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Relative calm returns

After the turmoil of Friday and Monday a degree of calm returned to financial markets on Tuesday. Share prices were lower, but not by much. Volatility subsided, but remained twice as high as in recent weeks. Investors moved away from safe-haven currencies towards something more interesting, but there was no rush.

Yesterday's currency losers were the Swiss franc and Japanese yen, both of which were down by a modest 0.25%. The winner was the South African rand: the will-he-won't-he debate as to whether Jacob Zuma will try to cling to power swung towards the idea that he might indeed step down from the presidency without a legal battle. The rand was up by 1.6%. 

It would be fair to say that investors were taken aback by the severity of the plunge in share prices. Perhaps because of that, considerable effort yesterday went into describing it as a "correction" rather than a crash. St Louis Federal Reserve President James Bullard described it as "the most predicted selloff of all time". He cautioned against attributing too much inflationary importance to the 2.9% wage increase reported on Friday, which was the ostensible trigger for that selloff.

Brexit and jobs

Sterling was rattled by a report that "Brussels will have the power to punish the UK at will during the transition period". The NZ dollar was helped by the overnight release of better-than-expected employment figures for the fourth quarter of 2017. There was not much else of interest among the data and events.

The punishment bit related to Brussels' wish to apply sanctions if Britain cheats on the terms of the transition. The idea seems to be a more gentle alternative to terminating the transition entirely. As such, the threat might not be as harsh as the headline portrays it. Even so, it was one of those sort of breaks that sterling would be better off without.

For the Kiwi the positive news was that unemployment slowed to 4.5%, the number of people in work went up by 0.5 % and the participation rate eased incrementally to 71.0%. All the numbers beat analysts' forecasts.

More deep breaths

Today's agenda looks as though it could contribute further to the easing of tensions in financial markets.  A chunk of third-tier European data had already been released by the time London opened and only a few remain to appear during the London day. The Reserve Bank of New Zealand will make a monetary policy announcement this evening.

The RBNZ is confidently expected to keep its Official Cash Rate unchanged at 1.75% for a 16th month. Investors will, however, be as keen to dissect the bank's policy statement as they will be to hear what Deputy Governor Grant Spencer has to say about it in his press conference.

There are also speaking engagements for Fed presidents Bill Dudley and Charles Evans. The interest there will be in their ideas for the future course and speed of interest rates.