The Weekly Wrap – Brexit, Stats and Yield Curves Drove the Majors

The Stats

It was quite a week for the global financial markets. The Dollar gained 0.58% in the week to close out the quarter with a 1.22% rise.

The economic calendar was on the busier side, providing direction through the week.

Of a total 60 stats that were monitored through the week, 29 came in below market forecasts. Just 23 came in ahead of forecasts.

The negative skew on the numbers supported the inversion of the 3-month/10-year U.S Treasury yield curve in the early part of the week.

Sentiment through the latter part of the week improved, however, supported by optimism over trade talks and central bank willingness to provide support where needed.

10-year Treasury yields closed out at 2.41%, while 3-month yields ended the week at 2.34%.

Out of the U.S,

On the data front, key stats were skewed to the negative.

Key red flags through the week included a marked fall in the CB consumer confidence index, softer 4th quarter economic growth and softer inflation at the turn of the year.

On the positive side, there was a pickup in the Michigan consumer sentiment index, a narrowing of the trade deficit and a jump in new home sales.

The latest stats supported the shift in the FED’s stance on monetary policy.

A negative bias on the data and an inversion in the U.S Treasury 3-month/10-year yield curve led to the largest slide in U.S mortgage rates in over 10-years.

While the week was on the choppier side, monetary policy divergence favored the FED to support the Dollar.

For the equity markets, the U.S majors found strong support from the FED’s dovish tones. A positive end to the month saw the Dow and S&P500 end the 1^st quarter with 11.2% and 13.1% gains respectively. More impressive was a 16.5% rally in the NASDAQ.

On the political front, the Robert Mueller investigation into the 2016 Presidential Election campaign failed to provide sufficient evidence to implicate the U.S President, which was another positive in the week.

Out of the UK,

Key stats through the week included 4^th quarter GDP and business investment figures on Friday. A softer fall in business investment and a better than expected 4^th quarter GDP number was positive for the Pound.

In spite of the numbers, however, the Pound tumbled by 1.32% in the week to end the quarter up 2.44%.

Brexit continued to gyrate the Pound through the week. Following Parliament’s seizure of control of the Brexit process, Parliament’s 8 Brexit alternatives failed to find support mid-week. Having previously promised to resign should her deal be supported, Theresa May also failed for the 3^rd time of asking on Friday.

The EU has outlined that parliamentary support for a deal would give Britain an extension until 22^nd May. Failure to vote in favor of a deal would lead to a “no-deal” exit from the EU on 12^th April. The rising risk of a no-deal departure left the Pound on the ropes through the week.

Despite the Brexit chaos, the FTSE100 managed to rise by 0.99% in the week. With a 2.9% rise in March, the index ended the quarter up by 8.2%. Providing support to the index through the week were mining stocks. Mining stocks not only benefited from the weaker Pound but also the U.S GDP number that could have been worse. Rio Tinto led the way through the week, rising by 5.4%. BHP and Anglo American were not far behind, with gains of 5% and 4.7% respectively.

Out of the Eurozone,

It was a mixed week for the EUR on the data front.

A positive start to the week saw German business sentiment improve, according to the IFO Business Climate Index.

Through the middle of the week, weaker than expected consumer confidence figures out of Germany and weaker business confidence numbers out of the Eurozone were of concern.

The end of the week saw German retail sales continue to rise, supported by a fall in unemployment. In contrast, consumer spending in France fell unexpectedly.

Better than forecasted GDP numbers out of France failed to shift the negative sentiment towards the Eurozone economy, however. ECB President Draghi weighed on the EUR mid-week by reassuring the markets that the ECB would step in should the need arise.

Talk of a tiered deposit structure to reduce the amount banks pay the ECB failed to spur a financial sector rally. Historically low government bond yields, the interest rate environment and the economic outlook ultimately weighing.

For the week, the EUR was down 0.74%, with the EUR falling in 4 of the 5 days. The pullback left the EUR down 2.2% for the quarter.

The pullback in the EUR provided strong support for the European majors in the quarter, however. The DAX gained 9.2% in the quarter, while the CAC40 led the way with a 13.1% rise.

Elsewhere,

A rise in crude oil prices through the week provided much-needed support to the Loonie. With WTI ending the week up 1.86%, the Loonie rose by 0.6% to end the week at $1.3349.

For the quarter, the Loonie managed to gain 1.59%, which came off the back of a 32% rally in WTI.

The Japanese Yen fell by 0.86% to end the week at ¥110.86 against the greenback. A return of risk appetite through the week weighed on the Yen that ended the quarter down 0.85%.

For the Aussie Dollar and Kiwi Dollar, it was a mixed week.

A dovish RBNZ on Wednesday and a further decline in business confidence on Thursday reversed any upside from better than expected trade figures on Tuesday. The RBNZ’s “about-turn” led to the Kiwi falling to $0.67 levels before finding support. A 1.09% slide in the week left the Kiwi down by 0.47% for the quarter.

For the Aussie Dollar, optimism over a U.S – China trade agreement provided much-needed support. With economic data limited to private sector credit figures on Friday, risk sentiment provided direction through the week. A 0.18% rise in the week gave the Aussie Dollar a 0.68% gain for the quarter.