Forget passive smoking and barbequed sausages, the latest cancer scare is the cornflakes box. Having been encouraged to help save the planet, producers of breakfast cereal diligently switched to recycled paper to make the containers. Now it appears the recycled cardboard is infused with toxins. They are so deadly that someone who ate nothing but cereal boxes for 60 years would have a 5% higher risk of dying before the age of 55. Rather than putting a health warning on their packaging manufacturers have started using pulp from pristine and toxin-free rainforests. You can’t be too careful.
There was rather less need for care in Tuesday’s FX market; ranges that were typically less than half a euro cent. Sterling faded by 40 ticks against the US dollar and edged 20 ticks higher against the euro. It collected quarter of a yen and quarter of an Australian cent while remaining unchanged against the NZ dollar, the Swiss franc and the South African rand. The Canadian dollar was the day’s winner, strengthening by half a cent helped by a 29-month high for oil prices and a higher than expected housing starts figure.
German factory orders, the day’s only other ecostat, were up by 2.9% in January, better than the forecast 2.5% but not compelling enough to bring in new buyers of the euro. Overnight news of a fall in Australian consumer confidence from 1.9% to -2.4%, a -4.5% decline in home loans and a -6.8% fall in investment lending had a cumulatively detrimental effect on the Aussie dollar but not a long-lasting one. By the time London opened the Aussie was back to its pre-announcement level.
With the two-day meeting of the Bank of England’s Monetary Policy Committee (MPC) beginning today committee members have been in purdah this week. Not so the members of the European Central Bank’s governing council. Bundesbank chief Axel Weber, the man who would have been king of the ECB later this year had he been so inclined, was asked by a Bloomberg reporter what he thought about the market pricing in a 1.75% refinancing rate by the end of the year. (The current rate is 1.0% so the forward pricing infers three quarter-percentage-point increases from the ECB.) Herr Weber did not disagree; “I wouldn’t do anything here to try to correct market expectations at this point.” So there will be three rate increases in the next nine months then? “I see no reason at this stage to signal any dissent with how markets priced future policies.” The euro responded positively to H. Weber’s sentiments although it was unable to follow through.
After a slow Monday and a dull Tuesday the ecostat agenda today will be only slightly more interesting. Swiss inflation could edge higher to 0.4%. German industrial production in January is forecast to be 1.75% higher on the month, reversing the previous month’s decline. Investors couldn’t care less about Canada’s new house pricing index or US wholesale inventories (except in America, where they could care less). Britain’s contribution to the fund of human knowledge is January’s trade deficit, which might or might not attract the market’s attention.
Tonight brings the New Zealand manufacturing purchasing managers’ index, a revision to Japan’s fourth quarter gross domestic product and China’s balance of trade. More important than any of those will be the Australian employment report and the Reserve Bank of New Zealand’s policy decision. In Australia the employment change number can often get the Aussie dollar moving and this particular RBNZ rate decision is impossible to predict.
New Zealand’s prime minister has made clear his preference for a rate cut. Before he spoke on the subject last week analysts were also leaning towards the idea that the RBNZ would be inclined to favour the economy by partially reversing its tightening process. Now though, Governor Alan Bollard faces a dilemma. The RBNZ was the first central bank in the world to be given an inflation target back in 1989. (The story at the time was that the then-governor’s bonus depended on how closely he met the target.) With such a tradition of independence to uphold Mr Bollard will be reluctant to seem to be bowing to political pressure. The uncertainty sets things up for a post-announcement rally for the Kiwi if there is no change to the official cash rate.
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