– But not for the Aussie dollar or the yen
– Sterling still making up its mind
Good morning and happy new year. The British media are often accused of focusing too much on London. That is not the case today. As VAT goes up from 17.5% to 20% they are all talking about the price of a pint of beer rising to £3. If they were as London-centric as the critics allege they would be at least five years out of date on that one. But the government proposes a new measure to make beer more affordable to the drinking classes; 400ml. At roughly two thirds of a pint, that would put the price of what the Australians call a “schooner” at about £2.50. (What do you mean £2? Dream on.)
The VAT increase does not mean the price of everything is going up. The yen and the Australian dollar, for example, are more affordable today than they were on new year’s eve. The Aussie’s problems are twofold. Widespread flooding in Queensland has investors worried about the hit to agricultural production and the Australian Industry Group’s performance of manufacturing index was down by more than a point in December at 46.3. Although inflationary pressures suggest rising interest rates in the foreseeable future, nervousness about the Australian economy is, for the moment, overriding the usual enthusiasm for higher yields.
The yen’s problem is one of confidence, not nervousness. A seven-month high for Japanese equity prices has been reflected across Far Eastern stock markets, dampening investors’ appetite for the safe-haven yen. The Topix index rose by 1.5% on the day to its highest level since May last year.
As Britain celebrated new year’s day – two days late – with growing piles of rubbish in the streets, for most of the rest of the world it was business as usual on Monday. Switzerland’s SVME purchasing managers’ index (PMI) dropped unexpectedly by two points to 59.6, hampering the franc as the Euroland manufacturing PMI went up by nearly two points to 57.1. The US manufacturing PMI was up as well, only by half a point but still fractionally ahead of forecast at 57.0. China’s services sector PMI jumped by three points to 56.5.
Coming up today are the euro zone inflation data, US factory orders and the Bank of England figure for UK mortgage approvals. Sterling does not know what to make of all this. After a torrid few days before the long weekend investors are not sure whether to sell it for technical reasons or buy it because it looks cheap. The mortgage numbers might help them make up their minds.
