The last last-chance-saloon
Unruffled by deadline
Convention has it that the coming week is crucial to the post-Brexit relationship between Britain and the EU. Many previous deadlines have come and gone but this one has a practical urgency, in that time is running out for the ratification of a trade deal before 31 December. However, the game might not be over yet.
While Brussels would like to reach an outline agreement in time for Thursday’s European Council meeting, there now seems every chance that this deadline, too, will pass by without an agreement, as the arguments about fish and playing fields grumble on towards December. On Friday and over the weekend, there was no obvious anxiety about the situation among investors. With nothing particularly to recommend it, sterling was the joint major-currency leader alongside the Norwegian krone and the antipodean dollars.
The jury is out on the matter of the sudden departure of Brexit cheerleader Dominic Cummings from Downing Street. Some see it as a sign that the Prime Minister might soften his stance but officially, the departure of Cummings will make no difference to the government’s position.
Vaccines and trade deals
Demand for the safe-havens was muted at the end of the week. The CHF, JPY and EUR were clumped together about half a cent behind sterling while the USD brought up the rear, down by nearly a cent. All this was despite the further re-eruption of Covid-19 in the United States, Asia and elsewhere.
The advent of a usable vaccine from Pfizer and the presence of others in the pipeline has a lot to do with the resilience of investors to the hour-by-hour narrative of new infections. Equities were mostly higher on Friday and are looking bid this morning.
Another major development, which suddenly loomed large on the radar (although it has been nine years in the making), was the ASEAN Regional Comprehensive Economic Partnership (RCEP). It was signed yesterday and includes 15 nations, with nearly a third of the world’s population and GDP.
On Friday, the Eurozone reported that gross domestic product had rebounded by 12.6% in the third quarter after shrinking 11.8% in Q2. This morning, the equivalent numbers from Japan came in at +5% and -8.2%. EUR/JPY is unchanged on the day, suggesting that nobody cares about such details.
Friday’s other key ecostat was the provisional Consumer Sentiment Index from the University of Michigan. At 77.0, it was an unexpected five points lower on the month because “consumers judged future economic prospects less favourably”. As with those other theoretically important data from the EU and Japan, it made no difference to the US currency. The focus of investors is elsewhere.
This week began with the Business NZ performance of services index, which was a point higher on the month at 51.4. Rightmove’s index of UK residential property asking prices fell 0.5% in November and is 6.3% higher on the year. Chinese house prices and retail sales both rose 4.3% in the year to October. Thin pickings in the rest of today‘s agenda are limited to Italian inflation, Canadian manufacturing sales, the New York Fed’s manufacturing index and a speech by the governor of the Reserve Bank of Australia.