

The dollar ended the week better than it began it, getting away with an average loss of 0.8% and taking last place. It lost a cent and three quarters to sterling and a cent to the euro. Where the pound’s focus was on Brexit and the government’s fumbling communication of Covid measures, the dollar’s was on the interminable negotiations about fiscal stimulus and, to an extent, the election debate. House Speaker Nancy Pelosi had originally set a deadline of Tuesday for a tripartite agreement between her, the President and Senate Leader Mitch McConnell. As deadlines tend to do these days, it came and went without notice. On Thursday, there remained the prospect of an agreement but it might not come before the election.

Thursday night’s debate was considerably more presidential than the first one, with Moderator Kristen Welker generally seen as the winner. With many votes already cast and minds largely made up, the exchange was largely irrelevant to the dollar. The same was mostly true of the US economic statistics, though fewer than expected jobless claims were helpful.

 

CAD

The Loonie made camp in midfield and did its best to stay there. To an extent it succeeded, coming out of the seven days all but unchanged against the EUR, the CHF and on average. It lost a cent to the GBP. The CAD’s progress relative to the US dollar had much to do with the price of oil. When WTI crude broke lower through short term trend support on Wednesday, the Loonie ended in last place for the day. Like the CAD, WTI crude was almost unchanged on the week.

There were three batches of economic data, some bigger than others. Last Friday’s manufacturing sales for August fell by 2.0%; more than expected. Wholesale sales on Monday grew for a fourth consecutive month. In Wednesday’s bumper pack, Canadian inflation beat expectations at 0.5% with the core measure rising to 1.0%. New house prices were strong, up by 1.2% on the month and 3.2% on the year. Retail sales disappointed, rising 0.5% in August and provisionally up by the same amount in September. Along the way, the Bank of Canada’s Autumn Business Survey indicator recovered somewhat but remains well below its historical average.

 

AUD

The Aussie had a slightly worse week than the Loonie but there was not a lot in it. Against the other major currencies, the AUD lost an average of 0.2%, little more than a rounding error. And it gave up a cent and a third to the class leader, sterling. As was the case the previous week, the AUD was held back by the belief that the Reserve Bank of Australia plans to reduce its record-low 0.25% Cash Rate still further. It is a belief that the RBA appears keen to encourage. On Tuesday, the RBA minutes and the comments of Assistant Governor Chris Kent both contrived to undermine their currency.

The economic data did not collectively lean in either direction. September brought another down month for retail sales with a decline of 1.5% after a 4% fall in August. Provisional purchasing managers’ index readings this Friday were on average higher for the month of October with growth accelerating in the services sector and slowing in manufacturing.

 

NZD

Last weekend’s NZ general election lacked the razzmatazz that characterises the US equivalent. It also lacked the element of surprise which remains a possibility in the States despite the opinion polls. Jacinda Ardern’s Labour Party was always going to win in New Zealand; the only question was by what margin. As it turned out, Ms Ardern scooped the pool on Saturday. With 64 of the 120 seats in the House of Representatives she could form a majority government – the first for a couple of decades - but is still said to be considering a coalition.

The election result was so widely expected that it had minimal effect on the Kiwi. It also, to an extent, minimised the impact of the few NZ ecostats, such that the NZD flew mostly below the radar. It was a touch lower against sterling and 0.4% firmer on average. Business NZ’s performance of services index was three points higher on the month at a positive 50.3. Business confidence was described as “improving as demand lifts”. Inflation in September was a little lower than expected at 1.4%.

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