The Weekly Wrap – Monetary Policy, Economic Data and the Coronavirus Drove the MarketsIt was a tough week. While economic data was skewed to the positive, the coronavirus and dovish sentiment towards monetary policy also influenced.
It was a relatively busy week on the economic calendar, in the week ending 24th January.
A total of 46 stats were monitored, following 67 stats from the week prior.
Of the 46 stats, 27 came in ahead forecasts, with 17 economic indicators coming up short of forecast. 2 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 17, 11 stats reflected a deterioration from previous.
For the Greenback, it was a positive week on the economic data front, with and market risk sentiment also influencing. The Dollar Spot Index ended the week up by 0.25% to 97.853.
Out of the U.S
It was a relatively quiet week for the Dollar, on the economic data front.
In a shortened week, the markets needed to wait until existing home sales figures for December on Wednesday.
Existing home sales jumped by 3.6% in December, reversing a 1.7% fall in November. While the housing sector continues to be a barometer for the U.S economy, inventories continue to deliver volatile numbers.
On Thursday, initial jobless claims figures were also positive, with claims rising by 211k. Coming in ahead of a forecast of 215k, anything sub-220k is considered Dollar positive.
The focus then shifted to January’s prelim private sector PMI numbers on Friday.
While the manufacturing sector activity saw momentum slow, service sector PMI numbers impressed.
January’s PMI rose from 52.8 to 53.2, taking the composite from 52.7 to 53.1. Key for the U.S economy, the numbers were timely ahead of the FED’s monetary policy decision next week.
With the stats skewed to the positive, market concerns over the spread of the coronavirus also provided support in the week.
In the equity markets, the Dow slid by 1.22%, with the S&P500 and NASDAQ falling by 1.03% and by 0.79% respectively.
Out of the UK
It was a relatively busy week on the economic calendar.
Employment and wage growth figures gave the Pound a boost on Tuesday. After a string of weak numbers that had included some grim employment numbers for October, November figures eased the pain.
A 208k surge in employment over 3 months to the end of November impressed, with wage growth holding steady at 3.2%. The jump left the unemployment rate at 3.8%.
December’s claimant counts also beat forecasts, rising by just 14.9k. November claimant counts were revised down from 28.8k to 14.9, which was also a positive.
On Wednesday, CBI Industrial trend orders showed a marginal improvement, with the index rising from -28 to -22.
The focus then shifted to January’s prelim private sector PMI numbers on Friday, which was Pound positive.
The all-important services PMI rose from 50.0 to 16-month high 52.9, with the manufacturing PMI rising from 47.5 to a 9-month high 49.8.
Better than expected employment figures and the improved conditions across the private sector may not be enough to stall a BoE rate cut next week, however. The probability of a rate cut sat at 61% on Friday.
For the week, the Pound rose by 0.44% to $1.3073, with the upside coming in spite of a 0.38% fall on Friday.
The FTSE100 saw red, however, falling by 1.15% in the week. Better than expected private sector PMIs supported a bullish Friday to limit the losses for the week.
Out of the Eurozone
It was a busy week on the economic data front.
Through the 1st half of the week, key stats included January’s ZEW economic sentiment figures for Germany and the Eurozone.
The numbers were certainly positive.
Germany’s ZEW economic sentiment index rose from 10.70 to 26.70, with the Eurozone’s sentiment index rising from 11.20 to 25.6. Both sets of numbers came in well ahead of forecasts.
Germany’s Sentiment Index hit levels not seen since 2015.
The upside was attributed to the phase 1 trade agreement between the U.S and China. Any hint of tariffs on the EU auto sector and expect a reversal…
On Thursday, the focus then shifted to the ECB, which delivered its first monetary policy decision of the year.
While the ECB held monetary policy unchanged, a dovish ECB press conference sunk the EUR.
Lagarde noted that risks to the economy remained tilted to the downside. The statement removed the hope of the Eurozone having turned a corner going into 2020.
Late in the session, Eurozone consumer confidence numbers did little to support. The consumer confidence indicator held steady at -8.1, which was worse than a forecast of -7.8.
The January Prelim PMIs
On Friday, private sector PMI figures were mixed for January, according to prelim numbers.
Germany’s numbers impressed, however. Germany’s services PMI rose from 52.9 to 54.2, with the manufacturing PMI rising from 43.7 to 45.2. The better numbers came as Germany’s private sector reported a first increase in new orders since June 2019.
The numbers out of France were mixed. Manufacturing sector activity picked up, while service sector output eased, leading to a fall in the composite PMI.
For the rest of the Eurozone signs of weakness persisted, with output growth slowing to a six-and-a-half-year low.
The Eurozone composite held steady at 50.9, pinned back by the services PMI, which fell from 52.8 to 52.2. A rise in both French and German manufacturing PMIs led to better numbers for the Eurozone. The manufacturing PMI increased from 46.3 to 47.8.
All in all, however, the numbers were unimpressive and justified Lagarde’s more dovish tones.
For the week, the EUR fell by 0.60% to $1.1025.
For the European major indexes, it was a mixed week. The CAC40 and EuroStoxx600 fell by 1.25% and by 0.22%, while DAX30 gained 0.37%. A 1.41% rally on Friday delivered the upside for the week…
Concerns over the spread of the coronavirus had tested risk sentiment in the early part of the week.
It was yet another bearish for the Aussie Dollar and the Kiwi Dollar.
The Aussie Dollar fell by 0.68% to $0.6832, with the Kiwi Dollar down by 0.12% to $0.6607.
Losses came in spite of economic data being skewed to the positive, with market concerns over the impact of the coronavirus contributing to the downside.
For the Aussie Dollar
It was a relatively quiet week, with the markets needing to wait until Wednesday for January consumer sentiment figures.
The Westpac Consumer Sentiment Index fell by 1.8% in January, following a 1.9% fall in December. A decline had been expected, with the bushfires weighing.
On Thursday, employment figures provided much-needed support, however. A 28.9k jump in employment led to a fall in the unemployment rate to 5.1%.
A 0.3k fall in full employment was negative, however, with the jump in employment coming from a jump in part-time employment.
The numbers eased the probability of an RBA rate cut next month. By the end of the week, the probability of a rate cut stood at 30%, which was down from 60% before the employment numbers.
For the Kiwi Dollar
It was a relatively quiet week on the economic calendar.
The markets needed to wait until Thursday for 4th quarter inflation numbers, which provided some support, with the annual rate of inflation accelerating from 1.5% to 1.9%.
Quarter-on-quarter, consumer prices rose by 0.5%, which was softer than a 0.7% increase in the 3rd quarter, however.
Following the pickup in inflationary pressures, the probability of an RBNZ rate cut in February stood at just 5%.and at 25% for a cut before the end of the year. That’s down from 38% prior to the inflation numbers.
For the Loonie
It was a busy week on the economic data front.
December inflation figures were in focus ahead of the Bank of Canada’s monetary policy decision on Wednesday.
The numbers were skewed to the negative, with the annual rate of inflation easing from 1.9% to 1.7% in December. Month-on-month, core consumer prices fell by 0.4%, with consumer prices stalling at the end of the year.
A fall in wholesale sales in November, following on from a fall in manufacturing sales, added to the Loonie’s troubles.
The only positive was a rise in house prices at the end of the year.
It ultimately came down to the Bank of Canada’s outlook on the economy. While holding rates unchanged, the BoC opened the door to a near-term rate cut, leading to a slide in the Loonie.
GDP numbers had been particularly disappointing in recent months, causing the BoC to shift on its outlook.
At the end of the week, retail sales figures failed to impress in spite of an increase in sales in November. Core retail sales rose by just 0.2%, failing to reverse a 0.4% fall from October.
The Loonie ended the week down by 0.59% to C$1.3143 against the Greenback.
For the Japanese Yen
It was also a busy week on the data front.
Finalized industrial production figures had a muted impact on Monday ahead of the BoJ’s monetary policy decision on Tuesday.
On Tuesday, the BoJ left monetary policy unchanged, with a more optimistic outlook on inflation and growth suggesting no moves near-term.
Much will depend on how the phase 1 trade agreement plays out, however.
Through the remainder of the week, December trade data on Thursday and inflation and prelim private sector PMI numbers on Friday failed to move the dial.
Exports fell by a further 6.3% in December, year-on-year, following on from a 7.9% slide in November. The trade deficit widened from ¥85.2bn to ¥152.5bn.
On Friday, the numbers were on the positive side, with private sector PMI numbers showing a pickup in activity. The services PMI bounced back from 49.4 to 52.1, with the manufacturing PMI rising from 48.4 to 49.3.
There was also a pickup in inflationary pressure, with the core annual rate of inflation rising from 0.5% to 0.7%.
While the trade figures were disappointing, the inflation and PMI numbers were aligned with the BoJ’s outlook on growth and inflation.
The direction in the week ultimately came from market sentiment towards the spread of the coronavirus, which was Yen positive.
The Japanese Yen rose by 0.78% to ¥109.28 against the U.S Dollar in the week.
Out of China
There were no material stats to influence the markets throughout the week.
On the monetary policy front, the PBoC held the 5-year and 1-year loan prime rates steady, which supported the CSI300 and risk sentiment on Monday.
China’s coronavirus and spread across the country and overseas were negative, however.
The CSI300 and Hang Seng fell by 3.63% and by 3.81% in the week. The Yuan was also on the back foot, falling by 0.74% to CNY6.9109 against the Greenback.