Exceeding expectations

​​​​​Today's news headlines:

• ‘Sweden exits negative rate regime amid concerns over side effects’. Sweden’s Riksbank has ended its five-year negative interest rate regime, raising rates to 0%. The central bank suggested rates could stay at zero for years to come, with the potential to enter back into negative territory should the outlook worsen. (Financial Times)
• ‘Trump impeached in partisan vote, setting up 2020 senate trial’. The House of Representatives has impeached President Trump following eight hours of debate last night. The decision makes him the third President in history to be impeached and the first ever to campaign for re-election following impeachment. Charges of abuse of power and obstructing Congress were the motivations for the impeachment. (Bloomberg)

Exceeding expectations

For a nice change of pace, yesterday’s economic data was upbeat and painted a picture of remerging global growth. First off, the German IFO Business Climate survey beat expectations and displayed a sizable uplift from the prior four months. We’ve been particularly concerned about German deterioration, so this subtle cue is very welcome news. 

Overnight, New Zealand’s GDP growth quarterly estimate exceeded expectations at 0.7% and the Kiwi government announced a strong start to the dairy export season. It’s antipodean counterpart, Australia, also released some good employment data; the unemployment rate resisted upward pressure. The Reserve Bank of Australia is still expected to cut interest rates, but the urgency may be declining. 

Japan’s recently unveiled fiscal stimulus seems to have had some positive impact on the country's outlook because the Bank of Japan appears to be comfortably on hold with its current policy settings. Some of the nuanced language in yesterday’s monetary policy statement also indicated a lessening of external appreciation pressure on the Yen, due to a more benign global outlook.

Bottom line: It's hard to pinpoint a single source of this added positivity, but the reduction in geopolitical uncertainty—with a Tory majority election outcome and scant US-China phase one deal—is having some positive impact. The market appears to view 2020 optimistically, based primarily on the poor economic performance this year and a reduction of political tensions. We’d be sceptical about that sort of relativistic rationale, but these positive signs of improvement suggest the patient (global economy) is not getting worse and maybe even improving. The political part, as always, is nearly impossible to predict, so we abstain. 

GBP/USD

Cable found support at the 1.3060 level after its post-election slide from highs of 1.3514. The pair opened London hours, breaking above the 1.31 level ahead of UK Retail Sales and the Bank of England’s monetary policy decision this afternoon. Today’s BoE rate decision could bring more volatility for the Pound than in recent months due to lighter year-end liquidity as well as a greater risk of Monetary Policy Committee members turning dovish.

GBP/EUR

The currency cross traded flat in yesterday session before climbing on the London open this morning. The 1.1750 level has provided support in recent sessions and could test this benchmark again this afternoon following the BoE’s announcement. Beyond that lies the 50-daily moving average at 1.1682. Today, Sterling is likely to be the main driver of the pair with the release of UK data this morning and the Bank of England policy decision this afternoon.

EUR/USD

The Euro edged higher overnight and currently trades at the 50-daily moving average on its trade-weighted Index. This level could provide resistance for the pair, setting up for a day of selling pressure for the Euro. With little in the way of European data, this afternoon’s US data releases could mean the Dollar drives the pair today.