Weekly Wrap – Brexit, Monetary Policy and Trade Drove the MajorsBritish politics, the ECB, and the U.S – China trade war stole the show in the week. While risks remain, there was a material shift in geopolitical risk.
It was a relatively busy week on the economic calendar in the week ending 13th September.
A total of 55 stats were monitored throughout the week, compared with 62 in the week prior.
Of the 55 stats, 28 came in ahead forecasts, with 14 economic indicators coming up short of forecast. 13 stats were in line with forecasts in the week.
Looking at the numbers, 22 of the stats reflected an upward trend from previous figures. Of the remaining 35, 22 stats reflected a deterioration from previous.
While the economic data was balanced, the Dollar ended the week in the red. In spite of a shift in sentiment towards trade, an easing in geopolitical risk weighed on the week.
The U.S Dollar Index (“DXY”) fell by 0.14% in the week to $98.257.
Out of the U.S
It was a relatively quiet start to the week, with July’s JOLTs job openings and August inflation figures out Tuesday through Thursday.
Following disappointing nonfarm payroll figures, job openings held relatively steady, while coming in below forecast. Of greater significance, however, was an uptick in quit rates, reflecting confidence in labor market conditions.
Inflationary pressures were on the rise in August. The core producer price index rose by 0.3%, reversing a 0.1% fall in July. A marked acceleration in the annual rate of core inflation was also significant, rising from 2.2% to 2.4%.
Consumer prices, however, rose by just 0.1%, which was softer than a 0.3% rise in July.
If there were any major concerns over consumer confidence and spending, Friday’s stats delivered mixed results.
While core retail sales stagnated in August, following a 1% rise in July, retail sales rose by 0.4%. Economists had forecast a 0.2% rise following a 0.8% rise in July.
On the consumer confidence front, the Michigan Consumer Sentiment Index rose from 89.8 to 92.0 in September. Also positive was a rise in the Expectations Index, from 79.9 to 82.4.
Upward momentum in retail sales, a pickup in consumer confidence and increased service sector activity in August have all been positives for the FED to consider…
On the trade front, tensions between the U.S and China also eased. China removed a number of U.S products from its planned tariffs, with the U.S delaying 1st October tariffs by 2-weeks.
Trade talks are set to resume next month and the change in tact suggests that some progress could be made. Much will likely depend on existing tariffs and Huawei, however…
In the equity markets, the U.S majors closed out the week in positive territory for the 3rd consecutive week. The Dow led the way, rising by 1.58%, with the S&P500 and NASDAQ gaining 0.96% and 0.91% respectively.
Out of the UK
It was another relatively busy week on the data front.
Economic data included 2nd estimate GDP figures and industrial and manufacturing production numbers on Monday. The economic data provided the Pound with much-needed support in the week.
The UK GDP was revised up from a 0.2% contraction to zero growth for the 2nd quarter, with the economy growing by 0.3% in July, month-on-month.
Average wage growth picked up from 3.7% to 4% in July, with the unemployment rate falling from 3.9% to 3.8%.
In spite of the fall in the UK unemployment rate, claimant counts rose from 19.8k to 28.2k in August, suggesting that the fall in the unemployment rate may be a temporary one.
While industrial production reversed a 0.1% fall in June, rising by 0.1% in July, manufacturing production slipped, however. Manufacturing production fell by 0.3%, reversing a 0.2% rise in June.
The UK’s trade deficit also widened from £8.92bn to £9.14bn in July
With the stats Pound positive, Brexit and British politics also provided much-needed support throughout the week.
British Prime Minister Boris Johnson continued to lose battles through the week. On Monday, a second motion for a general election failed and the Scottish courts ruled the suspension of Parliament unlawful.
News of the government negotiating bi-lateral deals with the EU was positive, though it remains to be seen how much progress is made with key trading partners including Germany and France.
In spite of legislation making it illegal for a no-deal Brexit, the PM is adamant, however, that Britain will leave the EU on Halloween. It remains to be seen, whether the British PM will break the law or has discovered a loophole…
The Pound ended the week up by 1.77% to $1.2501, following on from a 1.04% rise from the previous week.
For the FTSE100, a 1.17% gain came in spite of the stronger Pound, marking a 3rd consecutive week in the green.
Out of the Eurozone
It was yet another particularly busy week on the economic data front.
On Monday, July trade data impressed, with Germany’s trade surplus widening from €18.1bn to €20.2bn.
The markets then had to wait until Friday for the next positive stat, with the Eurozone’s trade surplus widening from €20.6bn to €24.8bn. From the Eurozone, wage growth held steady at 2.7% in the 2nd quarter, which would have also been considered positive.
Through the week, finalized August inflation figures out of Germany, France, and Spain had a muted impact on the EUR.
July industrial production figures out of France and Italy provided little support. While production rose by 0.3% in France, following a 2.3% slide in June, production in Italy fell 0.7%. In June, production had fallen by 0.3%.
For the EUR, the main event of the week was the ECB monetary policy decision on Thursday, however. The ECB cut the deposit rate from 0.4% to 0.5%, whilst also reintroducing the asset purchasing program.
For the week, the EUR rose by 0.4% to $1.1073, supported by improved sentiment towards Brexit and easing fears of a global recession.
For the European major indexes, it was a 4th consecutive week in the green. The DAX30 led the way, rallying by 2.27%. The CAC40 and EuroStoxx600 saw more modest gains of 0.92% and 1.2% respectively.
It was a mixed week for the Aussie and Kiwi Dollars following previous week gains.
The Aussie Dollar rose by 0.48% to $0.6879, while the Kiwi Dollar fell by 0.48% to $0.6377.
For the Aussie Dollar
It was a relatively quiet week, with the Aussie Dollar finding little support from the stats.
At the start of the week, July home loans provided some support, with loans rising by 5%, following a 0.9% fall in June. Housing sector conditions are a key consideration for the RBA, which continues to see uncertainty in household spending.
Negative, however, was a deterioration in both business and consumer confidence.
On Tuesday, the NAB Business Confidence Index fell from 4 to 1 in August. On Wednesday, the Westpac Consumer Sentiment Index fell by 1.7% in September, partially reversing a 3.6% rise in August.
While the stats were skewed to the negative, improved sentiment towards the U.S – China trade war provided the upside.
For the Kiwi Dollar
August electronic card retail sales and August’s Business PMI figures provided direction in the week. While both sets of numbers were Kiwi Dollar positive, the Business PMI came in at 48.4, which continued to pressure Kiwi Dollar.
On the positive, card retail sales jumped by 1.1%, according to figures released at the start of the week.
For the Loonie
It was a relatively quiet week on the economic data front.
Stats were limited to housing sector data, which had a muted impact on the Loonie.
Following the BoC hold on policy, sliding oil prices through the week weighed.
The Loonie ended the week down 0.87% to C$1.3288 against the Greenback.
For the Japanese Yen
It was a mixed week on the economic data front.
On Monday, 2nd estimate GDP numbers came in softer, with the economy growing by 0.3% in the 2nd quarter. The 1st estimate had come in at 0.4%.
On Wednesday, the BSI Large Manufacturing Conditions Index recovered from -10.4 to -0.2 in the 3rd quarter, which was positive.
Finalized industrial production figures on Friday had a muted impact, with production rising by 1.3%, which was in line with prelim.
While the stats were skewed to the negative, it was an easing in geopolitical risk that did the damage.
For the week, the Japanese Yen fell by 1.09% to ¥108.09.
Out of China
It was a quiet week on the data front. August inflation figures released on Tuesday had a muted impact on the markets
While the annual rate of inflation held steady at 2.8%, the annual rate of wholesale inflation eased to 0.8% from 0.3% in July.
In spite of the disappointing numbers, a material shift in both the U.S and China’s stance on trade eased market tensions.
The Yuan rose by 0.53% to CNY7.0787 against the Greenback.