The Weekly Wrap – Risk Appetite Sinks the Greenback as China Gets Hit with SanctionsIt was another busy week for the markets. The easing of lockdown measures continued to fuel demand for riskier assets at the expense of the Dollar.
It was a particularly busy week on the economic calendar, in the week ending 29th May.
A total of 58 stats were monitored, following the 57 stats from the week prior.
Of the 58 stats, 22 came in ahead forecasts, with 26 economic indicators coming up short of forecast. 10 stats were in line with forecasts in the week.
Looking at the numbers, just 18 of the stats reflected an upward trend from previous figures. Of the remaining 50, 34 stats reflected a deterioration from previous.
For the Greenback, it was a 2nd consecutive week in the red. The U.S Dollar Spot Index slid by 1.52% to end the week at 98.344. In the week prior, the Dollar had fallen by 0.54%.
COVID-19 news, geopolitics, and economic data were key drivers in the week.
Looking at the latest coronavirus numbers.
The total number of coronavirus cases stood at 6,026,107 on Friday, rising from last Friday’s 5,297,959 total cases. Week-on-week, the total number of cases was up by 728,148, on a global basis. This was higher than the previous week’s increase of 680,119 in new cases.
In the U.S, the total rose by 148,169 to 1,793,263. In the week prior, the total number of new cases had risen by 163,260.
Across France, Germany, Italy, and Spain combined, the total number of new cases increased by 15,352 to bring total infections to 887,846. In the previous week, the total number of new cases had risen by 19,110.
Out of the U.S
It was a relatively busy week on the economic calendar. The main area of focus remained on the consumer, with May’s consumer confidence and the weekly jobless claims the key drivers.
In May, consumer confidence failed to rebound in spite of the government’s easing of lockdown measures. While fiscal policy may have eased the pain, uncertainty over what lies ahead weighed.
The CB Consumer Confidence Index rose from 85.7 to 86.6, with the Michigan Consumer Sentiment Index rising from 71.8 to 72.3.
Both remained well below pre-pandemic levels and suggests that spending may take time to recover…
Weekly jobless claims continued to paint a grim picture, with 2.123m new claims in the week ending 22nd May. The markets took this as a positive, however, as the number was lower than seen in previous weeks.
On the monetary policy front, FED Chair Powell continued to promise the support of the FED.
U.S President Trump did continue to keep the markets on their toes, however. Rising tensions between the U.S and China culminated in sanctions and a decision to end special treatment for HK.
The move was in response to China approving the HK security law in the week. Once more, however, the markets found the silver lining in the U.S keeping the phase 1 agreement in place.
While there were plenty of reasons for the demand for the safety of the Dollar to continue, COVID-19 remained the key driver.
A continued easing of lockdown measures across the EU and the U.S led to a demand for riskier assets. Progress towards a COVID-19 vaccine also eased demand for the Greenback.
In the equity markets, the Dow rose by 3.75%, with the NASDAQ and S&P500 gaining 1.77% and 3.01% respectively.
Out of the UK
It was a particularly quiet week on the economic calendar. There were no material stats to provide the Pound with direction.
A lack of stats left the economic and monetary policy outlook and Brexit in focus in the week.
On the monetary policy front, talk of the BoE and negative rates tested support mid-week. The pullback was temporary, however, with risk appetite and a lack of chatter on Brexit leading to another weekly gain.
BoE economist Haldane did refute claims that the BoE was going to deliver negative rates, which provided support late in the week.
With the transition period now entering June, the big question will be whether Johnson will walk away at the end of the month. The Government had stated that a Brexit blueprint would need to be in place for negotiations to continue.
In the week, the Pound rose by 1.40% to $1.2343. The FTSE100 ended the week up by 1.39%, following on from a 3.90% rally from the previous week.
Out of the Eurozone
It was a busy week economic data front, with key stats skewed to the positive.
In the week, the market focus remained on May and June numbers. This put German business and consumer confidence figures in the spotlight.
A pickup in both business and consumer confidence provided the EUR with support early in the week.
The upside came from the continued easing in lockdown measures and the downward trend in new coronavirus cases.
On Wednesday, however, it was Brussels that finally delivered, which drove the EUR to $1.11 levels.
A €750bn recovery fund and a sizeable budget gave EU member states more than €2tn to aid in the recovery. This was far greater than the markets had anticipated…
Even the ECB was unable to knock the EUR off its path northwards. ECB President Lagarde stated that the Eurozone economy looks to be aligned more with the ECB’s worst-case scenario forecasts.
The comments came ahead of the ECB’s Financial Stability Review that provided few surprises.
Other stats in the week had a muted impact on the EUR. While the markets brushed aside April numbers, May deflationary pressures also had little impact on the week.
For the week, the EUR rallied by 1.84% to $1.1102, following on from a 0.75% gain from the previous week.
For the European major indexes, it was another bullish week. The CAC40 rallied by 5.64%, with the DAX30 and EuroStoxx600 gaining 4.63% and 3.00% respectively.
It was another particularly bullish week for the Aussie Dollar and the Kiwi Dollar, with a Thursday pullback being the only day in the red.
In the week ending 29th May, the Aussie Dollar rallied by 1.99% to $0.6667, with the Kiwi Dollar up by 1.82% to $0.6205.
For the Aussie Dollar
It was a relatively quiet week for the Aussie Dollar on the economic data front.
Key stats included 1st quarter construction work done and private sector credit figures. At the end of the week, April private sector credit figures were also in focus.
The stats had a muted impact on the Aussie Dollar, however. The markets had moved on from the 1st quarter and April, which were considered to be the bottom of the economic meltdown.
Risk appetite and sentiment towards the global easing of lockdown measures delivered support in the week.
For the Kiwi Dollar
It was also a relatively quiet week on the economic calendar.
Key stats included April trade and May business confidence figures.
Trade data continued to defy the odds, with a record April trade surplus coming off the back of another jump in exports.
Business confidence also improved in May, though it was not the biggest jump.
The better than expected numbers provided support as did the RBNZ’s Financial Stability Report.
With the stats skewed to the positive, market risk appetite in the week added further demand for the Kiwi. The easing of lockdown measures is expected to drive demand for commodities as economic activity continues to recover.
For the Loonie
It was a busy week on the economic calendar, with 1st quarter GDP and April RPMI numbers the key stats.
While the Canadian economy contracted in the 1st quarter, the contraction was not as bad as forecasts, limiting any downside.
Quarter-on-quarter, the economy contracted by 2.1%, while the economy contracted by 7.2% in March, month-on-month.
On an annualized basis, the economy contracted by 8.2%, following 0.6% growth in the 4th quarter.
RMPI numbers also came in ahead of forecasts, falling by 13.4% following a 15.6% tumble in March.
Earlier in the week, building permits and current account figures had a muted impact on the Loonie.
While the numbers were pretty dire, market risk appetite supported the upside for the Loonie in the week. The upside came in spite of the rising tensions between the U.S and China.
The Loonie rose by 1.54% to end the week at C$1.3780, following a 0.80% gain from the previous week.
For the Japanese Yen
It was a relatively busy week on the data front. Key stats included May inflation figures and April industrial production and retail sales numbers.
There was little interest in the April stats as a result of the global COVID-19 lockdown. Inflationary pressures returned, however, with Tokyo’s core consumer prices rising by 0.1%, year-on-year.
The stats were not good enough for a Yen rally, which remained in limbo.
It in fact took apprehension ahead of Trump’s news conference on Friday to move the dial, albeit moderately.
The Japanese Yen fell by 0.18% to end the week at ¥107.83. In the week prior, the Yen had fallen by 0.54% against the U.S Dollar.
Out of China
Economic data was limited to April industrial profit numbers that had little influence.
The market focus remained on the rise in U.S – China tensions. With China approving the security law for HK, Beijing also let the Yuan slide back to CNY7.1671 before delivering a stronger fix on Friday.
In the week ending 22nd May, the Yuan fell by 0.10% to CNY7.1364 against the Greenback.
The CSI300 and Hang Seng ending the week up by 1.12 and by 0.14% respectively.