– Final UK and US Q3 GDP figures today
– NZ GDP tonight
Good morning. Given the importance that investors attach to surveys of such things as consumer confidence and inflation expectations, perhaps they should broaden their net. It isn’t as if there is any shortage of surveys out there. A quick trawl this morning reveals that emerging nations are upbeat about their prospects in 2011, more than three quarters of Britons have written a cheque this year, nearly half of us think the Christmas holiday is too long, a third of travellers object to taking off their shoes for security reasons and several of the regulars at the Dog & Duck believe Greece and Spain should leave the euro. The clues are obvious. Investors should buy rupees against the euro on credit while their barefoot competitors waste a fortnight in snowbound airports.
It would have worked yesterday, anyway. The euro was lower than almost everything, hurt by the announcement that Fitch had put Greek long-term government bonds on notice for a downgrade to “junk” status. At this stage in the game it might seem surprising that anyone still takes any notice of such things but apparently they do. The only Euroland statistics that might have affected attitudes to the euro were German consumer confidence (fractionally lower at 5.4) and Italian unemployment (slightly down at 8.3%). They didn’t.
As the euro sagged the US dollar moved higher, accompanied by the yen and the Canadian and Australian dollar. The Loonie’s kicking, threatened earlier by the market, failed to materialise. Investors were not keen on Canada’s slower inflation rate – down from 2.4% to 2.0% in November – but they were disarmed by a stronger than expected rise in retail sales. Sales were up by 0.8% in October. The increase was stronger than the 0.5% that analysts had predicted and investors had doubted.
Although the euro was lower against almost everything it still managed to outpace the pound, if only by about a quarter of a cent. Sterling’s crime was November’s public sector net borrowing requirement. At £22.8 billion it was a third bigger than the expected £16.8 billion and two and a half times the size of the October shortfall. With the best will in the world investors found it difficult to reconcile the increased deficit with the 33,000 public sector job losses announced last week. If wholesale layoffs are not saving money, what will? The equation is nowhere near as simple as that, of course, but the government has promised to close the budget gap in five years. Yesterday’s deficit was a record and most definitely not a step in the right direction.
Perhaps investor antipathy to the pound will be assuaged by this morning’s final take on third quarter gross domestic product (GDP). The initial guess of 0.8% growth went through its first revisions unchanged and is expected to emerge today at that same level. If so, it will be a better result than most of Britain’s peer group were able to achieve. The other scheduled event for sterling is the release of the December Monetary Policy Committee minutes. Traditionally, seven members vote to keep the Bank Rate unchanged at 0.5%. The eighth votes for a 0.75% Bank Rate as he sharpens his knife while the ninth nurses his cuddly toy and pleads for an extension to the quantitative easing programme. That outcome is built into sterling’s price; anything different could move it.
The United States comes out with its own final figure for Q3 GDP after lunch. Investors are expecting to see a 2.8% annualised rate, equivalent to a quarterly 0.7%. The US follows up with existing home sales and the government’s housing price index. Apart from German import prices and Italian retail sales there are no statistics from Euroland. The single overnight announcement will be New Zealand’s third quarter GDP figure, expected to show close to zero growth.
With two and a half shopping days to Christmas there is little appetite among investors to get stuck in. A low profile and an unblemished p/l are more to be desired than the possibility of brief glory and the risk of a year-end loss. Barring catastrophe there is no reason why currencies should go far today.
