Geopolitics, COVID-19 Updates, and Monetary Policy Drove the Markets

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28^th August.

A total of 47 stats were monitored, following 57 stats from the week prior.

Of the 47 stats, 24 came in ahead forecasts, while 21 economic indicators came up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 20 of the stats also reflected an upward trend from previous figures. Of the remaining 27, 24 stats reflected a deterioration from previous.

For the Greenback, it was a back into the red for the Greenback. After a bullish start to the week, 4 consecutive days in the red sunk the Dollar. In the week ending 28^th August, the Dollar Spot Index slid by 0.94% to 92.371. In the week prior, the Dollar had risen by 0.11% to end a run of 6 consecutive weekly losses.

It was the FED once more that sent the Dollar reeling. This time around, FED Chair Powell laid out the FED’s new monetary policy approach. Low rates for longer delivered the blow in the 2^nd half of the week.

Out of the U.S

It was another busy week on the economic data front.

Key stats in the week included August consumer confidence, July durable goods orders, and the weekly jobless claims.

The stats delivered yet more red flags in the week.

Consumer confidence hit reverse, with the CB Consumer Confidence Index falling from 91.7 to 84.8.

Initial jobless claims also disappointed. After having risen to 1.106m in the week ending 14^th August, claims stood at 1.006m in the week ending 21^st August.

Durable goods and core durable goods orders delivered some positive news, however.

While core durable goods orders rose by 2.4%, durable goods orders jumped by 11.2% in July.

Other stats in the week included:

• 2^nd estimate GDP numbers, which were revised up to a 31.7% contraction.
• July’s personal spending, which rose by a further 1.9% following a 6.2% jump in June.
• August’s Chicago PMI, which slipped from 51.9 to 51.2.
• August’s finalized Michigan Consumer Sentiment index, which was revised up from 72.8 to 74.1.

On the monetary policy front, FED Chair Powell’s speech from the Jackson Hole Symposium was the main event.

Under the new policy framework, the FED will look to achieve an average 2% inflation rate over time. This would mean that the FED would allow inflation to offset periods of low inflation by hitting above 2% levels. The FED would also support strong labor market conditions and not allow for a fall from maximum levels.

In the equity markets, the NASDAQ and S&P500 rose by 3.26% and by 3.39% respectively. The Dow ended the week up by a more modest 2.59%.

Out of the UK

It was a particularly quiet week on the economic calendar. There were no material stats to provide the Pound with direction.

On the Brexit front, there was nothing positive to support the Pound. News of Germany canceling plans to hold talks at the EU ambassador’s summit was certainly negative.

With September approaching, there’s just 1 month left to get a deal in place. Fisheries and trade remain the key areas of focus and no progress has been made to-date…

In the week, the Pound rallied by 2.00% to $1.3352. The Pound had risen by 0.03% to $1.3090 in the week prior.

The FTSE100 ended the week down by 0.64%, following on from a 1.45% slide from the previous week.

Out of the Eurozone

It was another relatively busy week economic data front.

In the 1^st half of the week, finalized 2^nd quarter GDP and August IFO Business Climate figures from Germany provided support.

Business sentiment improved in August, with GDP numbers revised upwards.

Mid-week, numbers out of France were also skewed to the positive. Consumer confidence held steady in August, with the total number of job seekers falling.

It was a disappointing set of stats at the end of the week, however.

German consumer confidence declined in September, with French consumer spending lackluster in July.

While Germany saw GDP revised upwards, the finalized French numbers were in line with prelim figures.

In spite of the negative stats, fiscal policy news provided support. Germany unveiled further measures to prop up the economy, with France announcing plans to roll out fresh measures next month.

For the week, the EUR rose by 0.90% to end the week at $1.1903. In the week prior, the EUR had fallen by 0.38% to $1.1797.

For the European major indexes, it was a bullish week. The CAC40 and DAX30 ended the week up by 2.18% and 2.10% respectively, with the EuroStoxx600 gaining 1.02%.

For the Loonie

It was a quiet week on the economic calendar.

Key stats included the 2^nd quarter and June GDP numbers on Friday.

It was a mixed bag for the Loonie. While the economy expanded by 6.5% in June, the economy contracted by 11.5% in the 2^nd quarter. In the 1^st quarter, the economy had contracted by 2.1%.

On an annualized basis, the economy contracted by 38.7% in the quarter, following an 8.20% contraction in the 1^st quarter.

While the stats were mixed, the better than expected June GDP number provided support.

The Loonie rose by 0.59% to end the week at C$1.3099. In the week prior, the Loonie had risen by just 0.67%.

Elsewhere

It was a particularly bullish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28^th August, the Aussie Dollar rallied by 2.85% to $0.7365, with the Kiwi Dollar jumping by 3.09% to $0.6743.

For the Aussie Dollar

It was another relatively quiet week for the Aussie Dollar.

Key stats included 2^nd quarter construction work down and private new CAPEX figures.

While both sets of numbers were better than forecasts, both declined in the quarter. The markets were in a forgiving mood, however, with COVID-19 to blame. In the 2^nd quarter, private new CAPEX slumped by 5.9%, following a 1.6% decline in the 1^st quarter.

Away from the economic calendar, positive updates from the U.S and China trade talks and the shift in the FED’s monetary policy framework delivered the upside.

For the Kiwi Dollar

It was a busier week on the economic calendar.

Key stats included 2^nd quarter retail sales figures and July trade data.

The stats were skewed to the negative, with core retail sales sliding by 13.7% in the 2^nd quarter.

COVID-19 delivered the slide as a result of lockdown measures.

By contrast, trade figures were mixed. While the monthly trade surplus narrowed, the trade deficit narrowed from NZ$1,130m to NZ$115m compared with July 2019.

Ultimately, it was geopolitics and monetary policy divergence that delivered the upside in the week.

Positive updates from U.S and China trade talks and the shift in the FED’s monetary policy framework delivered the upside.

For the Japanese Yen

It was a quiet week on the economic calendar.

Key stats included August inflation figures that had a muted impact on the Japanese Yen.

The stats were skewed to the negative, with deflationary pressures returning once more.

In August, Tokyo’s core consumer price index fell by 0.3%, reversing a 0.4% rise in July. Economists had forecast a 0.3% rise.

While economic data had a muted impact, the Yen responded to the resignation of Prime Minister Abe. The PM cited health reasons for his resignation on Friday.

Adding to the upside for the Yen was the market’s reaction to the FED’s change to the monetary policy framework.

The Japanese Yen rose by 0.41% to ¥105.37 against the U.S Dollar. In the week prior, the Yen had risen by 0.75%.

Out of China

It was another quiet week on the economic data front.

Key stats were limited to industrial profit figures for July, which were skewed to the positive.

Year-on-year, profits jumped by 19.6%, following an 11.5% rise in June. Year-to-date, profits were down by just 8.1%. In June, profits had been down by 12.8%.

While the stats provided support, positive updates from the U.S and China trade talks also supported riskier assets.

In the week ending 28^th August, the Chinese Yuan rose by 0.78% to CNY6.8655. In the week prior, the Yuan had risen by 0.45%.

The CSI300 rallied by 2.66%, supported by a 2.39% gain on Friday, with the Hang Seng rising by 1.23%.