After an exhaustive study of five American black bears scientists have published a report saying they hibernate in winter. With this groundbreaking research now complete the scientists want to tackle the tougher question of where the bears perform certain other bodily functions.
A study of sterling bears yesterday revealed that they are easily spooked by interest rate hawks. In an officially-sanctioned speech (it appears on the Bank of England website) Monetary Policy Committee (MPC) member Andrew Sentance revisited his well-developed argument “that inflationary pressure is greater than suggested by the MPC’s latest Inflation Report forecasts and why higher interest rates are now needed.” As for the value of the pound, and without going as far as targeting the exchange rate, he believes a modest appreciation of sterling “…would mitigate the impact of global inflationary pressures in the short term and help to steer inflation back to the target over the medium term.” Yes, somebody at the Bank of England (admittedly a part-timer but an important one) is talking sterling higher.
Where yesterday The Guardian stood in support of the governor’s softly-softly approach and The Daily Telegraph called for a symbolic rate increase now, today both papers took a more introspective line. The Guardian asked “Interest rates: is Mervyn King or Andrew Sentance right?” The question for the Telegraph was more pragmatic; “Interest rates: Who will win war of words between Mervyn King and Andrew Sentance?” Neither paper came to any concrete conclusion. The Guardian decided “only time will tell” while the Telegraph thought Mr Sentance looked more likely “to tempt the next MPC member off the fence and get another vote for a rate rise”.
For the market there was really nothing new in the speech. Mr Sentance has voted consistently for a rate increase and will surely continue to do so until his term on the MPC expires at the end of May. In January he was joined by Martin Weale and investors will find out from next week’s minutes whether or not he found more support at the February meeting. A rate increase needs five votes. Mr Sentance needs to find another three before 5 May. If he cannot, the likelihood of an increase in June will diminish after his departure from the MPC.
Whilst Mr Sentance’s views were already well-known, their reiteration was helpful to sterling yesterday and the pound received extra help from a stronger – though still not positive – CBI manufacturing orders figure (it went up from -16 to -8). Sterling starts today the best part of a cent firmer against the US dollar compared with Thursday’s opening level and half a cent higher against the euro. It is up by less than half a yen and has given up more than half a Swiss cent as investors worried by the evolving situation in the Middle East lean more towards the safe-haven currencies.
Thursday’s main ecostat, US consumer price index (CPI) inflation, was on target with a headline rate of 1.6% and a core rate, excluding the effect of food and fuel prices, of 1.0%. It appeared to send the US dollar lower against the yen but had no effect on its position against the pound and the euro. The CPI numbers coincided with worse than expected US weekly jobless numbers and Canadian wholesale sales monthly growth of 0.8%, less than half the 1.9% investors had been expecting. The Canadian figure initiated a reversal of the Loonie’s quarter-cent gain earlier in the day.
Today it is Canada’s turn to reveal its inflation figures. CPI is expected to have gone up by 2.4% in the year to January. Before that, German producer prices, French business confidence and Italian industrial sales give the euro something to think about and Britain publishes the retail sales figures for January. The British Retail Consortium has already reported improved sales after a frozen-out performance in December so today’s official figure should at least be positive. The G20 meeting in Paris gets under way today, attended by finance ministers and central bankers. It might result in something useful but the sheer number of agendas on the table will make it more difficult to reach agreement on any single issue. Have a good weekend.