The Weekly Wrap – Brexit, Iran, and Economic Data Drove the Majors in the WeekIt was a particularly choppy week for the markets. The Middle East, Brexit, and economic data were all in focus throughout the week.
It was a relatively busy week on the economic calendar, in the week ending 10th January.
A total of 55 stats were monitored, following just 30 stats from the week prior.
Of the 55 stats, 30 came in ahead forecasts, with 17 economic indicators coming up short of forecast. 8 stats were in line with forecasts in the week.
Looking at the numbers, 33 of the stats reflected an upward trend from previous figures. Of the remaining 22, 17 stats reflected a deterioration from previous.
For the Greenback, it was a bullish week. Geopolitics and economic data provided support for the Dollar in the early part of the week. It was a different story on Friday, however, with the Dollar giving up some gains off the back of disappointing stats. The Dollar Spot Index rose by 0.45% to 97.356.
Out of the U.S
On Monday, finalized December private sector PMIs were positive, with both the services and composite PMI coming in ahead of prelim figures.
The all-important services PMI came in at 52.8 in December, which was better than a prelim 52.2 and November 51.6.
On Tuesday, economic data was mixed, however. While factory orders fell by 0.7%, reversing a 0.2% rise from October, December’s ISM Non-Manufacturing PMI impressed.
The PMI increased from 53.9 to 55.0, which was better than a forecasted increase to 54.5.
Of less influence on the day was November trade data.
On Wednesday, the ADP Nonfarm Employment Change figures impressed, rising by 202k, following a 67k rise in November.
It was a different story on Friday, however, with nonfarm payroll and wage growth figures falling short of forecasts.
Wages grew by just 2.9% in December, slowing from 3.1% in November, with just 145k jobs added. Economists had forecast 164k nonfarm payrolls and wage growth to hold steady at 3.1%.
In spite of the disappointing NFP number, the unemployment rate held steady at 3.5%. It was of little consolation, however, with wage growth the slowest since mid-2018.
Outside of the numbers, geopolitics remained a key influence. Escalation and de-escalation in the Middle East rattled the markets, while there was upbeat sentiment towards trade.
In the equity markets, the Dow rose by 0.66%, with the S&P500 and NASDAQ gaining 0.94% and 1.75% respectively. The weekly gains came in spite of a pullback on Friday.
Out of the UK
It was a relatively quiet week on the economic calendar.
On Monday, the finalized service sector and composite PMI numbers for December provided direction to the Pound.
An upward revision to the services PMI to 50.0 provided the Pound with a boost. A shift in sentiment towards the UK economy following Johnson’s General Election victory suggests a rebound in economic growth.
On Wednesday, 3rd quarter labor productivity and house price figures had a muted impact as the markets focused on evens in the Middle East.
On Thursday, the BRC Retail Sales Monitor also delivered optimistic numbers, rising by 1.7% to partially reverse a 4.9% slide in November.
It was not enough to prevent a slide in the Pound on the day, however. BoE Gov. Carney put the Pound under pressure, after hinting at a possible near-term rate cut. Carney stated that a prompt response would be needed should evidence build of persistent weakness in activity.
On the political front, MPs returned to the UK Parliament on Tuesday, with 3 days of debate on Johnson’s Withdrawal Bill in focus.
Parliament voted in favor of the Bill on Thursday that removed the ability to extend the transition period beyond 31st December 2020. Few had expected Parliament to vote against the Bill, with the Tory majority, leaving the Pound unscathed on the day.
For the week, the Pound fell by 0.11% to end the week at $1.3064.
The FTSE100 fell by 0.45, with a fall in the Pound providing little support. Sliding resources stocks weighed through the week.
Out of the Eurozone
It was a particularly busy week economic data front.
On Monday, German retail sales for November and Eurozone member state service PMI figures for December were in focus.
The stats were skewed to the positive, supporting the ECB’s view that private sector activity had bottomed out.
From German, retail sales jumped by 2.1%, reversing a 1.3% fall in October.
For the Eurozone, December’s composite PMI was revised upwards from 50.6 to 50.9, supported by a pickup in service sector activity.
Based on composites, Germany moved off the bottom of the table, with Italy taking the bottom spot at the year-end.
On Tuesday, retail sales figures from the Eurozone were also impressive, with sales rising by 1% month-on-month. In October sales had fallen by 0.3%.
On the inflation front, the annual rate of inflation picked up to 1.3%, while the annual rate of core inflation held steady at 1.3%.
The inflation figures had a muted impact, however, with inflation continuing to sit well below the ECB target.
On Wednesday, the focus shifted to November factory order numbers out of Germany. While also positive, Iran’s retaliatory action against the U.S overshadowed the numbers on the day.
Factory orders slid by 1.3% in November, following a 0.2% rise in October.
Finalized business and consumer confidence figures from the Eurozone were also in focus on Wednesday. Both consumer and business confidence waned in December, pinning back the EUR on the day.
Wrapping up the week, industrial and trade figures out of Germany and the Eurozone’s unemployment figures were in focus.
The trade surplus narrowed in November, reflecting the doom and gloom in the manufacturing sector. Industrial production rebounded, however, rising by 1.1% to reverse a 1% decline in October.
For the Eurozone, the unemployment rate held steady at 7.5%, which was also positive for the EUR.
The EUR fell by 0.50% to $1.1121 in the week.
Across the European major indexes, the DAX30 rallied by 2.04%, with the EuroStoxx600 ending the week up by 0.19%. The CAC40 bucked the trend, falling by 0.12%.
It was a bearish week for the Aussie Dollar and the Kiwi Dollar.
The Aussie Dollar fell by 1.13% to $0.6901, with the Kiwi Dollar down by 1.02% to $0.6631.
For the Aussie Dollar
It was a relatively busy week.
Key stats included December manufacturing numbers on Monday. In the 2nd half of the week, trade and retail sales figures provided direction on Thursday and Friday.
Risk aversion through the early part of the week overshadowed the manufacturing numbers. The threat of war in the Middle East weighed heavily on riskier assets.
Through the latter part of the week, with risk appetite returning, the Aussie Dollar managed to recover to $0.69 levels.
Impressive retail sales figures on Friday delivered a much-needed boost, with the trade surplus also widening.
The jury is still out, however, on whether the RBA will need to deliver a rate cut next month. Expectations are that the forest fires are having a dire impact on the economy at the turn of the year.
For the Kiwi Dollar
It was a particularly quiet week on the economic calendar, with no material stats to provide direction.
The lack of stats left the Kiwi firmly in the hands of market risk appetite that ultimately did the damage.
For the Loonie
It was a busy week.
Early in the week, positive November’s RMPI and trade figures were offset by a slide on the Ivey PMI in December.
While the stats were mixed, the Loonie found support early on in the week. Tension in the Middle East drove oil prices northwards.
At the end of the week, better than expected employment figures also provided support as oil prices hit reverse.
Canada’s unemployment rate fell from 5.9% to 5.6% in December…
The Loonie rose by 0.22% to C$1.3050 against the Greenback for the week.
For the Japanese Yen
It was a relatively quiet week on the data front.
Key stats were limited to finalized service sector PMI numbers for December and November household spending.
The numbers failed to impress, with the PMI revised down from 50.6 to 49.4. In November, the PMI had stood at 50.3.
With the manufacturing sector continuing to struggle, the contraction in the services sector will be yet another concern for the BOJ.
On the spending front, household spending fell by 2%, year-on-year, and following on from a 5.1% slide in October. It could have been worse, however. Month-on-month, spending rose by 2.6%.
While the numbers were largely disappointing, the Yen found strong support in the early part of the week. The events in the Middle East had fueled demand for the safe haven…
The Japanese Yen ended the week down by 0.01% to ¥109.45 against the U.S Dollar. We had seen ¥107 levels on Wednesday before the markets calmed…
Out of China
Economic data was limited to service sector PMI numbers from Monday and inflation figures on Thursday.
Service sector activity slowed in December, with the Caixin Service PMI falling from 53.5 to 52.5.
The figures had a relatively muted impact on the markets, however, with trade and the Middle East in focus.
On Thursday, the inflation figures also had a muted impact on the markets, as the markets responded to Trump’s speech from Wednesday night.
The CSI300 rose 0.44% in the week, with the Yuan rising by 1.09% to CNY6.9192 against the Greenback.