Chinese R&R

Sterling's selling window
FIFA regulates transfers of football players between teams. They must take place within a defined "window" of time. Unfortunately one transfer foundered yesterday because the Spanish and English windows do not coincide. It's as if they can only sell on Monday and only buy on Tuesday. Unlike sterling.

As well as being sold on Monday the pound was sold on Tuesday too, losing an average of 0.2% to the other dozen most actively-traded currencies. By the same arithmetic sterling is down by 1.4% on the week. Its decline had little to do with the UK ecostats. The pound actually rebounded on news of a below-forecast 51.5 reading for the manufacturing sector purchasing managers' index, perhaps with the assistance of a surprise increase in mortgage approvals.

Investors were evidently braced for even greater disappointment and they continued to lean on the pound for the rest of the London session. It lost five eighths of a cent each to the US dollar, the euro and the Swiss franc. Once again the euro played the safe-haven role. That is a job at which the Japanese currency excels: it led the way with a gain of nearly two yen, 1.0%.

It's all China
Where in the olden days financial markets would take their lead from America and Wall Street, they are being led - some say misled - at the moment by China and the Shanghai stock market. Yesterday was a down-day for Shanghai so global equities followed suit and the safe-haven currencies prospered. 

The influence of China on the economies of commodity-exporters was demonstrated clearly by second quarter gross domestic product figures from Canada and Australia. Canada's economy shrank by 0.5% in Q2 and Australia's expanded by just 0.2%. Investors' reaction to the two numbers was determined not by the absolute numbers but by their variation from forecast.

Having been flagged for a 1.0% contraction, Canada's 0.5% shrinkage exceeded expectations, allowing the Loonie to hold steady with sterling. Australia's 0.2% expansion was only half the forecast 0.4% increase so the Aussie became the day's biggest loser, falling by two cents against sterling.

A breather for sterling
The safe-haven currencies could be in for some sort of correction. The volatile Shanghai stock market looks likely to close flat or higher today and will be closed tomorrow and Friday as China celebrates the end of World War 2. That should mean less investor nervousness.

It could also lead to a correction of some of sterling's recent losses, especially as the only UK ecostat between now and the end of the week is this morning's construction sector PMI. (The Halifax house price index is out there somewhere but its arrival is not precisely scheduled.)

The only data with any real market significance today come from the States. Factory orders sometimes affect the dollar and the ADP employment change figure begins the build-up to Friday's employment report. Tonight's Australian trade and retail sales numbers could well move the Aussie.