The Weekly Wrap – Russia Drives Dollar Demand as Riskier Assets Sink

The Stats

It was a busy week on the economic calendar for the week ending 4^th March.

A total of 79 stats were monitored, following 57 stats in the week prior.

Of the 79 stats, 42 came in ahead of forecasts, with 36 economic indicators coming up short of forecast. Just 1 stat was in line with forecasts in the week.

Looking at the numbers, 50 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 27 reflected a deterioration from previous numbers.

While the stats drew interest, geopolitics remained the key driver. Russia’s invasion of Ukraine weighed heavily on riskier assets in the week, with safe-haven demand supporting the Dollar.

Out of the U.S

Private sector PMIs and nonfarm payrolls were the key stats of the week.

In February, the ISM Manufacturing PMI rose from 57.6 to 58.6, while the Non-Manufacturing PMI fell from 59.9 to 56.5.

While the services PMI disappointed, nonfarm payrolls jumped by 678k in February. As a result of another marked increase in hiring, the unemployment rate fell from 4.0% to 3.8%.

FED monetary policy was in focus on Wednesday, with FED Chair Powell delivering testimony on Capitol Hill. Talk of a more cautious move later this month spurred demand for riskier assets. Powell told lawmakers: “there are events yet to come and we don’t know what the real effect on the U.S. economy will be.” The FED Chair reportedly added that he favored a 25-basis point rate hike in March and then larger and more frequent rate hikes if needed.

In the week ending 4^th March, the Dollar Spot Index surged by 2.10% to end the week at 98.648. In the week prior, the Index increased by 0.55% to 96.615.

Out of the UK

Finalized private sector PMIs for February were in focus. With risk aversion stemming from Russia’s invasion of Ukraine, however, the stats had a muted impact on the Pound.

In February, the all-important services PMI jumped from 54.1 to 60.5. This was down from a prelim 60.8, however. As a result of a pickup in both service sector and manufacturing sector activity, the composite PMI increased from 54.2 to 59.9.

In the week, the Pound slid by 1.33% to end the week at $1.3230. In the week prior, the Pound had fallen by 1.14% to $1.3409.

The FTSE100 ended the week down 6.71%, following a 2.24% loss from the previous week.

Out of the Eurozone

Private sector PMIs for February and the German economy were in focus throughout the week.

Better than expected private sector PMI numbers for Italy and Spain were market positive. With France and Germany also seeing private sector activity pick up in February, the Eurozone’s composite PMI increased from 52.3 to 55.5.

From Germany, the unemployment rate fell from 5.1% to 5.0%, with Germany’s trade surplus widening from €8.1bn to €9.4bn in January.

Other stats included finalized February inflation figures for member states and the Eurozone and retail sales and unemployment numbers for the Eurozone. The numbers failed to draw interest, however.

For the week, the EUR fell by 0.72% to $1.1268. In the previous week, the EUR declined by 0.25% to $1.1322.

The EuroStoxx600 tumbled by 7.00%, with the CAC40 and the DAX ending the week down by 10.11% and by 10.23%, respectively.

For the Loonie

GDP and Ivey PMI figures were in focus, with the stats skewed to the positive.

In the 4^th quarter, the economy expanded by 1.6% quarter-on-quarter, up from 1.3% in the previous quarter. On an annualized basis, the economy grew by 6.7% in Q4, which was up from 5.5% in the quarter prior.

In February, the Ivey PMI rose from 50.7 to 60.6, which was also Loonie positive.

While the stats drew plenty of interest, the Bank of Canada monetary policy decision was the main event of the week. On Wednesday, the BoC lifted the interest rate from 0.25% to 0.50%, which was in line with market expectations.

In the week ending 4^th March, the Loonie slipped by 0.14% to C$1.2731 against the Greenback. In the week prior, the Loonie had risen by 0.19% to C$1.2713.

Elsewhere

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

The Aussie Dollar rallied by 1.99% to $0.7370, with the Kiwi Dollar rising by 1.74% to end the week at $0.6860.

For the Aussie Dollar

Retail sales, 4^th quarter GDP, and trade data were the key stats for the week, with the numbers Aussie Dollar positive.

In January, retail sales jumped by 1.8%, partially reversing a 4.4% slump from December. 4^th quarter GDP numbers impressed, with the economy expanding by 3.4% in Q4. In the previous quarter, the economy had contracted by 1.9%.

Trade data wrapped up a positive week, with Australia’s trade surplus widening from A$8.824bn to A$12.891bn in January.

On the monetary policy front, the RBA left rates unchanged on Tuesday, which was in line with market expectations.

For the Kiwi Dollar

Economic data was limited to business confidence and building consent figures that failed to sink the Kiwi.

In January, building consents tumbled by 9.2%, with the ANZ Business Confidence Index sliding from -23.2 to -51.8 in February. Concerns over Omicron and surging inflationary pressures reportedly hit business confidence.

For the Japanese Yen

Industrial production and retail sales were in focus ahead of capital spending and services PMI numbers.

The stats were mixed. Retail sales rose by 1.6% in January year-on-year, up from 1.2% in December. Capital spending surged by 4.3% in Q4 year-on-year, after having been up by 1.2% in Q3. Industrial production slid by a further 1.3% in January, however, after a 1.0% decline in December. Also negative was a deeper contraction in the services sector. The services PMI fell from 47.6 to 44.2.

The Japanese Yen rose by 0.63% to end the week at ¥114.820 against the Dollar. In the week prior, the Yen ended the week down by 0.11% to ¥115.550.

Out of China

Private sector PMIs were in focus. The all-important Caixin Manufacturing PMI increased from 49.1 to 50.4. The services PMI slipped from 51.4 to 50.2, however.

In the week ending 4^th March, the Chinese Yuan slipped by 0.03% to CNY6.3195. Through the week prior, the Yuan had ended the week up by 0.58% to CNY6.3175.

The Hang Seng Index ended the week down by 3.79%, with the CSI300 falling by 1.68%.