Bears take a nap


Investors devoted a good deal of their time on Wednesday to pondering the validity of Bloomberg's story about an early end to the European Central Bank's asset purchase programme. That train of thought also got them thinking about interest rates elsewhere. 

The more they investigated the ECB story, the more they saw it as a red herring. If the ECB governing council really was "building a consensus" that a tapering of QE was a good idea why was there no mention of it at the president's press conference after the meeting? After Tuesday's spurt the euro faded gently yesterday and on the day it is unchanged against the US dollar and the pound.

The biggest loser was the Japanese yen, down by -0.5% even against sterling. The decline of the yen over the last week or so has been largely invisible here because sterling's fall has been even more rapid. But the Japanese currency is down by around -2% against the euro and the dollar over the last seven days, the move apparently driven by a widening yield gap. The annual return on US treasury bonds is 1.71% while Japanese government bonds cost -0.06% a year to hold.

Services deliver

Britain's services sector returned a 52.6 for its purchasing managers index in September, a touch lower on the month but half a point ahead of forecast. It had no clear and immediate effect on the pound but might have helped improve sentiment towards it.

The UK figure was in line with the other European numbers, which ranged between Italy's 50.7 and Spain's 54.7. The equivalent US reading was 52.3 but the other US services PMI, produced by the Institute for Supply Management, came in at 57.1, its highest reading in nearly a year.

Perhaps because of three decent PMI readings - or, more likely, because of seller fatigue - the pound was on average unchanged on the day against the other dozen most actively traded currencies. The South African rand did well again despite business confidence fading from 92.9 to 90.3 in September.

ECB accounts

At lunchtime the ECB releases the "accounts" (not minutes) of its monetary policy meeting a month ago. They may or may not shed light on the notion of an early end to QE. There are no hugely important ecostats on today's agenda but there are a couple on tomorrow's.

Australia's trade deficit was just about unchanged in December and German factory orders increased by 1.0%. Coming up are Swiss inflation, US jobless claims and Canadian building permits.

The ones to watch on Friday are the figures for British manufacturing and industrial production and North American employment. UK output in August ought not to matter to sterling: its movement is currently being driven by sentiment, not fundamentals. But a positive surprise might help improve that sentiment. In the States analysts are expecting nonfarm payrolls to have grown by 170k in September. That number will matter to the dollar.