The Weekly Wrap – Central Banks, COVID-19, and Geopolitics Tested the MarketsIt was a mixed week for the markets, with the FED and COVID-19 overshadowing economic data in the week.
It was a busier week on the economic calendar, in the week ending 18th September.
A total of 69 stats were monitored, following 41 stats from the week prior.
Of the 69 stats, 39 came in ahead forecasts, with 19 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.
Looking at the numbers, 31 of the stats also reflected an upward trend from previous figures. Of the remaining 38, 32 stats reflected a deterioration from previous.
For the Greenback, it was back into the red, after 2 consecutive weeks in the green. In the week ending 18th September, the Dollar Spot Index fell by 0.44% to 92.926. In the week prior the Index had risen by 0.66% to 93.333.
Central bank chatter ultimately left the Dollar on the back foot as the FED delivered a more dovish than expected set of projections.
Out of the U.S
It was a busier week on the economic data front.
Early in the week, key stats included August industrial production, retail sales, and NY Empire State Manufacturing numbers for September.
It was a mixed bag for the Dollar, on the data front.
While the September manufacturing sector activity picked up in New York State, retail sales and industrial production disappointed.
In August, core retail sales rose by just 0.7%, following a 1.3% increase in July. Economists had forecast a 0.9% rise.
Industrial production rose by just 0.4%, following a 3% increase in July. The stats supported the view that the economic recovery had lost some of its vigor.
On Wednesday, however, it was the FOMC monetary policy decision and economic and interest rate projections that delivered the blow.
The FOMC projected that interest rates would be close to zero through to 2023, delivering a pessimistic outlook on the economic recovery.
A much-hoped-for V-shaped economic recovery would certainly not justify close to zero rates for such a length of time…
In the 2nd half of the week, the weekly jobless claims and Philly FED manufacturing numbers also failed to impress.
While claims eased back from 893k in the previous week to sit at 860k in the week ending 11th September, economists had been more hopeful.
Manufacturing sector activity also slowed marginally in Philly, which was an added negative on the day.
At the end of the week, prelim September consumer sentiment figures provided some comfort. The Michigan Consumer Sentiment Index rose from 74.1 to 78.9. While up in the month, however, sentiment remained well below pre-pandemic levels and a current year high 101.0.
In the equity markets, the NASDAQ and S&P500 fell by 0.56% and by 0.64% respectively. The Dow ended the week down by just 0.03%.
Out of the UK
It was another busy week on the economic calendar.
Employment and inflation figures drew attention in the 1st half of the week. It was a mixed set of numbers, however.
Claimant counts rose by 73.7k in August. While coming in below a forecasted 100k rise, it was up from a 69.9k rise in July.
The unemployment rate ticked up from 3.9% to 4.1% in July, with the claimant counts suggesting a further uptick ahead. For UK labor market conditions, an end to the and likely surge in unemployment remains a key risk to the Pound… With the government having to introduce containment measures, however, there are hopes of an extension to the scheme.
Inflation came in ahead of forecasts though also painted a grim picture. The annual rate of inflation softened from 1.0% to 0.2%, with consumer prices falling by 0.4% in August. In July consumer prices had risen by 0.4%.
On Thursday, the focus then shifted to the BoE and the MPC’s September monetary policy decision. A dovish monetary policy report and the chatter of negative rates sank the Pound on the day.
Wrapping things up on Friday were retail sales figures, which continued to rise in August. The monthly increase was well below July numbers, however, placing further question markets over the pace of the economic recovery.
In August, retail sales increased by 0.8%, month-on-month, following a 3.7% jump in July. Economists had forecast a 0.7% increase.
Away from the economic calendar, the Pound had found much-needed support after last week’s tumble. Resistance against Boris Johnson’s Internal Market Bill provided support in spite of the bill making it through the House of Commons.
In the week, the Pound rose by 0.95% to $1.2917. In the week prior, the Pound had tumbled by 3.64% to $1.2796
The FTSE100 ended the week down by 0.42%, following a 4.02% rally from the previous week.
Out of the Eurozone
It was also a busy week on the economic data front.
Key stats included industrial production and trade figures for the Eurozone and economic sentiment figures for Germany and the Eurozone.
The stats were skewed to the positive for the EUR.
Industrial production saw another solid rise in July, with the Eurozone’s trade surplus widening.
More importantly, however, was a pickup in economic sentiment in September.
Other stats included finalized inflation figures and wage growth for the Eurozone. The stats had a muted impact on the EUR, however.
For the week, the EUR fell by 0.05% to $1.1840. In the week prior, the EUR had risen by 0.07% to $1.1846.
For the European major indexes, it was a mixed week. The CAC40 and DAX30 fell by 1.11% and by 0.66% respectively, while the EuroStoxx600 rose by 0.22%.
For the Loonie
It was a relatively quiet week on the economic calendar.
Key stats included August inflation and July retail sales figures.
It was a mixed bag on the day front. While there was a pickup in core inflationary pressures in August, core consumer prices stalled in August. Consumer prices fell unexpectedly in the month, adding pressure on the Loonie.
At the end of the week, retail sales also failed to impress. In July, core retail sales fell by 0.4%, with retail sales rising by just 0.6%. In June, core retail sales had surged by 15.5% and retail sales by 22.7%.
The Loonie fell by 0.19% to end the week at C$1.3204. In the week prior, the Loonie had fallen by 0.90%.
It was a bullish week for the Aussie Dollar and the Kiwi Dollar.
In the week ending 18th September, the Aussie Dollar rose by 0.07% to $0.7289, with the Kiwi Dollar rallying by 1.40% to $0.6759.
For the Aussie Dollar
It was another quiet week for the Aussie Dollar on the economic calendar.
Key stats including August employment figures that delivered the Aussie much-needed support.
Full-employment rose by 36.2k, with employment jumping by another 111.0k in August. Improving employment conditions is key for the RBA’s hope of a consumption-driven economic recovery.
On the monetary policy front, the RBA minutes early in the week failed to deliver the talk of further support, supporting a closeout at $0.73 levels on the day.
The risk-off sentiment at the end of the week left the Aussie Dollar flat, however.
For the Kiwi Dollar
It was also a quieter week on the economic calendar.
Key stats included 3rd quarter consumer sentiment figures and 2nd quarter GDP numbers.
It was a mixed set of numbers, in spite of GDP numbers coming in ahead of forecasts.
Consumer sentiment took a hit in the 3rd quarter, with the Westpac consumer sentiment index falling from 97.2 to 95.1.
In the 2nd quarter, the New Zealand economy contracted by a record 12.2%. Economists forecasted a contraction of 12.8%. In the 1st quarter, the economy had contracted by 1.4%.
In spite of the negative numbers, the Kiwi managed to claw back some of its recent losses in response to the FED’s projections.
For the Japanese Yen
It was another busy week on the economic calendar.
Key stats included August trade and inflation figures, which were skewed to the negative.
While Japan’s trade surplus unexpectedly widened from ¥10.9bn to ¥248.3bn, it was a larger slide in imports that cause the widening. Exports slid by 14.8%, with imports tumbling by 20.8%, delivering a grim view on trade terms.
At the end of the week inflation figures were also of little comfort. The annual rate of core inflation was down 0.4% after having stalled in July.
On the monetary policy front, the BoJ left policy unchanged in spite of some quite dire indicators out of Japan of late.
The Bank did state, however, that the Japanese economy was in a serious condition.
The Japanese Yen rose by 1.50% to ¥104.57 against the U.S Dollar. In the week prior, the Yen had risen by 0.08%.
Out of China
It was another relatively busy week on the economic data front.
Key stats included August’s industrial production, retail sales and unemployment figures.
The stats were skewed to the positive, supporting riskier assets before the FED’s fueled pull back.
Retail sales rose by 0.5%, partially reversing a 1.1% slide from July. Industrial production jumped by 5.6%, year-on-year, picking up from a 4.8% rise in July.
Supporting Beijing’s call for a home fueled economic recovery, the unemployment rate slipped from 5.7% to 5.6%.
In the week ending 18th September, the Chinese Yuan rose by 0.95% to CN6.7692. In the week prior, the Yuan had risen by 0.12%.
The CSI300 rose by 2.37%, while the Hang Seng fell by 0.20% to log a 3rd consecutive week in the red.