– Well that’s what the EU wants us to think
– UK economy grew by 0.6% in November quarter
Good morning. Investors who are worried about a second round of quantitative easing in the United States – “printing money” as its detractors describe it – will not have been reassured by the latest news from Washington. At least $100 billion of it has been printed badly. The first batch of a new $100 note has been screwed up, literally. The paper was not flat when it went through the press so there are blank spots on many of the bills. Somebody will have to examine each individual note, a task that could take 20 man-years. Apparently America has Julian Assange lined up for the job.
Wikileaks is silent on the matter of the EU finance ministers’ meeting in Brussels yesterday but Germany has denied that Colonel Gaddafi had anything to do with its decision to block the expansion of the EU’s European Financial Stability Fund. Whilst Germany was probably not the only objector, the chancellor made clear in the last few days her opposition to the proposal. So what the ministers resolved to do instead was… nothing. They ended their five-hour discussion with an agreement that the existing fund was ample to deal with any fresh problems that may arise and, anyway, there wouldn’t be any. Jean-Claude Juncker, Luxembourg’s finance minister and chairman of the Eurogroup, told reporters after the meeting “We don’t have any new decision to announce to you.”
Investors were underwhelmed. Having done little during the London session the euro set off lower against a rising dollar. Its retreat was compounded by a perception that President Obama’s renewal of tax breaks for high earners would be positive for the US economy. The dollar was helped by a comment from Moody’s rating agency. A spokesman there said that as long as the tax break was just for another couple of years “it does not have [negative] ratings implications”. The US currency was the day’s best performer, adding a cent against the pound and more than that against the euro. It is higher by one yen, one Canadian cent, one and a half Australian cents and four New Zealand cents.
Sterling suffered from euro-drag. It managed to pick up half a euro cent but that was not a particularly great result given the day’s mainly positive economic data. Industrial production was the weak link, falling by -0.2% in October to lower the annual rate of increase from 3.8% to 3.3%. The narrower manufacturing production number was good though, in line with the 16-year high for the sector’s purchasing managers’ index reported last week. Manufacturing production rose by 0.6% on the month and the annual rate of increase went up from 4.9% to 5.8%. The National Institute of Economic and Social Research (NIESR) gave the pound a helping hand with its estimate that the UK economy grew by 0.6% in the three months to November and a comment that the figure weakened the case for renewed quantitative easing.
German factory orders rebounded by 1.6% in November after a -4.0% decline the previous month but with all eyes on Brussels the news did nothing for the euro. The Bank of Canada’s decision to keep its policy interest rate steady at 1% coincided with a decline for the Canadian dollar but the two events are not necessarily related, given that the rate decision was in line with expectations. A -1.4% fall in Japanese core (excluding ships and power stations) machinery orders was less unpleasant than the previous month’s -10.3% drop. In Australia a 1.9% increase for home loans and a 1.1% rise in investment lending had no discernable impact on the Australian dollar.
The only UK figure today is the CBI’s industrial trends survey, which tracks manufacturers’ current and expected orders. All we expect from Euroland is German industrial production. Canada’s contribution is housing starts and the US has nothing to say at all. Tonight the Reserve Bank of New Zealand is fully expected to keep its overnight cash rate steady at 3% and Japan publishes a revised figure for economic growth in the third quarter of the year. The one for insomniacs to watch is the Australian employment report at half past midnight. The prediction is for a fall in the unemployment rate from 5.4% to 5.2% and the creation of 20k more jobs. Australian jobs numbers can often get the Aussie dollar moving, especially when they are adrift from the forecast.
Some of the events on that list will be of passing interest but far more important will be the way the market handles the total lack of news from Brussels. It is possible that investors will be reassured by the obvious confidence of the EU’s finance ministers and that they will rush to re-embrace the mighty euro. Possible, but not likely.