The Weekly Wrap – The FED Delivers, Offsetting Market Concerns over COVID-19…The FED delivers another major move to support the U.S economy as reports of new COVID-19 cases spiking in U.S states tested risk appetite.
It was a relatively busy week on the economic calendar, in the week ending 19th June.
A total of 60 stats were monitored, following the 48 stats from the week prior.
Of the 60 stats, 24 came in ahead forecasts, with 29 economic indicators coming up short of forecast. Just 7 stats were in line with forecasts in the week.
Looking at the numbers, 36 of the stats reflected an upward trend from previous figures. Of the remaining 24, 18 stats reflected a deterioration from previous.
For the Greenback, it was a 2nd consecutive weekly gain that came off the back of 3 consecutive weeks in the red. A Friday rebound reversed losses from early in the week. The U.S Dollar Spot Index rose by 0.31%, to end the week at 97.623. In the week prior, the Dollar had risen by 0.39%.
Following the previous week’s negative outlook towards economic recovery, it was COVID-19 that tested risk appetite.
Reports of spikes in new COVID-19 cases in recently reopened U.S states spooked the markets in the week.
There had also been a spike in Beijing before reportedly being brought under control.
While COVID-19 concerns lingered, the FED delivered further support at the start of the week. The move provided support to riskier assets but not enough to deliver commodity currencies a week in the green.
Looking at the latest coronavirus numbers.
The total number of coronavirus cases stood at 8,757,734 on Friday, rising from last Friday’s 7,718,680 total cases. Week-on-week, the total number of new cases were up by 1,039,054, on a global basis. This was higher than the previous week’s increase of 895,000 in new cases.
In the U.S, the total rose by 181,871 to 2,297,190. In the week prior, the total number of new cases had risen by 162,643. On Friday, 39,586 new cases had been reported, which was the largest daily increase since a 56,348 spike on 7th May.
Across Germany, Italy, and Spain combined, the total number of new cases increased by 7,481 to bring total infections to 713,845. In the previous week, the total number of new cases had risen by 5,842
Out of the U.S
It was a relatively busy week on the economic data front.
Key stats in the week included May’s retail sales, June’s Philly FED Manufacturing PMIs, and the weekly jobless claims figures.
Retail sales bounced back in May, with a 17.7% jump reversing a 16.4% slump from April. Also impressive was the rebound in the manufacturing sector in June. The Philly FED Manufacturing PMI jumped from -43.1 to 27.5.
On the negative, however, were the jobless claims figures. In the week ending 12th June, initial jobless claims rose by 1.508m, following a 1.566m rise in the previous week. Economists had forecast a 1.3m rise.
Other stats in the week included NY State manufacturing figures, industrial production, business inventories, and housing sector numbers. There was little influence, however. Better manufacturing numbers from Philly and NY State muted the impact of a modest 1.4% rise in industrial production.
On the monetary policy front, there was plenty of action. FED Chair Powell testified to lawmakers on Tuesday and Wednesday. The testimony came off the back of another move by the FED on Monday. Riskier assets got a boost from a $250bn FED move into individual corporate bonds.
In the equity markets, the NASDAQ rallied by 3.73%, with the Dow and S&P500 gaining 1.04% and 1.86% respectively.
Out of the UK
It was a particularly busy week on the economic calendar. Employment figures for May tested the Pound on Tuesday, with claimant counts jumping by another 528,900.
Following a 1,032,000 surge in April, an easing of lockdown measures failed to reverse the trend. While April’s unemployment rate held steady at 3.9%, it’s unlikely to stay there…
On Friday, retail sales bounced back in May, though it wasn’t a complete reversal of April’s slump.
Month-on-month, retail sales jumped by 12%, partially reversing a 22.7% slump in the previous month.
Inflation figures for May had a muted impact on the Pound, despite an easing of inflationary pressures. The annual rate of inflation softened from 0.8% to 0.5%.
For the Pound, the main event of the week was the BoE monetary policy decision on Thursday, however.
While unanimously holding interest rates unchanged at 0.1%, the BoE increased its QE by £100bn to £725bn. The markets may have been in search of something more sizeable when considering recent moves by others…
On the Brexit front, there was nothing positive to shift sentiment to something more concrete than hope. The Key news was an agreement between the EU and Britain not to extend the transition period.
In the week, the Pound fell by 1.52% to $1.2350, following on from a 1.01% loss in the previous week. The FTSE100 ended the week up by 3.07%.
Out of the Eurozone
It was a relatively busy week economic data front.
Key stats included Germany and the Eurozone’s ZEW Economic Sentiment figures for June.
Both saw an uptick, as economists and analysts continued to see a brighter outlook.
It wasn’t enough to deliver a week in the green, however, as concerns over COVID-19 weighed.
Other stats in the week included the Eurozone’s finalized inflation figures for May, 2nd quarter wage growth, and trade data for April. There was little interest in the numbers, however.
For the week, the EUR fell by 0.69% to $1.1178, following a 0.32% decline from the previous week.
For the European major indexes, it was a relatively bullish week. The CAC40 and DAX30 rose by 2.90% and 3.19% respectively, with the EuroStoxx600 gaining by 3.22%.
It was another bearish week for the Aussie Dollar and the Kiwi Dollar. A 2nd consecutive week in the red came off the back of a run of 3 consecutive weekly gains.
In the week ending 19th June, the Aussie Dollar fell by 0.45% to $0.6835, with the Kiwi Dollar declining by 0.59% to $0.6407.
For the Aussie Dollar
It was a relatively quiet week on the economic data front.
The markets had to wait until Thursday for May employment figures that were the key stat of the week.
It wasn’t good news for the Aussie Dollar. In May, employment slid by 227.7k, following a 594.3k slump in April. The unemployment rate jumped from 6.2% to 7.1% as a result.
With consumer spending key to a rebound in the Australian economy, the RBA’s optimism may have been dashed by the latest figures…
On the monetary policy front, the RBA released its meeting minutes on Tuesday. While there was nothing new, the RBA viewed that the economic slump was likely less severe than initially forecasted.
A 2nd wave of the COVID-19 pandemic and continued fall in employment would need the RBA to revise that view…
For the Kiwi Dollar
It was also a relatively quiet week on the economic calendar.
Key stats included 2nd quarter consumer confidence and 1st quarter GDP figures.
The stats were skewed to the negative, adding pressure on the Kiwi Dollar.
Consumer sentiment softened in the 2nd quarter, with the impact of the coronavirus weighing. The Westpac Consumer Sentiment Index fell from 104.2 to 97.2.
While the markets have shown little interest to 1st quarter stats of late, the GDP numbers did weigh on Thursday.
In the 1st quarter, the economy contracted by 1.6%, following 0.5% growth in the 4th quarter. Economists had forecast a 1% contraction. The larger than anticipated contraction means that it’s a longer road to recovery.
An upward trend in new COVID-19 cases and the threat of a 2nd wave would make the recovery all the more challenging.
For the Loonie
It was a particularly busy week on the economic calendar. Economic data included April manufacturing sales, wholesale sales, and retail sales figures.
May inflation figures mid-week had also muted impact on the Loonie.
It was retail sales figures at the end of the week that pinned the Loonie back. While a slump in April was expected, a 22% tumble in core retail sales was much larger than forecasts of a 13.5% decline.
Crude oil prices did rise in the week, limiting the damage.
The Loonie fell by a modest 0.13% to end the week at C$1.3607, following a 1.24% loss from the previous week.
For the Japanese Yen
It was a relatively quiet week on the data front.
Mid-week, May trade data disappointed, with exports sliding by 28.3%, following a 21.9% fall in April. Japan’s trade deficit narrowed from ¥931.9bn to ¥833.4bn, however. Imports slumped by 26.2%.
Inflation figures had a muted impact on the Yen at the end of the week.
On the monetary policy front, the BoJ was in action on Tuesday, delivering more support.
While leaving monetary policy unchanged, it increased the size of its lending package from $700bn to $1tn. The funds are to support firms struggling as a result of the COVID-19 pandemic.
It was ultimately the threat of a 2nd wave pandemic coupled with the BoJ likely to stand pat on policy that delivered the upside in the week.
The Japanese Yen gained 0.47% to end the week at ¥106.87. In the week prior, the Yen had risen by 2.02% against the U.S Dollar.
Out of China
Economic data included May fixed asset investments and industrial production figures.
Industrial production increased by 4.4% in May, following a 3.9% rise in April, year-on-year. Economists had forecast a 5.0% increase.
Fixed asset investments declined by 6.3%, however, following a 10.3% slide in April.
While both sets of stats were negative, it was the cluster of new COVID-19 cases in Beijing that weighed on risk appetite earlier in the week. News of Beijing bringing the cluster under control was positive.
In the week ending 19th June, the Yuan ended the week up by 0.18% CNY7.0710 against the Greenback. For the week ending 12th June, the Yuan had ended the week flat.
The CSI300 and the Hang Seng saw gains of 2.39% and 1.41% respectively, as geopolitics took a backseat.