The Weekly Wrap – Brexit, Stats and Trade Drive Demand for Riskier Assets
It was yet another week of thrills and spills in the global financial markets. In spite of the data deluge, the Dollar gained just 0.11% in the week
It was a particularly busy week on the economic calendar, providing plenty of direction throughout the week.
Of a total of 62 stats monitored through the week, 31 came in ahead of market forecasts, with just 27 coming in below consensus.
Looking at the positive numbers, it’s also worth noting that of the 31 stats monitored, 26 came in ahead of previous numbers.
The positive skew on the numbers supported a pickup in U.S Treasury yields. Improved risk sentiment led to a positive yield curve for 3-month and 10-year Treasuries.
10-year Treasury yields closed out at 2.50%, while 3-month yields ended the week at 2.42%. It would have been a wider spread than the 8 bps by Friday’s close had it not been for disappointing wage growth figures out of the U.S.
Out of the U.S,
On the data front, key stats were once more skewed to the negative.
Red flags in the week included an unexpected fall in retail sales in February. Mid-week, ADP nonfarm employment change, durable goods orders, and non-manufacturing PMI figures also disappointed.
In spite of the softer numbers, it was risk-on through the majority of the week leading into the nonfarm payroll and wage growth figures on Friday.
Positive stats through the week included a bounce back in hiring and a pickup in manufacturing sector activity.
The ISM Manufacturing PMI rose from 54.2 to 55.3 in March. The employment sub-indexes for both the ISM Manufacturing and Non-Manufacturing PMIs reflected a pickup in hiring at the end of the quarter.
Following last month’s nonfarm payrolls, there was also greater sensitivity to the weekly jobless claims figure on Thursday. The main event was the release of Friday’s labor market numbers, however.
Nonfarm payrolls jumped by 196k, coming in ahead of forecasts and well above a minimum 185k needed to restore confidence. On the flip side, however, wage growth slowed to just 3.2% year-on-year. For the month, wages grew by 0.1%, which was well below a 0.4% rise in February.
The mixed numbers saw U.S Treasury yields initially rise on the NFP numbers before pulling back on the wage growth figures.
The softer wage growth numbers provided further support to the FED’s projected pause on rate hikes. We’re yet at the point, however, where numbers have brought forward the need for a cut.
In the equity markets, the U.S majors found strong support from the current outlook on FED monetary policy and progress on U.S – China trade negotiations.
Friday’s strong NFP numbers and softer wage growth figures also delivered a perfect combination for riskier assets.
Following a positive end to the 1st quarter, the S&P500 extended its run to 7-consecutive days in the green. That’s the longest stretch of gains in 18-months.
For the week, the S&P rose by 2.06%, with the Dow and NASDAQ up by 1.91% and 2.71% respectively.
Out of the UK,
Key stats through the week were limited to private sector PMI numbers and house price figures. While manufacturing sector activity picked up in March, a contraction in service sector activity will raise some concerns. The service sector accounts for around 80% of GDP in the UK…
While the numbers were skewed to the negative, with the construction sector also in contraction, Brexit remained the key driver.
A particularly choppy week ended with the Pound up by just 0.02%. A 0.3% slide on Friday eating into gains made mid-week.
Uncertainty over whether the British Government will be able to push through a deal before the EU’s 10th April deadline pinned back the Pound in the week.
Parliamentary votes early in the week provided support. MPs voted in favor of legislation to force the government to extend Brexit in a no-deal scenario. The vote led to the Pound reaching $1.31 levels mid-week before reversing. The House of Lords will need to vote on the new legislation and the EU would need to approve any further extensions…
Talks through the second half of the week between Conservative and Labour MPs drew a blank, pinning back the Pound on Friday. The lack of progress resulted in the British PM requesting another extension to 30th June. EU Member States are due to meet to discuss Brexit at an emergency Summit on 10th April. That’s the day by which Britain needs to have a deal in place.
Despite the Brexit chaos, the FTSE100 managed to rally by 2.30% in the week. Positive updates from U.S – China trade talks and a pickup in manufacturing sector activity in China provided strong support.
The index has a strong weighting towards resource stocks that include mining stocks, which have been on the move. Anglo American led the way on Friday. A 2.2% rally gave Anglo American a 6.38% gain for the week.
Out of the Eurozone,
It was another mixed week for the EUR on the data front.
Manufacturing sector activity slowed further than had been initially projected according to the finalized PMI numbers.
Germany’s manufacturing PMI came in at 44.1, leading to a 69-month low for the composite. Things were not much better in France. The composite PMI was the weakest amongst the member states surveyed. The composite came in at 48.9, marking a contraction.
For the Eurozone, the composite came in at 51.6, down from February’s 51.9.
With manufacturing sector activity on the slide, factory order and industrial production figures out of Germany were mixed.
Factory orders slumped by 4.2% in February, while industrial production rose by 0.7%. The March PMI figures suggest that February’s uptick in production will likely be a temporary one, however.
While the numbers were less than impressive, economic data out of China spurred riskier assets into action. A pickup in China manufacturing sector activity supported appetite for riskier assets from the opening bell.
Positive updates from the U.S – China trade negotiations added fuel to the broader market rally through to Friday’s close.
For the week, the EUR ended the week down by just 0.02%.
It was a different story for the European equity markets. The DAX rose for a 7th consecutive day and ended the week up 4.2%. The CAC40 ended the week up 2.35%, with the EuroStoxx600 up by 2.41%.
Support for the majors came from a bounce back in auto and resource stocks that have the greatest exposure to China.
A jump in crude oil prices failed to spur the Loonie into action. In spite of WTI ending the week up 4.89%, the Loonie fell by 0.26%.
Positive Ivey PMI numbers for March and a lower than expected fall in employment numbers failed to provide support.
The numbers will need to be on the positive side for an extended period of time to support a shift in sentiment towards BoC monetary policy.
The Japanese Yen fell by 0.78% to end the week at ¥111.73 against the greenback. Risk appetite through the week weighed on the Yen.
For the Aussie Dollar and Kiwi Dollar, it was a mixed week.
While the Aussie Dollar gained 0.13%, the Kiwi Dollar tumbled by 1.09%.
The Aussie Dollar found support from a jump in retail sales figures and a record trade surplus. Positive PMI numbers out of China and progress on the U.S – China trade talks were also positives.
For the Kiwi Dollar, the previous week’s dovish RBNZ outlook on policy left the Kiwi on the back foot. A slide in business confidence in the 1st quarter added pressure early on in the week. The pullback at the start of the 2nd quarter left the Kiwi at its weakest since early January.