The Weekly Wrap – Monetary Policy and Economic Data Accompanied Market Optimism

The Stats

It was a quieter week on the economic calendar, in the week ending 11^th June.

A total of 45 stats were monitored, following 80 stats from the week prior.

Of the 45 stats, 23 came in ahead forecasts, with 19 economic indicators coming up short of forecasts. There were just 3 stats that were in line with forecasts in the week.

Looking at the numbers, 29 of the stats reflected an upward trend from previous figures. Of the remaining 16 stats, 15 reflected a deterioration from previous.

For the Greenback, economic data and market anticipation ahead of next week’s FOMC policy decision remained the key drivers. In the week ending 11^th June, the Dollar Spot Index rose by 0.46% to 90.5550. In the previous week, the Dollar had risen by 0.12% to 90.136.

Out of the U.S

JOLT’s job openings and trade data were in focus early in the week.

The stats were skewed to the positive. In April openings jumped from 8.288m to 9.286m, with April’s trade deficit narrowing from $75.0bn to $68.9bn.

While the stats were market positive, there was limited impact on the Dollar and the broader markets.

The focus was on the weekly jobless claims and inflation figures due out on Thursday.

Also skewed to the positive, the annual core rate of inflation accelerated from 3.0% to 3.8%. Economists had forecast a pickup to 3.4%.

Core consumer prices and consumer prices continued to rise in the month of May and by more than had been expected.

Month-on-month, core consumer prices increased by 0.7% off the back of a 0.9% rise in April.

Initial jobless claim figures were also positive but perhaps not impressive enough to force the FED into action. In the week ending 4^th June, initial jobless claims fell from a revised 405k to 376k. Economists had forecast a decline to 370k.

At the end of the week, prelim consumer sentiment figures wrapped things up.

In June, the Michigan Consumer Sentiment index climbed from 82.9 to 86.4. Economists had forecast a rise to 84.0.

In the equity markets, the Dow fell by 0.80%, while the NASDAQ and the S&P500 saw gains of 1.85% and 0.41% respectively.

Out of the UK

It was a relatively quiet week, GDP, manufacturing and industrial production, and trade data in focus.

The markets had to wait until Friday, however, for the numbers.

In April, the UK economy grew by 2.3% in the month, following 2.1% growth in March.

Trade data for April was also positive. The trade deficit narrowed from £11.71bn to £10.96bn, with the non-EU deficit narrowing from £6.55bn to £5.55bn.

While GDP numbers and trade data were positive, production figures disappointed.

Manufacturing production fell by 0.3% versus a forecasted 1.5% increase. Industrial production declined by 1.3% versus a forecasted 1.2% increase.

In the week, the Pound fell by 0.35% to end the week at $1.4107. In the week prior, the Pound had fallen by 0.22% to $1.4147.

The FTSE100 ended the week up by 0.92%, following a 0.66% rise from the previous week.

Out of the Eurozone

 

It was a busy 1^st half of the week on the economic data front.

 

The German economy was in focus.

 

In April, German factory orders (-0.20%) and industrial production (-1.00%) unexpectedly fell, following solid gains from March.

 

A modest increase in Germany’s trade surplus also disappointed, falling short of forecasts.

 

Economic sentiment figures from Germany and the Eurozone were also skewed to the negative. Sentiment towards the German and the Eurozone economies weakened marginally in June.

The numbers were not enough to spook the markets ahead of Thursday’s ECB policy decision and press conference.

 

Providing support in the early part of the week were finalized 1^st quarter GDP numbers for the Eurozone.

 

Quarter-on-quarter, the Eurozone economy contracted by a modest 0.3%, revised up from a prelim 0.6% contraction.

 

In the 2^nd half of the week, the focus was on the ECB and the all-important press conference.

 

Upward revisions to growth and inflation for this year coupled raised the prospects of a possible nearer-term tapering. Talk of unwavering support through the coming months was therefore key. The ECB’s inflation forecasts also pointed to easing inflationary pressures in 2022 and 2023, which also pegged the EUR back.

For the week, the EUR fell by 0.48% to $1.2108. In the week prior, the EUR had fallen by 0.21% to $1.2167.

The DAX30 ended the week flat, while the CAC40 and the EuroStoxx600 rose by 1.30% and by 1.09% respectively.

For the Loonie

It was a quiet week. Economic data was limited to trade data for April, which was positive for the Loonie.

In April, Canada’s trade balance rose from a C$1.35bn deficit to a C$0.59bn surplus.

A further increase in crude oil prices was also Loonie positive.

The main event, however, was the BoC monetary policy decision on Wednesday.

In line with market expectations, the BoC stood pat on monetary policy. Following May’s more hawkish messaging, the BoC took a more cautious approach, avoiding a Loonie rally.

The key takeaway was that the BoC would continue to deliver extraordinary monetary policy support until the 2% inflation target was sustainably achieved.

In the week ending 11^th June, the Loonie declined by 0.061% to C$1.2158. In the week prior, the Loonie had fallen by 0.07% to C$1.2084.

Elsewhere

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

In the week ending 11^th June, the Aussie Dollar fell by 0.40% to $0.7708, with the Kiwi Dollar sliding by 1.16% to $0.7130.

For the Aussie Dollar

It was a quiet week. Business and consumer confidence figures were in focus, with the stats skewed to the negative.

In May, the NAB Business Confidence Index slipped from 23 points to 20 points. The modest decline had a limited impact on the Aussie Dollar.

For June, the Westpac Consumer Sentiment Index fell by a further 5.2%. In May, the index had fallen by 4.8%.

Concerns over the a 2-week lockdown in Melbourne weighed on sentiment in the month. Once more, the Aussie Dollar brushed aside the decline.

Market optimism towards the economic outlook and demand for commodities continued to provide support. A U.S Dollar rally from Friday left the Aussie Dollar in the red for the week.

For the Kiwi Dollar

It was also a quiet week.

Electronic card retail sales and Business PMI numbers were in focus.

In May, electronic card retail sales rose by a further 1.7%, following a 4.4% jump in April.

Also positive was an increase in the Business PMI from 58.4 to 58.6. While the headline figure was positive, a slide in the employment sub-index will have been a cause for concern. A marked increase in new orders, however, raises the prospects of a pickup in hiring in the coming months.

For the Japanese Yen

It was a busier week.

Early in the week, finalized 1^st quarter GDP numbers were in focus. Upward revisions from prelim numbers were a positive for the Yen.

In the 1^st quarter, the economy contracted by 1.0%, revised up from a prelim 1.3% contraction.

At the end of the week, manufacturing sector data disappointed but had a muted impact on the Yen.

For the 2^nd quarter, the BSI Large Manufacturing Conditions Index fell from 1.6 to -1.4.

The Japanese Yen fell by 0.13% to ¥109.66 against the U.S Dollar. In the week prior, the Yen had risen by 0.30% to ¥109.52.

Out of China

Trade data and inflation figures were key areas of focus.

Weaker than expected exports tested support for riskier assets at the start of the week.

Exports were up 27.9% year-on-year, falling short of a forecasted 32.1%. In April, exports had been up by 32.3%.

On the inflation front, wholesale inflationary pressures built up further in May. The annual rate of wholesale inflation accelerated from 6.8% to 9.0%. Economists had forecast a pickup to 8.5%.

In the week ending 11^th June, the Chinese Yuan fell by 0.05% to CNY6.3988. In the week prior, the Yuan had fallen by 0.42% to CNY6.3953.

The CSI300 and the Hang Seng ended the week down by 1.09% and by 0.26% respectively.