More exhaustion than optimism

4 minute read


Huawei, jobs and trade all worked against the USD at the end of the week, and the currency is 0.4% lower against the EUR. The arrest in Canada - apparently at the behest of Washington - of Meng Wanzhou, CFO of the Chinese electronics giant Huawei represented another escalation in the trade war which is contributing to investors' nervousness. A shortfall in the predicted increase for nonfarm payrolls added to that disquiet. And November's  record trade deficit with China made them wonder whether it was all worth the effort.  

Average hourly earnings picked up in November and the provisional Michigan index of consumer sentiment was better than expected at an unchanged 97.5. Yet the overall picture was more one of exhaustion than of optimism.


With the arguable exception of Saturday's weekly riot in Paris, Euroland's biggest story was the selection of Annegret Kramp-Karrenbauer  to take the place of Angela Merkel as leader of Germany's CDU party.  AKK, as she is more conveniently known, is the choice of Mrs Merkel and would be her likely replacement when the chancellor retires.  The received wisdom is that she will represent more of the same, though she will of course have to deal with the growing  impact of the far-right Alternative für Deutschland (AfD) party.  The reception of AKK by investors has so far been guardedly positive.

The only euro zone ecostats this morning were for Germany's trade surplus, which was very slightly narrower in October, and Italian industrial production, which crept ahead, beating expectations. Sentix's survey of investors found them less confident, the index falling from 8.8 to -0.3.


The CAD had a cracking day on Friday, strengthening by a net 0.5% despite the angst about Huawei and global growth. Its success was entirely the product of record results for employment. A record 94.1k people found new jobs and unemployment fell to a record low of 5.6%.  Both numbers were significantly better than expected and the Loonie responded instantly.

Today the Loonie will have to deal with the figures for housing starts and building permits, both of which are forecast to be lower on the month. At around the same time, Bank of Canada deputy governor Timothy Lane has a speaking engagement.


After leading the field on Thursday sterling suffered some slippage on Friday, falling by 0.2% against the USD.  It committed no obvious errors and the fundamentals had not changed but sentiment had softened. On Thursday the mood had been one of optimism that Britain would strike a deal with the EU and that investors would be happy with it almost whatever it looked like.  On Friday a little realism had crept in  as investors realised that tomorrow's Commons vote will probably be no more than the first step in the next tedious round of uncertainty as Parliament figures out what to try next.

A raft of data released this morning did the GBP no favours at all.  Manufacturing and industrial production both declined in October and the trade deficit widened.  Gross domestic product expanded by 0.1% in the month, in line with forecast.


On Friday the USD lost ground to the JPY and this morning it made headway, leaving the two currencies just about unchanged on the day against one another.  

Friday's move was principally a function of dollar weakness; this morning's related to weakness on the part of the yen.  The revision to Japanese gross domestic product showed the economy shrinking by an annualized 2.5% in the third quarter rather than the 1.9% contraction reported previously. 

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