Here comes the night

The man who sold the world

Several of the papers have picked up on a story in the Daily Telegraph about a research note sent to customers by the Royal Bank of Scotland. In it, the bank's head of credit advises them to "sell everything except high quality bonds" in anticipation of a "cataclysmic year". 

His apocalyptic view is that "China has set off a major correction and it is going to snowball". And by the look of the exchange rate movements in the first 12 days of 2016 there are many who share his concern. As investors have run for cover the yen has powered into the lead, strengthening by 4.4% against sterling, while the US dollar is up by 2% and the euro by 1.5%. Safety reigns supreme.

At the back of the field risk lies rejected: the South African rand is down by -6.2% while the antipodean dollars have both taken a -2.5% hit. To an extent the Canadian dollar's US connection has insulated it against this flight to quality but it is still down by nearly a cent. Sterling has lost an average of -0.2%, equivalent to a third of a US cent, against the other dozen most actively-traded currencies.

It ain't easy

Sterling had one of its better days on Monday, strengthening by an average of 0.3% and losing ground only to the Aussie and the Kiwi. However, its performance over the last month has been hurt by the fading chance of a rate increase and the looming EU in/out referendum. 

The experience of the Scottish independence plebiscite 16 months ago suggests that opinion polls are not to be trusted and that the bookies' odds ahead of the event are not necessarily any better guide to sentiment. The current indications show an odds-on likelihood of the country staying in but investors are still edgy about a possible break.

As for interest rates, whilst the possibility of a hike this year cannot be ruled out, the $30.xx oil price and the ongoing supermarket price war do not point to an inflation-driven increase any time soon. There is also speculation that Ian McCafferty, the Monetary Policy Committee's perma-hawk, might vote this week against a rate increase for the first time in six months.

Always crashing in the same car

Today brings the data for UK industrial and manufacturing production. The projection is that both will have been close to flat in November but analysts' predictions for these numbers can often be wide of the mark.

Disappointing figures would be another reason for investors to look down their noses at the pound. Another important ecostat comes out this afternoon, with the NIESR's estimate of fourth quarter gross domestic product. And Bank of England governor Mark Carney will be speaking in Paris after lunch. There is plenty there that could go wrong for sterling.

Otherwise the day's agenda is rather thinly populated, with only South African manufacturing production and Canadian manufacturing shipments.