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  • richard evans

GBP remains under pressure on possible rate rise delays

Good morning

UK PM Johnson announced ‘Plan B’ yesterday with some additional restrictions to stop the spread of Covid in England. As I said yesterday, even if Omicron turns out to be less severe, expect Covid case numbers to rise and therefore isolations to increase. We have been advised to work from home where possible, vaccine passports will be required in public venues and I wouldn’t be at all surprised if schools shut a few days early to give a longer gap between school and Christmas. This won’t be a popular opinion but possibly necessary in my view if we are to see no additional restrictions on Christmas gatherings. The vaccine passport will be a contentious issue but I’m guessing mostly for those who are unvaccinated. Your choice, don’t get the jab, but stay at home.

While Omicron numbers in the UK are officially as low as 600, it is thought there are likely to be well over 10,000 cases already and these are only going to get higher and higher. Some suggest it is four times more transmissible than the Delta variant. Pfizer have said three doses of vaccine does have high level of protection against Omicron although I’d have thought it is still too early to know for sure. Deaths in South Africa have almost doubled in the past week which goes slightly against the notion that it is not as severe. Even if it does turn out to be less severe, the higher infection rates are likely to cause problems for companies, the economy and markets.

GBP has struggled for a while now, suffered for a while, certainly since early Nov when BoE kept rates unchanged when a rise looked very much on the cards. Since that meeting GBPUSD has dropped from 1.3700, currently trading just around 1.3200 as I type, not helped by the likes of Goldman Sachs and UBS predicting that Omicron will delay a rate rise to Feb 2022. GBP has also suffered against EUR, with EURGBP now 0.8580 (GBPEUR 1.1655), compared with 0.8380 (1.1935) just a couple of weeks ago. Can’t help thinking this GBP move is overdone vs EUR, but with FOMC still looking as though they will increase the speed of tapering next week, further losses against USD could be seen even though some think it is pretty much priced in. No UK data today but UK GDP is out early tomorrow morning, as is German inflation which is expected to show HICP still up around 6%.

BoC left rates unchanged as expected but failed to open the door for a rate move earlier in 2022, instead keeping the guidance for a rate rise in the middle quarters of 2022, leaving CAD to weaken. USDCAD traded up from 1.2610 to 1.2665 where it currently trades. We do have the BoCs DepGov Gravelle delivering the Economic Progress Report later today which may well give some clues as to BoCs decision.

China are flexing their muscles, reports suggest the government have sent officials into the PBoC, Chinas central bank, to make it very clear the PBoC is not independent and answers to the party. This comes after the RRR cut earlier in the week went against policy that had been signalled by the government a few weeks earlier.

Finally I note that New Zealand are looking to introduce a law that will ban the sale of tobacco to its younger generations. From next year, anyone born after 2008 will not be able to buy cigarettes or other tobacco products in their lifetime. It’s a tough policy but even if you are pro-choice it is a tough one to argue against. I’m sure other countries will look on to see how it goes before introducing similar measures in the coming years. I am amazed that any young people can actually afford to smoke, last time I looked a pack of twenty cost over £13.

- 13.30 US initial jobless claims

- 15.00 US wholesale inventories

- 19.00 BoCs Gravelle speaks

- 21.30 NZ business PMI

- 21.45 NZ electronic card sales

- 23.50 Japan PPI

- 07.00 UK GDP, industrial production

- 07.00 German CPI, HICP

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