The Weekly Wrap – A Trade Deal Delivers Trump That Weaker Dollar

The Stats

It was a particularly quiet week on the economic calendar, in the week ending 27^th December.

A mere 13 stats were monitored over the Christmas break. A whopping 94 stats had been monitored in the week prior.

Of the 13 stats, 5 came in ahead forecasts, with 7 economic indicators coming up short of forecast. 1 stat was in line with forecasts.

Looking at the numbers, 7 of the stats reflected an upward trend from previous figures. Of the remaining 6, 4 stats reflected a deterioration from previous.

For the Greenback, it was a bearish week, with a 0.63% slide on Friday doing most of the damage.

For the week, the Dollar Spot Index fell by 0.79% to 96.919.

Out of the U.S

It was a relatively quiet week for the Dollar, with the stats skewed to the negative.

On Monday, durable goods orders and core durable goods orders disappointed. While core durable goods orders came in flat in November, durable goods orders slid by 2%. Economists had forecast a 1.5% increase. In October, core orders had risen by 0.3%, with durable goods orders up by 0.2%.

November’s new home sales figures were somewhat better, however, with sales rising by 1.3% month-on-month.  In October, sales had fallen by 2.7%.

With a half-day on Tuesday and the markets closed on Wednesday, the focus then shifted to the weekly jobless claims figures on Thursday.

Initial jobless claims came in at 222k, which was down from 235k from the previous week.

In spite of the negative numbers on Monday, it was a pickup in risk appetite that weighed on the Greenback in the week.

Positive comments from Beijing and Washington supported record highs for the U.S equity markets in the week.

In the equity markets, the Dow rose by 0.67%, while the S&P500 and NASDAQ gained 0.58% and 0.91% respectively. Trump will be happy that the U.S majors hit new record highs and let’s not forget about the weaker dollar…

Out of the UK

It was a particularly quiet week on the economic calendar.

Following a hectic previous week, there were no material stats to provide the Pound with direction in the week.

A string of weak numbers from the week prior, coupled with negative sentiment towards Johnson’s Brexit Bill had weighed on the Pound.

With Parliament in recess until 5^th January and no stats to rock the boat, there was some much-needed support.

A 0.65% gain on Friday delivered the upside as the Greenback hit reverse.

For the week, the Pound rose by 0.61% to end the week at $1.3078.

For the FTSE100, the stronger Pound had limited impact as sentiment towards the U.S – China trade agreement delivered upside. The FTSE100 ended the week up by 0.82%.

Out of the Eurozone

It was also a particularly quiet week economic data front.

There were no material stats to provide direction, leaving the EUR in the hands of market risk sentiment and the ECB.

Upbeat sentiment towards the U.S – China trade agreement provided support in the week, with Dollar weakness delivering a 0.71% gain on Friday alone.

A lack of negative chatter on Brexit was also a plus for the EUR, which is expected to benefit from the trade agreement.

From the ECB, the final economic bulletin of the year painted a rosier picture in spite of December’s manufacturing PMI numbers.

Key points from the bulletin included:

• Incoming economic data and survey information, while remaining weak overall, point to some stabilization in the slowdown of economic growth in the euro area.
• The service and construction sectors remain resilient in spite of some moderation in the 2^nd half of 2019.
• Favorable financing conditions, further employment gains, in conjunction with rising wages, the mildly expansionary euro area fiscal stance and growth in global activity are expected to support the euro area economy.
• On the projections, growth for 2020 was revised downwards to 1.1%. In 2021 and 2022 growth is expected to pick up to 1.4%.
• Risks towards growth remain, however. Geopolitical factors, rising protectionism, and vulnerabilities in the emerging markets leave risks to growth tilted to the downside. This has become less pronounced, however.

For the week, the EUR rose by 0.88% to $1.1177, with a 0.71% rally on Friday delivering the lion’s share of the gains.

For the European major indexes, the EuroStoxx600 led the way, rising by 0.32%, with the CAC40 up by 0.26%. The DAX30 saw a more modest 0.14% gain, which came off the back of a 0.27% rise on Friday.

Elsewhere

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

For the week, the Aussie Dollar rose by 1.16% to $0.6980, with the Kiwi Dollar rallying by 1.52% to end the week at $0.6699.

Positive sentiment towards the U.S – China trade agreement delivered the upside, as the Greenback hit reverse.

For the Aussie Dollar

Economic data was limited to November private sector credit figures that failed to impress on Monday. Private sector credit rose by just 0.1%, following a 0.1% increase in October. Economists had forecast a 0.3% rise.

From elsewhere, industrial profit figures out of China provided support on Friday. Following a 9.9% slide in October, profits were up by 5.4% in November.

Expectations of a marked improvement in global trade terms were ultimately the key driver, however.

The markets anticipate that the U.S – China trade agreement will deliver strong support to the Australian economy.

For the Kiwi Dollar

It was a particularly quiet week, with no material stats to provide direction.

Market risk sentiment provided support in the week, with the upside coming in spite of mixed views on monetary policy.

While there has been the expectation of further rate cuts in the months ahead, a phase 1 trade agreement could give the RBNZ reason to pause…

For the Loonie

It was a quiet week for the Loonie, with no material stats to provide direction in the week.

Positive sentiment towards trade supported crude oil prices and the Loonie in the week.

WTI and Brent ended the week up by 2.12% and by 3.05% respectively, with demand expected to pick up in the coming months.

The USMCA was also there to support the shift in sentiment towards trade going into 2020.

The Loonie was rose by 0.62% to C$1.3079 against the Greenback.

For the Japanese Yen

It was a busy week on the data front.

Key stats included December inflation figures, prelim industrial production numbers, and retail sales figures.

It was a mixed bag, however. Industrial production fell by 0.9%, following a 4.5% slide in October, with retail sales falling by 2.1%. In October, retail sales had tumbled by 7%, with a new sales tax hitting the retail sector.

On the positive, however, was a pickup in inflationary pressure. Tokyo’s core annual rate of inflation rose from 0.6% to 0.8% in December. This still sits well below the BoJ’s objective, however.

The Japanese Yen ended the week flat at ¥109.44, against the U.S Dollar.

Out of China

November’s industrial profit figures provided direction on Friday.

A 5.4% rise in profits supported risk sentiment at the end of the week. In October, profits had slumped by 9.9% weighing on risk appetite in November.

With a trade agreement due to be signed in the coming weeks, the numbers will soon need to reflect a positive impact on global trade terms to sustain the upbeat sentiment towards the economy.

Sentiment towards a phase 1 trade agreement also provided support to the CSI300, which rose by 0.12% in the week.

The Yuan rose by 0.15% to CNY6.9957 against the Greenback.