Another Brexit hiccup

Kein Rosinenpickerei bitte

Sterling took its second knock in two days from observations about Britain's departure from the EU. This time it was Germany's Angela Merkel, who warned that Britain's Brexit negotiations "cannot be based on cherry-picking". 

Frau Merkel is not the first EU politician to insist that the "four freedoms", the free movement of goods, capital, services and people, are inextricably interlinked although she is, perhaps, the most authoritative. Her reminder that member states cannot simply strike out the ones that don't apply to them was another sign that Britain will not get an easy ride in its dealings with EU leaders. Frau Merkel also explained why cherry-picking was off the table; "because that would have disastrous consequences for the other 27 member countries".

So, another prime-ministerial Brexit comment, another losing day for Sterling. The logic was the same as on Monday morning. The scale was equivalent too - an average decline of -1.0% against the other dozen most actively-traded currencies - though the details differed; the overnight winner was the Japanese yen and the Euro moved a cent and a quarter ahead while the US Dollar only managed to garner a third of a cent.

Fed bosses reasonable about rates

Two Federal Reserve presidents offered their opinions on the pace of interest rate increases in the coming year. Atlanta's Dennis Lockhart is going for two, having said only last week that three would be "reasonable". Boston's Eric Rosengren still thinks the median forecast of three "reasonable".

The slight flaw in those views is that Mr Lockhart will be retiring in a month's time and Mr Rosengren does not currently have a vote on the matter. The Dollar's response was therefore lukewarm at best. Questions are also now being asked about the relative significance of the Federal Open Market Committee: Which have more influence on markets, the opinions of the Fed hierarchy or the tweets of Donald Trump?

Monday's economic data had minimal influence. In Euroland investor confidence improved to its highest level in nearly two years and unemployment was steady at 9.8%. UK house prices scored a robust 1.7% increase in December.


Figures released overnight contributed to the impression that inflation is gathering speed around the world. The BRC's shop price index rose by 1% in December. Chinese producer prices were up by an annual 5.5%. Norwegian consumer prices increased by 3.5% last year. 

Those are far from scary numbers, especially given that core Norwegian consumer prices fell by -0.4% in December. Yet in the context of a US president-elect whose every economic policy seems calculated to drive prices higher (for example, home produced cars will inevitably be more expensive than those made in Mexico) is does look as though the spectre of deflation is finally being banished.

As was the case on Monday morning, the best of the ecostat day is already past. Swedish industrial production and Canadian housing starts and building permits will struggle to command investors' attention.