Safe-haven yen in demand


Another down day for global equity and oil prices did nothing to help the USD. WTI crude traded below $50 for the first time since October last year. The DJ30 index fell another 2%. Risk-appetite was not helped by a speech this morning from Chinese president Xi Jinping. Investors - and the White House - had hoped he would spell out some of the reforms that the US president has sought to improve trade relations. Mr Xi failed to do so, insisting that other nations could not "dictate to the Chinese people" on matters of policy.

The few US economic statistics were of no help either. The New York Fed's Empire State Manufacturing Survey index fell 12 points to 10.9 and the NAHB Housing Market Index was four points lower at 56. Those numbers, and the widespread financial market angst, encouraged investors to question the commitment of the Federal Open Market Committee to driving interest rates ever higher.


If the US economic data were unlovely, those from the euro zone were all but unnoticed. Investors were in no hurry to make anything out of yesterday's below-forecast inflation numbers and were totally untroubled by this morning's German business confidence figures from IFO. All three readings - expectations, business climate and current assessment - were down on the month and lower than expected. IFO summarized the situation by saying "concern is growing among German businesses".

It was mostly quiet on the political front. Early joy that Italy had formulated a budget solution was dissipated somewhat when it emerged that the European Commission has asked Rome for further savings of up to €3bn. 


In a mostly data-free day Statistics Canada reported a bigger net outflow of securities investment in October. Foreign portfolio investments into Canada slowed from $7.8bn to $4.0bn while Canadian portfolio investment in foreign securities grew from $10.6bn to $15.0bn. The two-month-old data were only mildly negative for the CAD, which was already drifting lower.

Oil prices played a bigger role. Although the CAD was not affected as much as the NOK, because Norway is more reliant on energy exports, it still lost ground on the day, falling by 0.2% against the USD.


Another no-confidence motion against the UK prime minister, this time from the leader of the opposition in Parliament, did little to dent the GBP. The attempt foundered on a technicality when the prime minister declined to allocate Parliamentary time to debate it. The motion had been tabled in an effort to force the government to bring forward a vote on the EU withdrawal bill, which will now take place in the week of 14 January, having originally been scheduled for 11 December.

The longer the impasse drags on, the more inclined investors are to believe that the eventual result will be a soft Brexit, a postponed Brexit or no Brexit at all. Although the way ahead is far from clear, there is a growing assumption that a hard Brexit - on WTO terms with no EU trade deal - will not be allowed to happen. That optimism allowed the GBP to strengthen by 0.4% against the USD.


As asset prices were decimated, the JPY found support from investors in need of a safe haven. While the correlation was not perfect, USD/JPY followed a similar trajectory to the DJ30 stock index as the USD followed the index lower. The yen was a net 0.8% higher on the day.

There were no Japanese economic data to affect the JPY. 

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