Turning negatives into positives is generally part of the unwritten remit of central bank presidents and governors; Draghi, Carney, Yellen, they all excel at it. Not to be left out, a member of the UK’s monetary policy committee, which decides on interest rate policy and asset purchase schemes etc., decided to gain fifteen minutes of fame on Tuesday.
Kristin Forbes, a renowned MIT professor, appeared to issue her own version of forward guidance on Tuesday prior to her speech, due on Wednesday in Leeds England. She asserted in an interview, that the UK’s economy is the “star performer in the G7”. As to whether this assertion was ‘off script’ and as a consequence the governor of the BoE will have a quiet chat with Ms Forbes, is anyone’s guess. However, what is for sure, her comments caused a significant rally in sterling. The notion that the UK’s economy, currently balancing on the precipice of a disaster due to Brexit, is actually performing well (despite the referendum decision), is an extremely optimistic and doubtful analysis of the current situation.
Good for the UK’s public relations image and economy? Perhaps, but to witness such remarks directly cause surges in the value of a currency, is not a good precedent to set. The pound rose through R2, as investors quickly analysed her remarks on inflation (she’s predicting inflation breaching the 2% BoE target imminently), to suggest that the UK’s base interest rate will rise from 0.25% to cool inflation, sooner rather then later.
After publishing superb data on manufacturing orders on Monday, Germany disappointed with industrial production numbers; collapsing by -3% in December, therefore posting a -0.7% contraction year on year, missing analysts’ expectation of a 2.5% annual rise by some distance. In other European data news, the UK bank Halifax reported that house prices in the UK fell by -0.9% in January.
In the USA the JOLTS number (job openings) was published. At 5501 the print missed the forecast of 5569. The USA’s balance of payments figure showed a modest improvement for December, coming in at -$44.3b, versus the expected $45b. Curiously, the consumer credit figure missed the prediction by quite a margin, at $14.16b versus the $20bn anticipated. Although only a medium level impact news event, this was a dramatic and unexpected reduction which could suggest that the hysterical consumer confidence levels witnessed due to the Trump effect, are quickly fading.
The DJIA reached an intraday record high of 20,155 on Tuesday to then recede, closing up 0.2% on the day. The SPX rose less than one point to 2,293 in New York. The Euro STOXX 50 closed down 0.08%. The UK’s ftse 100 closed up 0.2%, the DAX up 0.34% and the CAC down 0.49%.
The Dollar Spot Index rose by 0.4% for a second day of gains. USD/JPY rose to 112.30 towards the end of the trading day. EUR/USD fell by circa 0.6% to $1.0678. GBP/USD climbed by circa 0.3%, clawing back a loss that at one point had reached one percent shortly after London trading began. Cable finished the day at circa 1.2504.
Economic calendar events for Wednesday February 8th, all times quoted are London (GMT) times
12:00, currency effected USD. MBA Mortgage Applications. Mortgage applications fell by -3.2% in the last reading, analysts will be looking for an improvement in this figure.
15:30, currency effected USD. DOE U.S. Crude Oil Inventories. The last reading was 6466k, investors will monitor the latest figure carefully, to ascertain if the USA is building up inventories of oil, if so the price of oil could fall and the dollar experience volatility.
20:00, currency effected NZD. Reserve Bank of New Zealand Rate Decision. The prediction is for the RBNZ to keep the current rate of 1.75% static. Despite modest rises in inflation, analysts are of the opinion that New Zealand’s economy still has sufficient slack in it, therefore any adjustment to base rates (upwards) would be considered premature.