The Weekly Wrap – Stimulus, Stimulus, and Stimulus. Who Needs Safe Havens?
It was a particularly busy week on the economic calendar, in the week ending 5th June.
A total of 61 stats were monitored, following the 58 stats from the week prior.
Of the 61 stats, 44 came in ahead forecasts, with 13 economic indicators coming up short of forecasts. Just 4 stats were in line with forecasts in the week.
Looking at the numbers, 40 of the stats reflected an upward trend from previous figures. Of the remaining 21, 19 stats reflected a deterioration from previous.
For the Greenback, it was a 3rd consecutive week in the red, with demand for riskier assets sinking the Dollar. The U.S Dollar Spot Index slid by 1.43% to end the week at 96.937. In the week prior, the Dollar had fallen by 1.52%.
A downward trend in new coronavirus cases continued to support the easing of lockdown measures. With tensions between the U.S and China seeming to cool, the markets diverted attention to the stimulus.
The German coalition government impressed mid-week. At the end of the week, reports of another US$1tn from the U.S government also fueled demand for riskier assets.
This was all on top of the ECB adding to the frenzied demand for riskier assets…
Looking at the latest coronavirus numbers.
The total number of coronavirus cases stood at 6,823,680 on Friday, rising from last Friday’s 6,026,017 total cases. Week-on-week, the total number of cases increased by 797,573, on a global basis. This was higher than the previous week’s increase of 728,148 in new cases.
In the U.S, the total rose by 159,413 to 1,952,676. In the week prior, the total number of new cases had risen by 148,169.
Across Germany, Italy, and Spain combined, the total number of new cases increased by 6,992 to bring total infections to 708,083. In the previous week, the total number of new cases had risen by 10,736.
Out of the U.S
It was a busy week on the economic calendar.
In the 1st half of the week, the market’s preferred ISM private sector PMIs and the ADP nonfarm figures were in focus.
Both the manufacturing and non-manufacturing PMIs increased, reflecting a slower pace of contraction.
According to the monthly ADP report, nonfarm employment fell by 2.76m in May. This was far better than a forecasted decline of 9m and April’s 19.557m slide.
The focus then shifted to Thursday’s initial jobless claims and Friday’s labor market numbers.
While another 1.877m rise in jobless claims tested the markets, labor market stats on Friday supported riskier assets.
The unemployment rate fell from 14.7% to 13.3%, with nonfarm payrolls rising by 2.509m.
Economists had forecast an 8m fall in payrolls and an unemployment rate of 19.7%.
On the geopolitical risk front, there was very little chatter in the week on China, easing market jitters. There was also the talk of further fiscal stimulus that fueled demand for riskier assets in the week.
In the equity markets, the Dow rallied by 6.81%, with the NASDAQ and S&P500 gaining 3.42% and 4.91% respectively.
Out of the UK
It was a relatively quiet week on the economic calendar. Key stats included finalized private sector PMIs for May.
There was a slower rate of contraction across the manufacturing and services sectors in May. It was far from convincing, however, with the Composite PMI rising from 13.8 to 30.0.
The all-important services PMI trailed at 29.0, which must be a concern as lockdown measures continued.
While the stats were concerning, it was risk-on through the week, driving demand for the Pound.
There was also some hope of compromise at the Brexit negotiating table that contributed to the Pound’s upside.
Nonetheless, the transition period has yet to be extended, though the pressure is now on…
In the week, the Pound surged by 2.63% to $1.2668, following on from a 1.40% gain from the previous week. The FTSE100 ended the week up by 6.71%.
Out of the Eurozone
It was a particularly busy week economic data front, with key stats skewed to the positive.
Private sector PMIs for May and ECB monetary policy were the main areas of focus in the week.
While still particularly dire, a rise in the PMIs for May supported the market’s view that the worst is over.
The Eurozone’s Composite PMI jumped from 13.6 to 31.9, with the Services sector seeing a marked slowdown in the pace of contraction.
After the COVID-19 pandemic shutdown, Italy ranked at the top of the Eurozone table at the composite level. This is good news for the broader market, though a return to expansion may take some time yet. The focus must now shift to employment, confidence, and consumption.
Coupled with fiscal and monetary policy support and the easing of lockdown measures, the markets are expecting a speedy economic recovery, however.
On Wednesday, Germany’s coalition government led by example, agreeing to a €130bn COVID-19 stimulus package on Wednesday. Concerns over global demand, however, will likely linger until the stats start to reflect a pickup in demand.
On Thursday, the ECB expanded and extended its emergency purchasing program.
Risk appetite surged in the week, as the U.S and China seemed to hit pause in the week.
The news of further fiscal support from the U.S government was also positive.
For the week, the EUR rallied by 1.71% to $1.1292, following on from a 1.84% gain from the previous week.
For the European major indexes, it was a particularly bullish week. The CAC40 and DAX30 rallied by 10.70% and 10.88% respectively, with the EuroStoxx600 rising by 7.12%.
It was yet another particularly bullish week for the Aussie Dollar and the Kiwi Dollar.
In the week ending 6th June, the Aussie Dollar surged by 4.53% to $0.6969, with the Kiwi Dollar jumping by 4.87% to $0.6507.
For the Aussie Dollar
It was a busy week for the Aussie Dollar on the economic data front.
On Monday, Manufacturing figures for May and the RBA were in focus.
In the 2nd half of the week, 1st quarter GDP data and April trade and retail sales figures drew attention.
Following recent commentary for the RBA, the markets were able to stomach the weak numbers.
There was even some hope within the RBA Statement that a recovery could be swifter than initially forecasted.
Coupled with better private sector PMIs out of China and fiscal and monetary policy support globally, riskier assets found strong demand to continue reversing losses from the pandemic…
For the Kiwi Dollar
It was a particularly quiet week on the economic calendar.
Key stats were limited to April building consents that drew little to no interest.
The upside in the week came from the hope of a more rapid global economic recovery, fueled by fiscal and monetary policy.
Economic data from China, the Eurozone, and the U.S contributed, as did easing tensions between the U.S and China…
For the Loonie
It was a relatively busy week on the economic calendar. In the 1st half of the week, the Bank of Canada was in action.
Leaving interest rates unchanged, the Bank also noted that the Canadian economy looks to have avoided the worst-case scenario projection.
In the 2nd half of the week, May employment and Ivey PMI numbers were in focus.
The unemployment rate rose from 13% to 13.7% in May, which was better than a forecasted 15%. Employment increased by 289.6k versus a forecasted 500k fall.
Tracking PMIs from elsewhere, the Ivey PMI rose from 22.8 to 39.1 in May.
For the Loonie, the continued recovery in crude oil prices added to the upside. WTI and Brent ended the week with gains of 11.4% and 19.7% respectively.
A continued easing in lockdown measures and improved economic data supported by fiscal and monetary policy ultimately drove demand for the Loonie.
April trade figures from Thursday and 1st quarter labor productivity numbers on Wednesday had a muted impact on the Loonie.
The Loonie rallied by 2.60% to end the week at C$1.3422, following a 1.54% gain from the previous week.
For the Japanese Yen
It was a relatively quiet week on the data front. Key stats included finalized May private sector PMIs and April household spending.
An upward revision to May’s service sector PMI was of little consolation. April stats also had a muted impact, with a 6.2% slide in spending coming as a result of the lockdown.
The downside in the week ultimately came from a jump in demand for riskier assets. Positively skewed data and fiscal and monetary policy drove demand for riskier assets, leaving the Yen in the red.
The Japanese Yen slid by 1.63% to end the week at ¥109.59. In the week prior, the Yen had fallen by 0.18% against the U.S Dollar.
Out of China
Economic data included May’s Caixin private sector PMIs that followed on from the NBS numbers from the previous weekend.
While the Manufacturing sector returned to expansion in May, it was service sector activity that impressed.
Beijing had targeted a domestically driven recovery and the numbers in May suggested just that.
Both surveys did reveal a continued deterioration in demand from overseas. Fiscal support may address this but it will need monitoring near-term.
On the geopolitical front, China continued to introduce new laws into HK but nothing severe enough to draw any particular attention.
It does remain to be seen, however, whether last week’s semblance of calm will continue.
In the week ending 6th June, the Yuan rose by 0.74% to CNY7.0834 against the Greenback.
The CSI300 and Hang Seng ending the week up by 3.47 and by 7.88% respectively.