Much of the talk last week surrounded the Italian referendum and although the referendum result had been fairly widely anticipated, there had been doubts that Prime Minister Renzi would carry through his earlier pledge to resign if he lost. This topical conversation continued and to nobody's great surprise Italians rejected Prime Minister Matteo Renzi's referendum proposals for constitutional changes last Sunday. Investors' initial reaction was to mark down the Euro on Monday morning. Then, within an hour and a half, they changed their minds and the Euro forged ahead even though Sig. Renzi's resignation increases the political uncertainty in Italy.
The other big event in Euroland was the European Central Bank's announcement on Thursday. The ECB said it would extend for another nine months the quantitative easing programme that was scheduled to expire in March. Although asset purchases beyond that date will be at a pace of €60bn rather than €80bn a month investors saw the news as negative for the Euro. Overall the single currency weakened by half a cent against Sterling and lost two thirds of a US cent. It shared last place for the week with its forever friend the Swiss Franc.
A classic game of two halves saw the Dollar first weaken by two US cents and then claw them back for a net weekly gain of a quarter of a cent against Sterling. It fared better against the Euro, picking up two thirds of a cent. Last Friday's US employment report was slightly confusing for investors: unemployment fell to a nine-year low of 4.6% as 178k new jobs were created but at the same time average wages fell by -0.1%. The two measures usually move in opposite directions as demand for labour pulls wages higher.
Sterling started out well but eventually succumbed to a combination of weak economic data and Brexit sabre-rattling. When investors saw unexpected monthly falls in UK manufacturing and industrial production they forgot about the decent purchasing managers' index readings for the construction and services sectors that had gone before. Re-emerging jitters about Brexit did not help Sterling's case.
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