The Weekly Wrap – U.S Inflation Delivers a Dollar Boost

The Stats

It was a quiet week on the economic calendar in the week ending 11^th February.

A total of 31 stats were monitored, following 76 stats in the week prior.

Of the 31 stats, 12 came in ahead forecasts, with 19 economic indicators coming up short of forecasts. There were no stats that were in line with forecasts in the week.

Looking at the numbers, 12 of the stats reflected an upward trend from previous figures. Of the remaining 19 stats, 16 reflected a deterioration from previous.

Out of the U.S

Inflation and jobless claims were key stats in the week.

In January, the U.S annual rate of inflation accelerated from 7.0% to 7.5%. The annual rate of inflation picked up from 5.5% to 6.0%.

Jobless claims were also Dollar positive. In the week ending 4^th February, initial jobless claims fell from 239k to 223k. Economists had forecast claims of 230k.

All in all, the stats continued to support a more aggressive rate path trajectory for the FED.

With concerns over the effect of inflation on consumption, consumer sentiment figures also drew attention on Friday.

In February, the Michigan Consumer Sentiment Index fell from 67.2 to 61.7. Economists had forecast an increase to 67.5.

In the week ending 11^th February, the Dollar Spot Index rose by 0.63% to end the week at 96.082. In the week prior, the Index had slid by 1.84% to 95.485.

Out of the UK

It was a busier week, though the markets had to wait until Friday for key numbers from the UK.

In December, the economy contracted by 0.2%, with manufacturing production rising by just 0.2%. Production had risen by 0.7% in November, when the economy had expanded by 0.9%. Year-on-year, the economy grew by 6.5% in Q4, after having expanded by 7.0% in Q3. Quarter-on-quarter, the UK economy grew by 1.0%, which was in line with growth in the previous quarter.

In the week, the Pound rose by 0.24% to end the week at $1.3564. In the week prior, the Pound had risen by 0.97% to $1.3531.

The FTSE100 ended the week up by 1.92%, reversing a 0.67% loss from the previous week.

Out of the Eurozone

It was a particularly quiet week for the EUR. Key stats included German industrial production and trade data for January. The stats were skewed to the negative with industrial production taking an unexpected fall. In January, German industrial production fell by 0.3%, following a 0.2% decline in December.

Germany’s trade data also disappointed, with the trade surplus narrowing from €10.8bn to €6.8bn in January.

While the stats did influence, EU economic forecasts drew plenty of attention on Thursday.

According to the Executive Summary,

• The EU entered the New Year on a weaker footing that previously expected.
• After a soft-patch, the economic expansion is set to pick up pace in the second quarter.
• The euro area economy is expected to grow by 4.0% in 2022 and by 2.7% in 2023.
• Forecasts assume that the impact of the current wave of the pandemic will be short-lived.
• Expectations are also for most of the supply bottlenecks to fade over the year.
• Compared with the Autumn forecasts, inflation projections have been revised up due to persistently high energy prices.
• Inflation in the euro area is projected to peak in Q1 of 2022 and remain above 3% until Q3.
• Forecasts are for inflation to return to below 2% by 2023.
• The balance of risks to the growth outlook is broadly even.
• Looking beyond short-term uncertainties, improving labor market conditions, large accumulated savings, favorable financing conditions, and the full deployment of the Recovery and Resilience Facility (RFF) are supportive of an extended expansionary phase.

For the week, the EUR fell by 0.86% to $1.1350. In the week prior, the EUR had jumped by 2.67% to $1.1449.

The DAX rallied by 2.16%, with the CAC40 and the EuroStoxx600 ending the week up by 0.87% and by 1.61% respectively.

For the Loonie

It was a quiet week, with trade data in focus. The numbers failed to impress, however. In December, Canada’s trade balance fell from a C$2.47bn surplus to a C$0.14bn deficit. Economists had forecast a widening to C$2.50bn.

In the week ending 11^th February, the Loonie rose by 0.16% to C$1.2737 against the Greenback. In the week prior, the Loonie had risen by 0.10% to C$1.2757.

Elsewhere

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

The Aussie Dollar rose by 0.92% to $0.7137, with the Kiwi Dollar gaining by 0.27% to end the week at $0.6651.

For the Aussie Dollar

Business and consumer sentiment figures delivered mixed results for the Aussie Dollar.

In January, business confidence rebounded, with the NAB Business Confidence Index rising from -12 to 3.0. By contrast, the Westpac Consumer Sentiment Index fell by 1.3% in February, following a 2.0% decline in January.

While market sentiment towards the economy improved, market sentiment towards finances waned.

For the Kiwi Dollar

Business PMI and electronic card retail sales figures were in focus late in the week. The stats were mixed, pegging the Kiwi Dollar back.

In January, the Business PMI fell from 53.7 to 52.1, while electronic card retail sales jumped by 3.0%. Electronic card retail sales had risen by a modest 0.3% in December.

For the Japanese Yen

Household spending figures drew interest early in the week. The numbers fell short of expectations, with household spending rising by just 0.1% in December, In November spending had fallen by 1.20%.

The Japanese Yen ended the week down by 0.14% to ¥115.420 against the U.S Dollar. In the week prior, the Yen had ended the week flat at ¥115.260.

Out of China

Caixin services and composite PMI numbers for January were in focus at the start of the week. The numbers disappointed, with the services PMI falling from 53.1 to 51.4. As a result, the composite PMI slipped from 51.0 to 50.1.

In the week ending 11^th February, the Chinese Yuan rose by 0.10% to CNY6.3546. In the week prior, the Yuan had ended the week down by 0.35% to CNY6.3612

The Hang Seng Index ended the week up by 1.36%, with the CSI300 gaining 0.82.