Sterling in the cross hairs this morning – 11th November 2015

This morning’s Chinese retail sales were reported up by 11% in October and while many a Western country would be delighted with such a number, the pace of growth in Chinese retail sales is not what it was five years ago. Back then year on year increases were up by 18% a year but the number has accelerated steadily in the last six months from the 10% reported in May. Less reassuring is the slowing rise of China’s industrial production, which was up by 5.6% on the year. Five years ago output was rising by an annual 14% and, unlike retail sales, there is as yet no sign of an upturn.

Investors took the data in their stride, balancing the good with the not-so-good. There was little reaction by the Australian Dollar, which is arguably the currency most sensitive to Chinese economic news. It is down by just a third of a cent on the day, -0.2% – against Sterling.

The other antipodean currency, the New Zealand Dollar was the accidental winner overnight adding nearly a cent against Sterling. Its success came despite an unusually cautious risk assessment by the Reserve Bank of New Zealand governor as he presented the Financial Stability Report. Whilst Graeme Wheeler accepted that the financial system “continues to perform well”, he drew attention to the risks posed by low dairy prices and the possibility of “a sharp downturn” in Auckland house prices. He also observed that “the last thing we would want to do is drive the exchange rate up”. None of this appeared calculated to endear investors to the Kiwi yet it edged higher after Mr Wheeler’s speech, eventually booking a net 0.4% gain.

Sterling will be in the cross hairs today, if only because all the significant data and events relate to the United Kingdom. First up at 09:00 is the Bank of England governor, as he opens a conference in London. Shortly afterwards come the employment figures. The topic of the BoE’s Open Forum 2015, “Building real markets for the good of the people”, is not an obvious vehicle for the Governor’s tortured thoughts on the future course of monetary policy but that doesn’t mean there will be no mention of the matter. The same goes for the ECB’s Mario Draghi, who will be addressing the same audience at 13:15.

At 09:30 unemployment is expected to be unchanged at 5.4% with a small increase in jobseeker claims. Any disappointment could undermine Sterling.