Markets hit a pothole

Sandbag call

Tuesday displayed all the symptoms of a "risk-off" shift in investors' attitudes. Equity and commodity prices moved lower, as did commodity-related currencies, while the safe-haven yen led the way. It was more of a stroll to safety than a flight to safety but that was clearly the direction.

US share prices have been looking offered since the beginning of the month, as has the US dollar. A large part of the reason for that is the failure of the White House, so far, to come out with any of the stimulative taxation and spending measures that so excited investors at the end of last year. Tuesday's shake-out had no obvious cause but it could be that the scare regarding recent news about airline restrictions had something to do with it.

The South African rand and the Australian dollar were the biggest losers, both falling by -1.6% with the Aussie losing two and a half cents. In the leading group the euro and the Swiss franc strengthened by a third of a cent against the US dollar but lost a cent to the Japanese yen.

Short memories

Sterling was only a dozen or so ticks behind the yen. The buyers flocked in after the ONS reported that consumer price index inflation accelerated to 2.3% in February. Investors seemed to have forgotten their disappointment last week when earnings growth slowed to 2.2%.

Always ready to live for the moment, investors seized upon the forecast-beating inflation rate. They entirely ignored the fact that prices are now rising faster than incomes, with all the negative economic implications that has for consumer confidence and spending. It was away to the races for sterling, which added one and a quarter US cents and three quarters of a euro cent.

In any other business Canadian retail sales went up by a useful 2.2% in January and New Zealand milk prices rose by 1.7% according to the fortnightly Global Dairy Trade index. Neither figure was enough to offset the antipathy to commodity currencies and both the Loonie and the Kiwi lost -1% on the day.

Watch the mood

A fairly brief ecostat agenda today includes nothing of any real note beyond South African inflation and US existing home sales. That should not be too much of a limitation for investors, who still have Brexit, the French election, Trumponomics, US interest rates and yesterday's market shakeout to ponder.

The broad-brush nature of Tuesday's risk-off move will force investors to consider whether it represented a change in underlying sentiment or was just a pothole on the road to higher things. They must also, at some point, decide whether to live with the austere reality of White House economic policy or to mourn the unrealised dream.

Back in the real world, the Reserve Bank of New Zealand will make a monetary policy announcement tonight. There is every expectation that it will keep the Official Cash Rate unchanged at 1.75%.