The Weekly Wrap – Stats, the Coronavirus, the FED and the BoE Drive the MajorsRisk aversion and a string of disappointing stats plagued riskier assets in the week. The Pound was a winner, however, in its last week in the EU…
It was a busy week on the economic calendar, in the week ending 31st January.
A total of just 60 stats were monitored in the week, following 46 stats from the previous week.
Of the 60 stats, 23 came in ahead forecasts, with 24 economic indicators coming up short of forecast. 13 was 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 31, 24 stats reflected a deterioration from previous.
For the Greenback, it was a choppy week. We saw the Dollar Spot peak at 98.19 on Wednesday before hitting reverse.
The Dollar Spot Index ended the week down by 0.47% to 97.390. A 0.49% slide on Friday delivered the weekly loss.
Out of the U.S
It was a busy week on the economic data front.
In the early part of the week, consumer confidence and durable goods orders delivered mixed results for the Greenback.
A rise in consumer confidence and better than anticipated durable goods orders were positives, while a fall in core durable goods orders limited any major upside.
Through the 2nd half of the week, 4th quarter GDP numbers failed to impress ahead of a busy end to the week.
On Friday, the FED’s preferred Core PCE Price Index figures for December, personal spending and January’s Chicago PMI also influenced.
In December, the annual rate of inflation held steady at 1.6%, sitting well short of the FED’s 2% objective.
While personal spending continued to deliver, up by 0.3%, manufacturing sector activity in Chicago weighed heavily.
The Chicago PMI slumped from 48.2 to 42.9 in January…
Housing sector figures, trade data and finalized consumer sentiment numbers had a muted impact in the week.
While the stats influenced, it was also the FED’s first policy decision of the year, which left rates unchanged.
FED Chair Powell raised concerns over the possible effect of the coronavirus on China and the global economy, however.
With market jitters already leading to a flattening in the 3-month – 10-year yield curve on Tuesday, Powell’s comments led to inversion on Wednesday. On Friday, the yield on 3-month Treasuries stood at 1.54%, with the yields on 10-year down at 1.51%.
In the equity markets, the Dow fell by 2.53%, with the S&P500 and NASDAQ falling by 2.12% and by 1.76% respectively.
Out of the UK
It was a particularly quiet week on the economic calendar.
There were no material stats out of the UK to rock the Pound.
The lack of stats left the Pound under pressure, with market risk aversion weighing on the Pound ahead of Thursday’s BoE monetary policy decision.
While expectations were for the BoE to stand pat on policy, forward guidance was key. Better than expected private sector PMI and employment figures did the trick in the week prior.
The vote count in favor of a rate cut delivered the upside for the Pound in the week. The markets had priced in a 3rd vote in favor of a rate cut. Just 2 members of the MPC voted in favor of a cut, driving the Pound back into positive territory.
Not even Britain’s last day in the EU could pin back the Pound.
The Pound ended the week up by 1.02% to $1.3206.
The FTSE100 slid by 3.95%, with negative sentiment towards the coronavirus and a stronger Pound weighing.
Out of the Eurozone
It was a busy week on the economic data front.
Through the 1st half of the week, economic data focused on Germany.
Disappointing IFO Business Climate Index figures weighed on the EUR at the start of the week.
While sentiment towards current conditions improved, negative sentiment towards the economic outlook weighed.
On Wednesday, the markets brushed aside consumer confidence figures, with coronavirus news in focus.
In the 2nd half of the week, German and Eurozone unemployment figures provided much-needed support.
On Friday, however, the stats failed to impress…
The Eurozone economy saw growth slow from 0.2% to 0.1% in the 4th quarter. Year-on-year, the economy grew by 1.0%, slowing from 1.2% in the 3rd quarter.
Retail sales figures from the end of the year also failed to impress. German retail sales slumped by 3.3%, reversing a 1.6% rise in November. French consumer spending fell by 0.3%.
With the ECB reliant upon consumer spending to support growth, it was a bad day on the data front.
The slide in consumer spending and weaker GDP numbers were joined with softer inflation figures.
For the week, the EUR rose by 0.62% to $1.1093. Even negatively skewed numbers were not enough to offset the FED Chair’s cautious tone from Wednesday and some weak numbers out of the U.S.
For the EUR, Lagarde had prepared the markets for some disappointment at last week’s ECB press conference.
For the European major indexes, it was a bearish week. The DAX30 led the way, tumbling by 4.38%, with the CAC40 and EuroStoxx600 down by 3.62% and by 3.05% respectively.
It was a particularly bearish week for the Aussie Dollar and Kiwi Dollar.
For the week, the Aussie Dollar slid by 2.05% to $0.6692, with the Kiwi Dollar tumbling by 2.16% to $0.6464.
For the Aussie Dollar
It was a relatively busy week for the Aussie Dollar, with stats doing little to provide support.
Business confidence waned in December, as had been anticipated, which was Aussie Dollar negative and raised pressure on the RBA to make a move.
4th quarter inflation figures on Wednesday came in ahead of forecasts but the upside was not enough to prevent a near-term rate cut by the RBA.
In the 4th quarter, the annual rate of inflation came in at 1.8%. While finding early support on the day, the Aussie Dollar slipped back into the red, with the effects of the coronavirus on the Chinese economy and the bush fires in Australia being 2 major negatives for the Aussie.
In the second half of the week, 4th quarter wholesale inflation figures were Aussie Dollar negative on Friday.
While in line with forecasts, the annual rate of wholesale inflation eased from 1.6% to 1.4%, providing further support for a rate cut.
For the Kiwi Dollar
Economic data in the week was limited to December trade figures. While the numbers were on the positive side, negative sentiment towards the coronavirus weighed.
The prospect of an extended period of economic disruption in China was Kiwi Dollar negative.
December’s trade data revealed New Zealand’s increased reliance on China. Exports to China accounted for 28% of total exports in December.
A likely material slide in demand, stemming from China’s shut down over the coronavirus doesn’t bode well…
Expectations had been for the RBNZ to stand pat on monetary policy. Should we see the spread extend through the rest of the quarter, expect a material impact on growth.
For the Loonie
After a dovish Bank of Canada, the markets had to wait until the end of the week for direction.
Economic data included November GDP numbers and December’s RMPI figures.
Month-on-month, the economy grew by 0.1% in November, with the RMPI jumping by 2.8% in December.
That gives some breathing space to the BoC, though next week’s stats will need to provide support.
The numbers provided little support, however.
Concerns over the impact of the coronavirus on the Chinese economy and demand for crude weighed in the week.
The Loonie ended the week down by 0.72% to C$1.3237 against the Greenback.
For the Japanese Yen
There were no material stats until a relatively busy Friday.
Through the week, market risk sentiment towards the coronavirus provided support for the safe havens and the Yen in particular.
The continued spread of the virus and rise in the death toll in the week came in spite of governments making efforts to stop the spread.
China’s outlook for growth and domestic consumption looks dire as entire cities remain in lockdown.
With no immediate end in sight and the WHO raising the international status to a global emergency, the shutdown could drag on.
A slide in demand from China would force central banks into action, which will make the markets all the more sensitive to economic indicators in the coming weeks.
The BoJ may have to finally make a move…
Stats on Friday were skewed to the negative, with inflationary pressures easing and retail sales sliding.
The only positive was a pickup in industrial production though this may be temporary…
The Japanese Yen rose by 0.85% to ¥108.35 against the U.S Dollar for the week.
Out of China
The markets were closed for the week, with the government forced to extend the CNY holiday.
Market sentiment towards the coronavirus was the key driver in the week.
While the Chinese government did its best to contain the virus, the spread continued, weighing on risk appetite.
At the end of the week, the markets brushed aside mixed private sector PMI numbers.
The concern is now over the remainder of the 1st quarter and not the start of the year…