The Weekly Wrap – Trade, UK Politics and the Stats Drove the MajorsA ‘risk-on’ end to the week was needed as trade war chatter continued to overshadow the stats. A busy week ended with the Dollar in the green.
It was a relatively busy week on the economic calendar in the week ending 22nd November.
A total of 40 stats were monitored throughout the week, following 75 stats from the previous week.
Of the 40 stats, 21 came in ahead forecasts, with 13 economic indicators coming up short of forecast. 6 stats were in line with forecasts in the week.
Looking at the numbers, 24 of the stats reflected an upward trend from previous figures. Of the remaining 16, 11 stats reflected a deterioration from previous.
While the stats were skewed to the positive, the dollar bounced back on Friday with a 0.29% gain to end the week up 0.28% at 98.273.
Out of the U.S
It was a particularly quiet first half of the week, with economic data limited to October building permits and housing start figures on Tuesday.
Building permits jumped by 5% to a 12-year high in October, taking permits up to an annual rate of 1.461m. Building permits had fallen by 2.7% in September.
Housing starts rose by 3.8% to take the annual rate of housing starts to 1.314m in October. In September housing starts had fallen by 7.9%.
The latest housing figures reflected positive sentiment from constructors. Strong demand continues amidst the currently low-interest rate and mortgage rate environment, supported by a strong labor market environment.
As a barometer to the economy, the figures were reflective of FED Chair Powell’s views on the economy and outlook.
On Thursday, October existing home sales figures were also positive.
Of greater interest on the day was Philly FED’s Manufacturing Index. While the headline figure was on the rise, the employment and new orders sub-indexes were in decline, limiting any positive impact on the Dollar.
On Friday, prelim private sector PMIs also garnered plenty of interest and impressed. The prelim manufacturing PMI rose from 50.9 to 51.9, with the services PMI rising from 50.6 to 51.6.
Outside the Numbers
Updates from trade talks weighed through the 1st half of the week.
News of China having issues with Trump’s unwillingness to roll back tariffs hit the wires at the start of the week.
Tensions rose mid-week as the U.S Senate and House of Representatives voted in 2 HK Bills in support of protesters. China responded with the threat of retaliation, raising doubts over whether a phase 1 agreement would materialize.
Adding to the tension on Tuesday was Trump’s threat of more tariffs should China fail to sign a phase 1 agreement.
The week ended on a high, however, with Trump announcing that a phase 1 agreement was close, supporting the Dollar and the equity markets.
On the monetary policy front, the FOMC released the minutes from 30th October late in the U.S session on Wednesday.
There were few surprises from the minutes, however, with FED Chair Powell’s testimony from the previous week considered more relevant.
In the equity markets, the Dow fell by 0.46%, with the S&P500 and NASDAQ down 0.33% and by 0.25% respectively.
Out of the UK
It was a relatively busy week on the economic calendar.
Key stats included November’s CBI Industrial Trend Orders on Tuesday and prelim November private sector PMIs on Friday.
While the markets brushed better than expected industrial trend orders, private sector PMIs weighed at the end of the week.
The manufacturing PMI fell from 49.6 to 48.3, falling beyond a forecast of 48.8.
Of greater significance, however, was a contraction in the services sector. The Service PMI fell from 50.0 to 48.6 in November
The flash UK Composite Output Index fell to a 40-month low 48.5, with the UK Services Business Activity Index also falling to a 40-month low.
Manufacturing sector output also struggled, with the Output Index falling to a 2-month low.
New work received by private sector firms fell for a 4th consecutive month in November, aligned with output. In November new orders slid at the fastest rate since July 2016.
The markets will recall that it was in response to post-referendum private sector PMIs that the BoE cut rates…
While the stats at the end of the week provided direction on the day, UK election news provided direction in the week.
Tuesday’s leadership televised debate weighed on the Pound, as did a narrowing in the opinion polls in response to the debate mid-week.
With the Tories holding onto a sizeable margin, according to the YouGov, opinion polls, the Pound had managed to hold onto gains in the week before the PMI numbers took hold…
The Pound fell by 0.49% to $1.2834 in the week, with a 0.63% slide on Friday doing the damage.
For the FTSE100, a bounce-back on Friday, supported by sentiment towards trade and a pullback in the Pound led to a 1.22% gain. For the week, the FTSE100 rose by 0.33%.
Out of the Eurozone
It was a busy week on the economic data front.
In the 1st half of the week economic data was limited to German wholesale inflation figures for October.
According to Destatis, the producer price index fell by 0.2%, month-on-month, reversing a 0.1% rise in September. Economists had forecast a 0.1% decline.
The softer numbers pressured the EUR ahead of the ECB monetary policy meeting minutes on Thursday.
On Friday, private sector PMIs were in focus.
While the French service sector activity picked up alongside a slower pace of decline in the German manufacturing sector, the Eurozone composite delivered a grim reading.
According to the Eurozone Composite PMI Survey,
- The Eurozone’s Composite Output Index fell to a 2-month low 50.3, weighed by a 10-month low service sector PMI (51.5).
- Providing some support was a 3-month high Manufacturing PMI but it was of little consolation.
- A 3rd consecutive monthly decline in new orders for goods and services represented the worst spell since mid-2013.
- Optimism also sat well below levels from earlier in the year, impacted by uncertainty over Brexit, trade and the threat of auto tariffs.
- Employment growth will be a concern for Lagarde et al. Growth fell for a 5th consecutive month and down to its lowest since January 2015.
The minutes from both the ECB and FED meeting supported market sentiment towards monetary policy, with both expected to stand pat on policy near term.
While the U.S Government has provided support, the ECB continues to call on fiscal policy support from member states.
On Friday, ECB President Lagarde spoke of the need for a material shift in attitudes within the Eurozone.
Lagarde spoke of the need to reorder trade and adapt in order to boost domestic growth through innovation and investment to preserve competitiveness in the longer run.
Lagarde renewed pressure on member states to spend more to boost growth in a region that has struggled since the debt crisis of 2011.
The ECB President’s speech couldn’t have come at a more poignant time, with prelim November private sector PMIs disappointing.
For the week, the EUR was down by 0.27% to $1.1021.
For the European major indexes, the CAC40 led the way, falling by 0.78%. The EuroStoxx600 and DAX30 fell by 0.51% and 0.59% respectively.
It was another mixed week for the Aussie Dollar and the Kiwi Dollar.
The Aussie Dollar fell by 0.45% to $0.6786, while the Kiwi Dollar rose by 0.09% to $0.6410.
For the Aussie Dollar
It was a particularly quiet week for the Aussie Dollar, with no material stats to provide direction in the week.
While there were no stats to consider, the RBA meeting minutes on Tuesday pressured the Aussie Dollar.
Talk of considering a rate cut in the 5th November meeting led the Aussie Dollar into the red.
Adding further pressure in the week was the negative sentiment towards a phase 1 trade agreement in the 1st half of the week.
For the Kiwi Dollar
It was also a quiet week on the economic colander.
Economic data was limited to 3rd quarter wholesale inflation figures. The producer input price index rose by 0.9%, coming in ahead of a forecasted 0.5% increase. In the 2nd quarter, the index had risen by 0.3%.
A pickup in wholesale inflationary pressure and the RBNZ’s decision to hold steady on rates provided support in the week.
For the Loonie
It was a busier week for the Loonie.
Early in the week, economic data included September manufacturing sales figures on Tuesday and October inflation numbers on Wednesday.
While the markets brushed aside the manufacturing sales figures, inflation garnered plenty of attention on Wednesday.
In October, while the core annual rate of inflation held steady at 1.9%, core consumer prices rose by 0.4%, month-on-month.
Consumer prices were also on the rise, with consumer prices up by 0.3% month-on-month.
With the annual rate of inflation holding steady, BoC Governor Poloz spoke on Thursday, saying that interest rates were at the right level to support the Canadian economy.
The probability of a near-term rate cut fell from 20% to 10% following Poloz’s comments.
On Friday, September retail sales also influenced. Core retail sales rose by 0.20%, reversing a 0.2% fall in August. Retail sales fell by 0.1%, however, reversing a 0.1% gain in August.
Outside of the numbers, sentiment towards the U.S – China trade talks also provided direction in the week. Positive updates from the U.S President on Friday contributed to a 0.62% gain on the day that pulled the Loonie into positive territory for the week.
The upside on the day came in spite of a lack of progress in ending the national rail strike…
News of the impact of a national rail strike in Canada on Wednesday and a pullback in Canadian Western Select crude oil on the day had added pressure on the Loonie mid-week.
The Loonie was rose by 0.16% to C$1.3202 against the Greenback.
For the Japanese Yen
It was a relatively quiet week on the data front.
October trade figures provided direction on Wednesday ahead of private sector PMI and inflation figures on Friday.
The trade balance jumped from a ¥124.8bn deficit to a $17.3bn surplus in October. Economists had forecast a surplus of ¥301bn, however…
According to figures released by the Ministry of Finance,
- Year-on-year, exports fell by 9.2% in October, following a 5.2% decline in September.
- Within the Asian region, exports to China fell by 10.3%, by 9.4% to HK and by 23.1% to R. Korea.
- To the U.S, exports slid by 11.4%, with exports to Germany tumbling by 19.4%.
- Imports fell by 14.8%, year-on-year, following a 1.5% decline in September.
- From the Asian region, imports fell by 14.0% and by 15.6% from North America.
- Imports from Western Europe saw a more modest 10.7% decline
Also positive in the week, was a return to growth in the services sector in November. The Manufacturing sector continued to struggle amidst the ongoing trade war, however.
The services PMI rose from 49.7 to 50.4 in November, according to prelims, with the manufacturing PMI rising from 48.4 to 48.6.
Softer inflation numbers had a muted impact on the day.
Mixed chatter on trade ultimately left the Yen relatively flat against the Greenback in the week. The upside coming in spite of the positive updates on Friday.
The Japanese Yen rose by 0.13% to ¥108.66 against the Dollar.
Out of China
It was also a quiet week on the economic data front, with no material stats due out of China.
While there were no material stats, the PBoC cut loan prime rates on Wednesday, providing some support to risk appetite.
The 1-year Loan Prime Rate was cut from 4.2% to 4.15%, with the 5-year late cut from 4.85% to 4.80%.
The negative chatter from Beijing ultimately weighed on riskier assets, however, as did the market reaction to the Senate and House of Representative’s passing of HK bills in support of the HK protestors.
The CSI300 fell by 0.70% in the week, with the Yuan falling by 0.42% to CNY7.0391 against the Greenback.