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Daily brief -Tuesday 14 March 2017

By Daily Market Brief - Tue 14th Mar 2017

What was that?

Deus ex machina

Having rallied briskly ahead of the London opening on Monday sterling continued to move ahead through lunchtime before drifting back during the evening. It came close to being the top major currency performer over the 24 hours to 06:00h. However…

…four minutes later the pound fell out of bed and within ten minutes had lost half a US cent. The move coincided with a downward break of US$1.22 but that was all it could have been - coincidence - because Cable had crossed that level a dozen times, without incident, during the previous few hours. In the same way that no explanation was forthcoming for the pound's rally on Monday morning, there was no obvious reason for its plunge today.

The two moves were a reminder, should there be anyone out there who still needs one, that sterling is in thrall to Brexit news and will remain so until the negotiations are complete. It is not important to know why it suddenly shoots off in one direction or the other: it is sufficient to know that it will, and that it will do so without warning. 

Different visions

Investors had two very different globalisation stories to ponder yesterday. One came from the European Central Bank president, who talked about "Moving to the global productivity frontier". The other came from Scotland's first minister, who wants to hold a second independence referendum.

Mario Draghi was speaking at a joint ECB/MIT conference on innovation and entrepreneurship. He insisted that "we should not be overly gloomy about the global prospects for innovation". (Were we?) Nicola Sturgeon's call for Indyref II had been well flagged. Its timing might have surprised some investors but its sentiment didn't, so there was little reaction from sterling.

The flow of ecostats all but dried up. Italian industrial output suffered a -2.3% fall in January and Portugal's global trade deficit widened fractionally. Overnight NAB reported a deterioration in Australian business confidence while in China retail sales were up by an annual 9.5% and industrial production rose by 6.3%.

Warming up

Today's agenda is longer than Monday's but still falls well short of being action-packed. It includes no UK ecostats of any significance. Investors' focus is likely to remain on tomorrow's data and events.

Figures already out put inflation in Germany at 2.2% and in Spain at 3.0%, both as predicted by analysts. The more interesting inflation reading will come from Sweden: at the last count it was 1.4% and 1.7% is pencilled in for February. Euroland industrial production is expected to have increased by 0.9% in January and the ZEW surveys of German and €Z investor confidence should have improved in March.

US producer price indices will appear at lunchtime and with oil prices down by -9% in the last week the API weekly count of US oil stocks will be closely watched when it comes out this evening. Heavy snow in New York will probably dampen activity this afternoon.

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