The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective TerritoryThe widening reach of the coronavirus reinstated the Yen as the safe haven of choice, as the global equity markets saw the worst week since 2008.
It was a relatively busy week on the economic calendar, in the week ending 28th February.
A total of 56 stats were monitored, following the 72 stats in the week prior.
Of the 56 stats, 26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.
Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.
For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.
Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.
When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…
The Dollar Spot Index fell by 1.21% to end the week at 98.132.
Out of the U.S
It was a quiet first half of the week, with economic data limited to February consumer confidence figures.
A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.
Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.
In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.
While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.
At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.
Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.
Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.
The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.
It wasn’t enough to support the U.S equity markets or the Dollar, however.
Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.
In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% 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.
The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.
A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.
Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.
With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…
In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.
Out of the Eurozone
It was a relatively quiet start to the week economic data front.
Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.
On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.
Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.
With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.
Key stats included French consumer spending and German unemployment numbers.
While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.
The stats failed to influence, however, as the markets punished the Dollar through much of the week.
Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…
On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…
That is in stark contrast to the outlook towards FED monetary policy…
For the week, the EUR rose by 1.65% to $1.1026.
For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.
It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.
In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.
For the Aussie Dollar
It was a relatively quiet week for the Aussie Dollar on the economic data front.
Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.
Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.
RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.
On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.
With the numbers skewed to the negative, risk aversion added to the downside in the week.
Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.
For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.
For the Kiwi Dollar
It was a relatively quiet start to the week on the economic colander.
4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.
Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.
While trade exports to China rose further, January’s trade was not impacted by China’s shut down.
Business confidence figures, however, suggested some doom and gloom ahead.
With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…
For the Loonie
It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.
A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.
Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.
At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.
While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.
RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.
With the BoC in action next week, the chances of a rate cut certainly jumped in the week…
The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.
For the Japanese Yen
It was a relatively quiet week on the data front.
The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.
For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.
In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.
The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.
With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.
A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.
Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.
The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.
Out of China
There were no material stats to provide direction ahead of private sector PMIs on the weekend.
A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.
In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.
The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.
In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.