Weekly Wrap – Economic Indicators Flashed Red as the Trade War Took a Bite

The Stats

It was a quieter week on the economic calendar in the week ending 24^th May but it was not without influence.

In spite of a negatively skewed set of stats, the Dollar ended the week in the red for a 3^rd time in 4-weeks.

For the week, the Greenback fell by 0.39%. Partially reversing a 0.68% gain from the previous week, the U.S Dollar Index ended the week at 97.613.

While in the red for the week the Dollar remained in the green for the current month and up by 1.64% year-to-date.

Economic data out of the U.S weighed on the U.S Dollar, with stats on the heavier side in the 2^nd half of the week.

In a relatively choppy week, the EUR managed to close out in positive territory despite some disappointing stats.

Recovering from an intraweek low $1.1107, the EUR ended the week up 0.4% to $1.1203.

A total of 49 stats were monitored through the week ending 24^th May.

Of the 49 stats, 20 came in ahead of forecasts, with 26 coming in below forecasts. 3 stats were in line with forecasts through the week.

Looking at the numbers, out of the total 49 stats, 22 economic indicators reflected a deterioration from prior. Of the remaining 27, 24 economic indicators reported better figures from previous.

Out of the U.S,

On the data front, key stats were skewed to the negative in the week.

It was a quiet start to the week, with April existing home sales the only stats to consider before Thursday.

Existing home sales fell by 0.4%, following a 4.9% slide in March. Forecasts were for a 2.6% rise.

On Thursday, April new home sales were also negative, with sales sliding by 6.9%, reversing most of an 8.1% gain from March.

Of greater influence on Thursday, however, was a marked slowdown in private sector activity.

According to prelim figures, the manufacturing PMI eased from 52.6 to 50.6 in May. Of greater significance, the services PMI fell from 53.0 to 50.9.

According to the May Markit Composite,

• The U.S Composite Output Index fell from 53.0 to a 36-month low 50.9.
• May’s U.S Services PMI fell to a 39-month low, with the manufacturing PMI falling to a 116-month low.
• Disappointing numbers were attributed to softer demand conditions and subdued growth of new orders.
• The rise in new business in May was the softest recorded since records began in Oct-09.
• The pace of hiring was the lowest in more than 2-years, while backlogs fell for the first time since Jun-17.
• Output prices fell for the first time since Feb-16, firms facing increased competitive pressures, with costs also on the decline.
• Optimism was also on the slide, with optimism sitting at its weakest since records began in Jul-12.

Economic data on Friday failed to offset Thursday’s weak figures.

Durable goods orders fell by 2.1% in April, reversing most of a 2.6% rise in March. Forecasts were for a 2% fall. The more influential durable goods orders, excluding defense, slid by 2.5%, which was the largest fall since Jan-18. Excluding transportation, orders were flat

Outside of the stats, the FOMC released its monetary policy meeting minutes, which continued to point to an extended pause on rates.

With the stats skewed to the negative, the U.S – China trade war added further pressure on the Dollar through the week.

After blacklisting Huawei, news hit the wires on Friday that Huawei could form part of a trade deal.

Following hopes of progress, a recent escalation led to Trump needing to deliver a $16bn aid programme to U.S farmers.

Economic indicators and the need to support U.S farmers certainly suggest that the U.S economy is not immune from the effects of the extended trade war.

In the equity markets, the U.S majors ended the week in the red once more. The NASDAQ ended the week down by 2.29%, while the S&P500 and Dow fell by 1.17% and 0.69% respectively.

A string of weak economic data and sentiment towards trade weighed on the week.

Out of the UK,

Economic data was on the heavier side in the week.

On Tuesday, the CBI Industrial Trend Orders fell to -10 in May, which was worse than a forecasted and April -5.

April inflation figures also came in below forecasts, whilst picking up from March. The annual rate of inflation accelerated from 1.9% to 2.1%, with consumer prices rising by 0.6% month-on-month.

The Producer Price Input Index rose by 1.1%, reversing a 0.8% decline in March, supporting a further pickup in inflationary pressure down the road.

On the positive side, retail sales came in better than forecast in April.

Year-on-year, retail sales increased by 5.2%, which was well ahead of a forecasted 4.5% rise. Retail sales had increased by 6.7% in March. Month-on-month, sales were flat following a 1.1% rise in March. Forecasts had been for a 0.4% fall.

While inconclusive, the April figures suggest that March’s surge in spending could have been attributed to an element of hoarding ahead of Britain’s scheduled departure from the EU.

While the data was on the negative, the Pound fell by just 0.08% to $1.2714 in the week.

Politics remained the key driver. Recovering from an intraweek low $1.2605, the Pound bounced back to $1.27 levels on Friday.

While sentiment towards the EU Parliamentary Elections and a lack of progress on Brexit weighed, the Pound found some support following PM Theresa May’s resignation.

The Pound gained 0.45% on the day to recover to $1.27 levels. Hopes of an end to the Brexit deadlock supported Friday’s gains.

For the FTSE100, the softer Pound mid-week failed to provide support, with the index ending the week down 0.96%.

Economic indicators and general sentiment towards the global economy weighed on the week. Mining stocks took a hit, in spite of a Friday rally.

Out of the Eurozone,

The stats were skewed to the negative in the week.

An improvement in the Eurozone’s consumer confidence in May and a rise in German wholesale inflation in April failed to spur the EUR in the early part of the week.

The focus was on the Eurozone’s private sector PMIs and Germany’s business sentiment released on Thursday.

While private sector activity improved in France, according to the May’s prelim PMI survey, Germany’s manufacturing sector continued to contract. Services sector activity also slowed.

Adding to the negative sentiment towards the German economy, the ifo Business Climate Index fell from 99.2 to 97.9.

While the business climate for manufacturing eased, the business climate for the services sector took a bigger hit, sliding from 26.4 to 20.9.

Of less influence through the week were Germany’s 2^nd estimate GDP numbers, which were in line with 1^st estimate figures.

Outside of the stats, the ECB released its monetary policy meeting minutes later in the day. The minutes were unsurprisingly dovish and revealed growing concern over the euro bloc’s economic growth prospects.

The EUR ended the week up 0.4% to $1.1203, cutting the current month’s deficit to just a 0.11% loss.

In the equity markets, the majors hit reverse in the week. Leading the way down was the CAC40, which fell by 2.24% to leave the index down by 4.83% for the current month.

The DAX and EuroStoxx600 fell by 1.86% and by 1.60% respectively.

A combined effect of disappointing economic data and trade war jitters weighed on the European majors in the week.

Elsewhere,

It was a better week for the Aussie and Kiwi Dollars.

The Aussie Dollar gained 0.86% to end the week at $0.6927. The Kiwi Dollar ended the week up 0.52% at $0.6553.

For the Aussie Dollar, economic data was limited to 1^st quarter construction work down. While negative, the shift in sentiment towards the Greenback provided much-needed support. The upside came in spite of the Aussie Dollar sliding to an intraweek low $0.68648 on Thursday.

For the Kiwi Dollar, economic data was skewed to the positive. 1^st quarter retail sales came in ahead of forecast, rising by 0.7%, with New Zealand’s trade deficit narrowing from NZ$5,710m to NZ$5,480m in April.

In spite of the weekly gain for the pair, sentiment towards the global economy and the U.S – China trade war remains a key driver.

For the Loonie, the stats were skewed to the positive.

Core retail sales surged by 1.7% in March, coming in well ahead of a forecasted 0.9% rise. Retail sales rose by 1.1% in the month, following a 1% rise in February.

Later in the week, wholesale sales also impressed, rising by 1.4% in March. Forecasts were for a 0.9% increase.

The Loonie ended the week up 0.16% at C$1.3437 against the Greenback. The games came in spite of a slide in crude oil prices in the week. Brent slid by 4.87%, while WTI ended the week down by 6.58%.

The Japanese Yen found support in the week, returning to ¥109 levels with a 0.70% rise to ¥109.31.

Market risk sentiment and a string of weak economic data from the U.S and the Eurozone supported demand on the week.