Sterling steady ahead of Carney’s speech – 19th January 2016

Yesterday had an air of calm about it compared to the previous Monday’s of 2016. Western stock markets were down but only fractionally and those in the East were under minimal pressure, as were oil and the “risky” currencies. It was by no means a widespread embracement of risk but investors were relieved to see the Chinese authorities propping up share prices in Shanghai, eliminating some of the nervousness that had built up in the first two weeks of the year.

Sterling looked much steadier too, losing ground only to the Canadian Dollar. It was roughly steady against the Euro, the Swedish Krona, the South African Rand and the US, NZ and Australian Dollars. Sterling gained nearly one yen against the “safe” Japanese currency and strengthened by more than 1% against the day’s weakest performer, the Norwegian Krone.

Data released this morning showed China’s economy expanding by 6.8% in 2015 and by 1.6% in the fourth quarter. Investors were initially unimpressed by that and by the other figures that accompanied the GDP number, but they eventually seemed to come to the conclusion that things were really not so bad after all.

Growth of 1.6% in gross domestic product was not at all poor by global standards but it was less than analysts had predicted and the slowest in 25 years. The other data fell short of forecast too: retail sales increased by an annual 11.1% rather than 11.3%; industrial production growth slowed from 6.2% to 5.9% a year; urban investment was up by an annual 10%, half the annual increases seen a couple of years ago.

The first reaction of investors to the Chinese data was to buy the yen, the euro and the US dollar but there was no follow-through. By the time London opened all three had fallen back beyond the levels that had preceded the ecostats from Beijing.

After a quiet day on Monday data wise, today is much busier. There is inflation-related figures from Germany, Switzerland, Britain, Euroland and New Zealand. The Bank of England governor, Mark Carney, will be speaking at midday however his speech has no title but anything resembling interest rate guidance would affect Sterling.

Headline inflation rates for the UK and the EU are both pencilled in at 0.2% are expected to have no impact on Sterling or the Euro. The Kiwi will be more sensitive to the NZ data, especially if a low print appears to leave scope for further rate cuts.