The Weekly Wrap – A Busy Week Saw the Greenback Bounce Back to Life

The Stats

It was a relatively busy week on the economic calendar in the week ending 8th November.

A total of 51 stats were monitored throughout the week, following 64 stats from the week prior.

Of the 51 stats, 25 came in ahead forecasts, with 22 economic indicators coming up short of forecast. 4 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 26, 23 stats reflected a deterioration from previous.

In spite of balanced numbers, the Dollar was on the move throughout the week. For the week, the U.S Dollar Index (“DXY”) rose by 1.15% to $98.353.

Out of the U.S

It was a relatively busy week on the economic data front.

In the first half of the week, factory orders fell by 0.6% in September, with Markit service and Composite PMIs reflecting an almost stalling in private sector activity in October.

September’s JOLTs job openings also disappointed, with job openings falling back from 7.301m to 7.024m.

While the JOLTs’ headline number was negative, quit rates held steady at 2.3% supporting positive sentiment towards labor market conditions.

Positive on Tuesday, however, was a pickup in non-manufacturing PMI numbers for October. The Market’s favored PMI rose from 52.6 to 54.7.

On Wednesday, 3^rd quarter unit labor cost and nonfarm productivity had a largely muted impact on the Greenback.

Nonfarm productivity fell by 0.3%, while unit labor costs jumped by 3.6%. Productivity saw the largest quarterly decline since the 4^th quarter of 2015.

With the weekly jobless claims figures continuing to be brushed aside, the market focus then shifted to prelim Michigan consumer expectations and sentiment figures on Friday.

The Michigan Consumer Sentiment Index rose from 95.5 to 95.7, with the expectations index rising from 84.2 to 85.9.

An upward trend supported by strong progress in the U.S – China trade talks, record-high equity markets, a low-interest-rate environment, and strong labor market conditions are all positives for consumers.

Geopolitics

On the geopolitical front, positive updates on trade supported risk appetite through most of the week.

From last weekend, the U.S administration spoke of an imminent signing of a phase 1 agreement. Of greater significance, was news of the administration planning to issue licenses for U.S firms to sell to Huawei Technologies.

News of both Beijing and Washington planning to roll back tariffs was also key in the week.

The Upbeat sentiment towards trade did abate on Friday, however, as news hit the wires of some disagreement in Washington over the removal of tariffs on Chinese goods. Late on Friday, U.S President Trump announced that tariffs would not be rolled back until Phase 1 of the agreement was signed.

Mid-week, the Dollar had also come under pressure as the republicans suffered at the hands of the Democrats in a number of key states.

In the equity markets, the Dow rose by 1.22%, with the S&P500 and NASDAQ gaining 0.85% and by 1.06% respectively. Gains for the week came off the back of corporate earnings and early in the week optimism of a Phase 1 trade agreement.

Out of the UK

It was a relatively quiet week on the economic calendar.

Economic data was limited to construction and service PMI numbers for October.

Private sector PMIs reflected marginally improving conditions in the UK at the start of the 3^rd quarter.

The construction PMI rose from 43.3 to 44.2, with the service PMI rising from 49.5 to 50.0.

In spite of the better than expected numbers, however, the Pound was under the cosh throughout the week.

On the monetary policy front, the BoE monetary policy decision on Thursday was the main event.

The Bank of England left interest rates unchanged at 0.75%, with the QE total left unchanged at £435bn.

While the markets had anticipated a unanimous vote favoring a hold, 2 members voted in favor of a rate cut.

The rise in prospects of a rate cut came as the BoE downwardly revised its growth forecasts.

Perhaps of greater significance was the BoE’s view on the impact of Brexit on the UK economy, in the event of a Johnson election victory. While the BoE sees an immediate uptick as Brexit uncertainty is lifted, the BoE also projects a further weakening over the next few years. The timing couldn’t have been worse as the general election campaigns get underway…

General Election Update

On the political front, Parliament was dissolved on Wednesday, with 5-weeks of general election campaigning getting underway.

We expect election chatter and the polls to have the greatest influence on the Pound in the coming weeks.

A Boris Johnson victory continues to be the market choice. This was the case until the BoE’s comments on Thursday at least. If the opinion polls are anything to go by, the Conservatives are forecasted to take a majority with ease. According to the latest You Gov poll, tracking polls between 1^st and 4^th November, the Tories are on 36%, with Labour on 25%.

The Lib Dems and Brexit Party are a country mile behind, at 17% and 11% respectively.

The Pound slid by 1.33% to $1.2764 in the week.

For the FTSE100, positive sentiment towards trade early in the week and a softer Pound provided support. The FTSE100 rose by 0.78%.

Out of the Eurozone

It was a busy week on the economic data front.

October private sector PMI numbers for Spain, Italy, together with finalized PMI numbers out of France, Germany, and the Eurozone were in focus.

A slight rise in the Eurozone’s composite PMI in October was of little support. While the composite rose from 50.2 to 50.6, this was still close to September’s six-and-a-half-year low…

German factory orders, together with Eurozone retail sales figures also provided direction, ahead of German industrial production and trade data due out on Thursday and Friday.

Out of Germany, factory orders rose by 1.3%, with Eurozone retail sales rising by just 0.1%.

In the 2^nd half of the week, the numbers were mixed. While industrial production slid by 0.6%, Germany’s trade surplus widened from €18.1bn to €19.2bn.

It was of little consolation for the EUR, however, which slid further back on Friday, in spite of the trade data.

Positive sentiment towards trade weighed in the week, as Dollar demand surged. A resolution to the extended trade war is considered positive for the U.S economy.

A resolution could then also shift focus to U.S trade terms with the EU, which would certainly add further pressure on the EUR.

An IMF report added more pressure on the EUR at the end of the week, contributing to Friday’s reversal. The IMF Regional Economic Outlook Report noted that extended weakness in trade and manufacturing could eventually adversely impact other sectors and services in particular.

For the week, the EUR fell by 1.33% to $1.1018.

For the European major indexes, the CAC40 led the way, rising by 2.22%. The EuroStoxx600 and DAX30 weren’t far behind, with gains of 1.50% and 2.02% respectively.

Elsewhere

It was back in the red for the Aussie Dollar and Kiwi Dollar.

The Aussie Dollar fell by 0.59% to $0.6863, while the Kiwi Dollar slid by 1.54% to $0.6328.

For the Aussie Dollar

It was a relatively busy week for the Aussie Dollar.

Key stats included September retail sales and trade data.

Disappointing retail sales figures on Monday pinned the Aussie Dollar back at the start of the week. Sales rose by just 0.2% in September, following a 0.4% increase in August.

Support in the early part of the week kicked in following the RBA’s decision to hold rates unchanged on Tuesday. The rate statement continued to point to a hold on rates near-term, in spite of ongoing uncertainty over household spending.

On Thursday, trade data failed to spur an Aussie Dollar rally, in spite of a widening of the trade surplus from A$5.926bn to A$7.929bn.

The RBA’s quarterly Statement of Monetary policy ultimately did the damage on Friday. There were downward revisions to economic growth, wage growth, and domestic consumption. While the markets had priced in an RBA hold on monetary policy, this may change should there be a further weakening…

On the geopolitical front, positive updates on trade had also provided support, as the U.S and China inched nearer to the phase 1 agreement. This was not enough, however, to avert a weekly loss.

For the Kiwi Dollar

The stats were on the lighter side once more.

Economic data was limited to 3^rd quarter employment figures on Wednesday.

According to NZ Stats, employment rose by just 0.2% in the 3^rd quarter, which was softer than a 0.8% rise in the 2^nd quarter.

While the unemployment rate rose from 3.9% to 4.2%, the underutilization rate fell to 10.4%. This was the lowest underutilization rate since the 2^nd quarter of 2008, limiting the immediate downside in the Kiwi Dollar on the day.

Positive sentiment towards the U.S – China trade talks and dovish sentiment towards RBNZ monetary policy ultimately did the damage.

For the Loonie

It was a relatively busy week for the Loonie.

Key stats included September trade data, the Ivey PMI and employment figures for October.

Trade data on Tuesday provided some support to the Loonie, as the trade deficit narrowed from C$1.24bn to C$0.98bn. That was about it on the positive front, however, with Ivey PMI and employment numbers disappointing.

On Wednesday, the Ivey PMI fell from 48.7 to 48.2 in October, adding pressure on the Loonie.

Rounding off the week, employment fell by 1.8k in October, coming up short of a forecasted 15.9k rise. Weighing on the headline number was a 16.1k slide in full employment. Part-time employment rose by 14.3k.

While the unemployment rate held steady at 5.5%, the weak numbers led the Loonie back to $1.32 levels against the Greenback.

Following last week’s BoC rate statement that highlighted rising concerns over the economic outlook, the Loonie’s sensitivity to the stats has increased.

The Loonie ended the week down by 0.65% to C$1.3228 against the Greenback.

For the Japanese Yen

It was a quiet week on the data front. In the early part of the week, October’s service sector PMI painted a grim picture of service sector activity. The PMI fell from 52.8 to 49.7 to mark the first decline in sector output in 3-years.

Things were not much better for the manufacturing sector, with the PMI falling to a 40-month low according to figures that had been released in the previous week.

With the BoJ continuing to signal further easing in monetary policy, the latest PMI numbers should turn the screw.

On the risk front, the Japanese Yen also came under pressure as positive sentiment towards a phase 1 trade agreement between the U.S and China did the rounds.

The Japanese Yen fell by 0.99% to ¥109.26, against the U.S Dollar.

Out of China

It was a relatively quiet week on the economic data front.

The Caixin Service PMI fell from 51.3 to 51.1 in October. In spite of the weaker numbers, positive sentiment towards trade offset the effects of the negative numbers.

At the end of the week, October trade data failed to support demand for riskier assets, in spite of better than forecasted figures.

The USD trade surplus widened from $39.65bn to $42.81bn, with imports falling by 6.4%. Exports fell by 0.9%.

The CSI300 gained 0.52% in the week, supported by expectations of a Phase 1 trade agreement. The Hang Seng fared far better, however, rising by 2.03%.

The Yuan continued its upward trajectory, rising by 0.59% to CNY6.9928 against the Greenback.