Buy The Rumour Sell The Fact

It pays to listen.

Yesterday was a masterclass in the classic financial markets adage: Buy the rumour, sell the fact. And Sterling started picking up on rumours of Chancellor Sajid Javid's sacking and his imminent replacement with Rishi Sunak.

The implication would be a more expansionary fiscal policy. Such a policy means higher government spending; possibly higher inflation (depending on how that is funded); and stronger economic growth (depending on the competence of the government and general coherence of its overall economic policy). This makes it less likely that the Bank of England will cut the UK interest rate. The impact on Sterling would be a stronger currency.

So in reaction to the above (the rumour), Sterling jumped half a per cent in less than 3 hours and the impact of the change of Chancellor on economic policy will be confirmed or repudiated in the Budget - due next month (the fact).


Chinese authorities now say that they previously underestimated the number of coronavirus cases (which has now risen to over 60,000 globally) but have overestimated the number of deaths. This has made it even more difficult to assess whether the pace at which the virus is spreading has peaked. Nevertheless, the mood in markets has improved. Equities have been volatile but in most cases are set to end the week higher. However, the improvement in confidence may prove premature as analysts still have little information on the extent of any economic impact. Concerns primarily centre on potential disruptions to supply chains due to bottle necks in China. Next week’s February business surveys in the UK and the Eurozone may provide some first gauges of these. Economists have been lowering their economic growth forecasts for the first half of the year but continue to assume that in line with similar episodes (such as SARs) any hit will prove relatively short lived. Markets seem to be taking some comfort from predictions of a relatively swift rebound, but as BoE Governor Carney noted this week, we may first have to look through one or two quarters that are severely impacted by the virus.


The coming week is a very busy one for UK data releases. Official readings for December and January will add further detail to the initial signs of a post-election acceleration in economic activity. Meanwhile, business surveys from the CBI and Markit will provide indications whether that pickup has continued into February. Amongst the official data, of particular interest will be Thursday’s reading of January retail sales. Consumer spending was a key support for UK growth for much

of last year. However, retail sales fell in four out of the last five months of 2019. Nevertheless, the fundamentals for consumer spending remain positive and the GfK survey suggests that consumer confidence has picked up since the election. Consequently the market is looking for a 1.2% monthly rise in headline sales volumes. Tuesday’s labour market report (for the three months to December) is likely to be mixed. Employment is forecast to have remained buoyant and as a result the unemployment rate is expected to stay at 3.8%. That suggests the labour market remains tight but also considering that output stagnated in Q4, that weak productivity growth remains an issue. Meanwhile, wage growth is expected to edge down again with annual regular pay growth slowing to 3.3% (from 3.4%). Finally January vacancies should be watched for signs the market has picked up. January annual CPI is predicted to have risen modestly to 1.6% from 1.3% in December) but that is solely due to temporary energy price effects as the ‘core’ rate is expected to hold 1.4%. The big picture is that we expect CPI inflation to stay below the 2% target for all of 2020 and well into 2021.

WILL FEBRUARY BUSINESS SURVEYS BE UP AGAIN? Both the manufacturing and services PMI picked up sharply in January. Analysts expected further albeit modest increases for February (Fri). The services reading will be the ‘cleaner’ estimate of domestic conditions and we look for a rise to 54.5 (from 53.9 in Jan) its highest level since mid-2018. The manufacturing gauge may be more influenced by international factors including the coronavirus. Nevertheless, we also forecast a slight rise in that to 50.5 (from 50.0), which would be the first time it has been above the 50 expansion line since last April. The CBI industrial survey (Thu) will provide a further update on the sector.


The euro has dropped to its lowest level against the US dollar since mid-2017 on downside concerns for Eurozone growth. Germany and the region as a whole narrowly avoided a Q4 fall in GDP but activity seemingly stalled in December. As January business surveys pointed to only a modest improvement, the coming week’s February IFO survey (Tue) and Eurozone PMIs (Fri) will be watched for signs of an uptick. However, the market thinks that modest declines in both the manufacturing and services PMIs are more likely.

See you next week! To discuss how the above may affect your money transfer requirements, please contact your Currency Dealer at Heritage Pay on +44 (0) 203 858 7274.

None of the information in this article is, nor should be construed as financial advice. All foreign exchange transactions involve risk and you should always seek your own independent financial advice before entering into any foreign exchange transaction.

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