Begging the question
"So, governor, why are you so cruel to kittens and puppies?" It was no surprise to hear the politicians putting words into Mark Carney's mouth yesterday. Nor was it particularly remarkable to watch sterling's descent after his observation that Brexit poses "the biggest domestic risk to financial stability".
The Bank of England governor attended parliament's Treasury Committee hearing on "The economic and financial costs and benefits of UK's EU membership" yesterday. Predictably, the moment he began to talk about those economic and financial costs and benefits in the context of Britain's possible secession from the EU he was accused of bias. In fact Dr Carney was at pains to avoid expressing a personal opinion as to whether the UK should remain or leave. What he could not avoid, however, was acknowledging the possible economic effects of Brexit, some of which could be negative.
Investors picked up on that negativity. They marked sterling lower during and after the governor's testimony, not letting it off the hook until mid-afternoon by when it had lost one US cent and half a euro cent. A subsequent rebound left the pound unchanged on the day against the euro and the Swiss franc and lower by two thirds of a US cent and one and a half Japanese yen.
Although yesterday's ugly Chinese trade figures were adversely affected by the new year holiday investors were still unhappy about the sharp fall in exports, which they saw as symptomatic of fading global demand. The tone on Tuesday was therefore one of caution, a positive for the safe-haven yen.
Equities were mostly lower. They were followed south, in line with the current fashion, by oil prices, leaving the Norwegian krone at the back of the pack with a fall of -0.5%. It was joined there by the South African rand, which booked a similar loss. The NZ dollar was lower too, though only by half a cent, while the Australian dollar inexplicably managed to avoid the ruck for a daily gain of one cent.
Tuesday's short list of economic statistics showed Swiss deflation slowing from -1.3% to -0.8% while Canadian housing starts accelerated as building permits fell. The second revision to Euroland growth in Q4 left it unchanged at 0.3%. Overnight, consumer confidence in Australia faded by -2.2% from 101.3 to 99.1 and mortgage lending was down by -3.9%.
UK production and Canadian rates
The only two important topics on today's agenda are the figures for UK industrial and manufacturing output and the Bank of Canada's monetary policy announcement. Of those, only UK production has any real capacity to surprise.
Analysts are unanimous in expecting the BoC to keep its target for the overnight rate at 0.5%. They also predict that UK production will have increased in January, though their forecasts on this subject have been less than flawless in recent months.
Tonight the Reserve Bank of New Zealand is likely to keep its benchmark rate unchanged at 2.5%.