The Weekly Wrap – U.S Data, Monetary Policy, and Geopolitics the Majors

The Stats

It was a busy week on the economic calendar, in the week ending 7^th February.

A total of 64 stats were monitored through the week, following 60 stats from the week prior.

Of the 64 stats, 39 came in ahead forecasts, with 22 economic indicators coming up short of forecast. 3 were in line with forecasts in the week.

Looking at the numbers, 38 of the stats reflected an upward trend from previous figures. Of the remaining 26, 22 stats reflected a deterioration from previous.

For the Greenback, it was a bullish week, with economic data providing strong support. The Dollar Spot Index rallied by 1.33% to 98.68 in the week.

Out of the U.S

It was a busy week for the Dollar.

Private sector PMI and factory orders were in focus at the start of the week.

Both manufacturing and service sector activity saw a pickup in growth at the turn of the year.

The market’s preferred ISM Non-Manufacturing PMI rose from 54.9 to 55.5, with the manufacturing sector returning to growth. On Wednesday, ADP nonfarm employment change figures also impressed. According to the ADP, 291k nonfarm jobs were added in January.

Factory orders added to the Dollar allure on Tuesday, with orders rising by 1.8%.

The focus then shifted to Friday’s labor market figures.

While the unemployment rate rose to 3.6% due to a rise in the participation rate, the numbers were skewed to the positive.

Wage growth accelerated to 3.1%, year-on-year, with 225k nonfarm payrolls added in January.

On the geopolitical risk front, U.S President Trump was acquitted on Wednesday, following the State of the Union Speech. Trump will be the 1^st president in history to run for a 2^nd term after having been impeached…

In the equity markets, the Dow rose up by 3.00%, with the S&P500 and NASDAQ gaining 3.17% and by 4.04% respectively in the week.

Out of the UK

It was a quiet week on the economic calendar.

Finalized private sector PMI numbers were in focus.

Upward revisions from prelim PMIs for both the manufacturing and services sector provided brief support to the Pound. The manufacturing sector avoided a contraction and service sector activity saw a marked pickup in growth.

Brexit news stole the show in the week, however, sinking the Pound. Comments from the EU and the British PM at the start of the week led to an early reversal of the Pound’s BoE gain from last week.

Trade negotiations are going to have to have strings attached else Britain could fall under WTO terms was the story of the week. That may be too bitter a pill for the British PM to swallow…

Things didn’t get better as the week progressed, with Dollar strength sending cable to sub-$1.29 levels.

The Pound tumbled by 2.38% to $1.2892 in the week ending 7^th February.

The FTSE100 rose by 2.48% in the week. The weaker Pound coupled with PBoC support drove the 100.

Out of the Eurozone

It was a busy week on the economic data front.

In the 1^st half of the week, key stats included January Manufacturing and Service Sector PMI numbers out of Italy and Spain.

Finalized PMIs out of France, Germany and the Eurozone were also in focus.

An upward trend across the Manufacturing PMIs for January failed to provide support for the EUR at the start of the week.

The Eurozone’s manufacturing PMI came in at 47.9. While up from 46.3 from December, it’s still doom and gloom with Germany’s manufacturing sector the weakest in the region.

On Wednesday, the focus shifted to service sector PMIs and Eurozone retail sales figures.

Service sector PMI numbers were also skewed to the positive, with the Eurozone’s Services PMI rising from a prelim 52.2 to 52.5.

All member states covered in the report saw private sector expansion at the start of the year. More importantly, Germany’s composite hit a 5-month high.

Retail sales failed to impress, however, with Eurozone retail sales sliding by 1.6%.

In the 2^nd half of the week, the focus was back on Germany.

Factory orders tumbled by 2.1% according to figures released on Thursday.

On Friday the numbers were not much better, offsetting any positive sentiment from the PMI numbers.

While Germany’s trade surplus widened, a 3.5% slide in industrial production weighed at the end of the week.

For the week, the EUR fell by 1.33% to $1.0946.

For the European major indexes, it was a bullish week. The CAC40 and EuroStoxx600 rose by 3.85% and by 3.32% respectively, with the DAX30 rallying by 4.10%.

Concerns over the spread of the coronavirus abated as the Chinese government delivered much-needed support at the start of the week.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar fell by 0.28% to $0.6673, with the Kiwi Dollar down by 0.99% to $0.6400.

A Friday sell-off delivered the blow to leave the Aussie Dollar in the red and the Kiwi Dollar in the deep red.

For the Aussie Dollar

It was a relatively busy week for the Aussie Dollar.

In the 1^st half of the week, economic data was limited to manufacturing and building approval figures on Monday.

While the AIG Manufacturing Index slumped from 48.3 to 45.4, building approvals fell far less than expected in December. Improved sentiment towards the housing sector is expected to support consumer spending, which remains key for the RBA.

The main event of the week, however, was the RBA’s first monetary policy decision of the year. While the RBA held rates unchanged, as expected, the lack of chatter on a rate cut drove the Aussie back to $0.67 levels.

The ongoing bushfires and likely adverse effect of the coronavirus on trade terms had raised the expectation of a more dovish statement on Tuesday.

Later in the week, retail sales and trade figures provided little support.

Retail sales fell by 0.5% in December, following a 1.0% rise in November. There wasn’t too much downside for the Aussie Dollar, however, with sales up by 0.5% in the 4^th quarter.

A narrowing in the trade surplus did little damage on Thursday, with business confidence holding steady.

At the end of the week, the RBA’s quarterly Monetary Policy Statement provided little direction.

The release came following RBA Governor Lowe’s testimony to the House of Representatives’ Standing Committee on Economics.

Positive growth forecasts provided support though there remained uncertainties over consumer spending.

Both the statement and the testimony touched on the likely effects of the bushfires and the coronavirus on the economy. Any downward pressure on growth was seen to be short-term, however.

For the Kiwi Dollar

It was a relatively busy week on the economic colander.

Building consents and employment figures were in focus ahead of Thursday’s holiday.

In December, building consents surged by 9.9%, reversing an 8.4% slide in November.

Of greater significance, however, were 4^th quarter employment numbers, released on Wednesday.

Employment held steady in the 4^th quarter, following a 0.2% rise in the 3^rd quarter. Economists had forecast a 0.3% increase. While there was no increase in employment, the unemployment rate fell from a revised 4.1% to 4.0% in the quarter. Economists had forecast the unemployment rate to hold steady in the quarter.

The fall in the unemployment rate failed to impress, with the devil being in the details in the 4^th quarter.

According to NZ Stats,

• The underutilization rate fell from 10.4% to 10.0% in the 4^th quarter, which was the lowest rate since the 2^nd quarter of 2008.
• While the unemployment rate fell, the employment rate fell from 67.5% to 67.3% in the quarter.
• In the quarter the number of people not in the labor force increased by 18,000 to reach 1,177,000. This was the highest number since the series began in 1986.
• Wage growth impressed, however, with a 2.6% rise in the year to the December 2019 quarter. This was the largest increase since the 2^nd quarter of 2009 when wages increased by 2.8%.

At the end of the week, inflation expectation figures also failed to give the Kiwi Dollar a boost.

Expectations are for the annual rate of inflation to sit at 1.9% in 2-years, rising from 1.8% from the previous quarter.

For the Loonie

It was a relatively quiet week, with the markets needing to wait until Wednesday for December trade data out of Canada.

Following the BoC’s more dovish stance on policy, the stats were skewed to the positive in the week.

The trade deficit narrowed in December from C$1.20bn to C$0.40bn.

Employment and Ivey PMIs also impressed at the end of the week. A 34.5k jump in employment led to a fall in the unemployment rate from 5.6% to 5.5%.

The Ivey PMI jumped from 51.9 to 57.3, also providing short-term relief, but the numbers were unable to reverse losses for the week.

The Loonie ended the week down by 0.54% to C$1.3308 against the Greenback. Sliding crude oil prices added to the Loonie’s angst.

For the Japanese Yen

It was a relatively quiet week on the data front, with finalized private sector PMI numbers and household spending in focus.

At the start of the week, the Manufacturing PMI failed to impress. While up from a January 48.4, the PMI was revised down from 49.3 to 48.8.

On Wednesday, the finalized Services PMI came in at 51.0. While down from a prelim 52.1, it was still a return to expansion. The PMI had stood at 49.4 in December. In spite of the rebound, optimism slumped, which suggests more doom and gloom ahead.

At the end of the week, household spending figures for December added to the negative sentiment.

Spending slid by 1.7% in December, month-on-month, to leave spending down by 4.8% year-on-year. Economists had forecast a 0.2% rise in spending at the end of the year.

The Japanese Yen fell by 1.29% to ¥109.75 against the U.S Dollar in the week.

Market risk sentiment remained the key driver. PBoC support early in the week coupled with solid economic numbers out of the U.S weighed.

Out of China

Private sector PMI numbers were in focus through the 1^st half of the week.

The Caixin manufacturing PMI fell from 51.5 to 51.1 in January, with the services PMI falling from 52.5 to 51.8.

At the end of the week, trade figures were mixed. While the US Dollar trade surplus narrowed from $46.79bn to 39.16bn, exports jumped by 9.1%. Economists had forecast a 4.8% fall following December’s 7.6% rise.

Imports also came in ahead of forecasts, falling by just 1.5%.

The numbers were not enough to distract the markets from the likely impact of the coronavirus on the economy, however.

On the monetary policy front, the PBoC delivered support at the start of the week to prevent market chaos.

The added support drove demand for global equities, as the Chinese government looked to allay concerns over the virus spread.

The CSI300 fell by 2.60%, while the Hang Seng rallied by 4.15% in the week. For the CSI300, a start of a week close to 8% slide did the damage as the Chinese markets reopened.

For the week, the Yuan fell by 1.32% to CNY7.0024 against the Greenback.