- Sterling recovers slightly
- Euro weakened by Draghi comments
- UK retail sales and PSNB waited
- Canadian deflation likely
The President of the European Central Bank announced no change in the base rate yesterday but made it plain and simple that he thinks he has all the tools he needs to stimulate inflation. He even said he would provide further stimulus in the March meeting – the next one for the ECB. Mario Draghi was speaking from the World Economic Forum in Davos. By the way, I think my invitation was lost in the post and the jet is being serviced, so I would probably not have been able to get there anyway. Oh and I was washing the dogs, so meh!
The result of Mr Draghi's comments was a weakening of the Euro which allowed the GBP-EUR exchange rate to push back up by 2.5 cents from the Wednesday low. UK Retail Sales data for the important December period is due this morning. The markets are expecting growth of 4.3% on the year; that's a tad slower than previous months but, considering what is happening around the rest of the world, that's probably OK. It won't prompt the Bank of England to start panicking about interest rates and is therefore unlikely to strengthen the Pound. We will also get public sector borrowing data. That is being closely watched to see if the government's stated aim of reducing government debt. It's tough to do when employment is improving but wage growth is slowing. After this week's very sharp drop in the Pound's value, I suspect we will see some Sterling strength on profit taking if nothing else.
Share markets recovered a little overnight. That's not such a surprise when you consider how overdone things became during the week as markets clearly over-reacted to the slowing Chinese data. After all, when did we start believing Chinese data! We might as well believe that two Russian guys who left a trail of polonium across London had nothing to do with the death of Alexander Litvinenko.
The rash of cash that the Chinese authorities have thrown at the markets seems to have abated the wildest fears but the markets are still nervous. Nonetheless, the currencies of China's supplier countries are rebounding somewhat. The Aussie Dollar is back down to A$2.02 against the Pound, as is the Canadian Dollar and the NZ Dollar is pushing down to NZ$2.15 against Sterling. Even the South African Rand has gained strength but a rally of R1 against the Pound looks quite skimpy compared to the R7.5 that it lost against Sterling last year.
This afternoon brings Canadian inflation data. As with so many other economies, the depressed state of energy and commodity prices is keeping Canadian inflation pretty much flat or even slightly deflationary. We will watch that with interest.
And then it is the weekend. I am sure Holly Willoughby and Philip Schofield will be grateful for the chance to clear their hangovers and sober up a bit. I don’t know if you saw them on the breakfast sofa in their 'walk-of-shame' clothes after partying all night celebrating a win at the National Television Awards. It is worth a trip to YouTube to check it out.
Have a great weekend.
The Pearly Gates
St Peter is manning the Pearly gates one day when three young guys arrive. They are in hoodies and have their trousers slung so low their pants are on full show. The tattoos are gang related and their language is appalling.
St Peter looks through the gates and says, "Wait there guys. I'll be right back."
He goes to God to tell him he is worried about this trio.
God says, "I am surprised by you Pete. We are an inclusive forgiving society here. These guys may have been bad on earth but we should not judge them by the way they dress or behave. They must have repented to get here. Go back and let them in".
St Peter heads off and is back a few minutes later. "Well they've gone," he says.
"Who; the gangsters?" says God.
"No, the Pearly Gates."
FX Research by David Johnson
Daily Currency Analysis with Richard Smith