After the pound’s anti-climactic response to the Bank of England’s slight rise in interest rates last week, it is mostly keeping its head above somewhat choppy waters. The second cabinet reshuffle in as many weeks may have left a question mark over the stability of Theresa May’s government, but investors have been more focused on the positive signs indicating a measure of progress in the Brexit talks this week. These hopes have buoyed the pound to at least claw back some of last week’s losses, but much hangs on the outcome at this point. The economic statistics this week have done little to boost optimism; the BRC measure of UK retail sales that came early in the week showed that shopkeepers had their worst October in either five years or nine years, according to which of the data are used for comparison and an SMMT report demonstrated the seventh consecutive monthly decline in car sales, falling by -12% in October. The only bright spot was the UK services sector purchasing managers’ index – instead of falling to 53.3, as forecast, it went up to 55.6.
The expectation was that the PMIs from Europe this week would fall as forecast but the numbers didn’t quite bear this out. The -1.6% monthly fall in German industrial output was twice as negative as analysts had forecast, dragging annual production growth down from 4.6% to 3.6%. Investors’ initial reaction was to mark down the euro on the news but by mid-morning the move had begun to reverse. However, retail sales in Italy and pan-Euroland came in ahead of forecast.
Mario Draghi’s speech this week contained more of the same, leaving the euro somewhat in limbo, although still maintaining a relative strong position.
The US dollar started the week with a mixed bag of statistics and didn’t quite fulfil its potential. Jobs data were better than expected, inasmuch as nonfarm payrolls were 36k above forecast when revisions to earlier months were taken into account. But the monthly figure for October fell 50k short of target and wage growth slowed from 2.8% to 2.4%. The elections mid-week provided a string of successes for the Democrats, but the markets seemed largely unmoved, perhaps having anticipated a shift in mood as the Mueller investigation rumbles on.
The Canadian dollar finished well last week despite less than stellar statistics. Unemployment ticked up from 6.2% to 6.3% but the net gain of 35k jobs in October was twice as big as expected. A speech from the Bank of Canada’s Stephen Poloz early in the week had little to no impact.
Down under, the Reserve Bank of Australia kept its Cash Rate benchmark steady at 1.5%. Previous comments by the RBA had lead investors to anticipate this state of affairs, which has been in effect since August last year. Despite a nod to the strong currency, no action was taken and the statement was nothing investors hadn’t heard before. Meanwhile, in New Zealand, the kiwi dollar started the week well thanks to the higher oil price, which is said to reflect well on milk prices, although the statistics this week did not bear this out. However, the NZ dollar suffered only a brief setback as a result of the -3.5% fortnightly fall in milk prices. The Reserve Bank of New Zealand followed its Antipodean neighbour and kept its Official Cash Rate at 1.75%, where it has sat since November last year.
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