Weekly Wrap – Risk Appetite Failed to Support the AUD, the EUR, or the Kiwi…The Greenback found support in a week where the Aussie and Kiwi Dollar hit red and economic data out of the Eurozone and China diverged.
It was a busier week, with the economic calendar delivering direction for the broader market.
Following a pullback in the Dollar in the early part of the 2nd quarter, sub-97 support levels kicked in mid-week. Dire economic data out of the Eurozone ultimately led to the EUR’s demise on Thursday, supporting the Dollar boost.
A slide in the Aussie Dollar and Kiwi Dollar, coupled with solid retail sales figures out of the U.S also contributed to the Greenback’s gains. For the week, the Greenback was up 0.42%.
Of a total of 75 stats monitored through the week, 35 economic indicators came in ahead of market forecasts. 28 economic indicators came in below forecasts, with only 12 being in line with forecasts.
Of the 35 economic indicators, 30 showed improvement from previous releases. From the 12 forecasts that were in line with forecasts, just 3 were better than previous releases.
Looking at the 28 economic indicators that were below forecasts, 2 were better than previous releases.
All in all, 35 of the 75 economic indicators reflected an improvement in economic conditions, with 26 showing a deterioration.
Through the week, there was no threat of a yield curve inversion, with yields for 10-year Treasuries ending the week at 2.56 versus 2.41% for 3-month Treasuries.
The positive curve was supported by better than expected stats out of the U.S. and corporate earnings.
Out of the U.S,
On the data front, key stats were once more skewed to the negative.
Red flags through the week included weaker manufacturing and service sector PMI numbers and industrial production figures.
While service sector activity showed slower growth in April, a jump in retail sales was key in the week.
Labor market conditions continued to support a positive outlook on consumption. Initial jobless claims stood at 192k, which was the lowest level since 1969.
In the equity markets, the U.S majors were mixed in the week. The Dow and NASDAQ gained 0.56% and 0.17% respectively, while the S&P500 fell by 0.08%.
Better than anticipated earnings results and the jump in retail sales provided support to the majors in the week. For the S&P500, the healthcare sector left the index in the red. The slide in healthcare stocks was attributed to further calls for lower drug prices and a Medicare for All possible revamp of the healthcare system.
Out of the UK,
Key stats through the week included inflation, retail sales, and employment figures.
Softer than expected inflation figures in March limited any upside in the Pound despite better than expected retail sales figures.
Adding to the downside in the Pound was a larger than forecasted rise in claimant counts in March.
For the Pound, it ultimately boiled down to Brexit, however.
Following the EU vote in favor of a Brexit extension through to 31st October, the lack of Brexit chatter did the Pound few favors.
The Pound fell by 0.62% to $1.2993 in the week.
Supported by the weaker Pound, the FTSE100 managed to eke out a 0.31% gain in the week. Better than expected economic data out of China and progress in U.S and China trade talks provided further support in the week.
Out of the Eurozone,
It was a mixed bag for the EUR.
While sentiment in both Germany and the Eurozone saw a marked improvement in April, private sector PMI numbers continued to disappoint.
Of greater influence, however, was weaker than forecasted manufacturing PMI numbers out of France and Germany.
While Germany’s manufacturing and service PMIs hit 2-month and 7-month highs respectively, hopes had been for a more marked improvement. In April, the manufacturing sector continued to contract, albeit it at a marginally slower pace.
Key from the manufacturing survey was a steep fall in new orders, suggesting another contraction in May.
From elsewhere, better than expected export figures out of China on Wednesday supported appetite for riskier assets, but it wasn’t enough to support a positive week for the EUR.
For the week, the EUR ended the week down 0.48%.
It was a positive week for the European equity markets, however. The DAX and CAC led the way, gaining 1.85% and 1.41% respectively. The EuroStoxx600 ended the week up 0.92%.
Supporting the majors through the week were better than expected economic data out of China and the U.S and the weaker EUR.
The markets were able to brush off the disappointing PMI figures on Thursday, with corporate earnings also supporting upside in the week.
Across the European majors, financials and autos found strong support. Better than anticipated earnings, better than forecasted data out of China and hopes of an end to the U.S – China trade war provided both sectors with the upside through the week.
UniCredit S.p.A gained 2.24%, with BNP Paribas (+4.57%), Commerzbank (+4.78%), and Deutsche Bank (+1.83%) all seeing strong gains in the week. It could have been a far better week had it not been for a pullback on Thursday.
Across the auto sector. Volkswagen, Daimler, and BMW ended the week on a high. VW gained 5.89%, with Daimler and BMW up by 4.73% and 2.86%
Another rise in crude oil prices through the week, coupled with a pickup in risk appetite failed to support the Loonie. The Loonie ended the week down 0.51% against the Greenback. A dovish BoC Business Outlook Survey offset better than expected inflation, trade, and retail sales figures.
The Japanese Yen rose by 0.04% against the Greenback on Friday to end the up 0.09% to ¥111.92.
For the Aussie Dollar and Kiwi Dollar, it was a week in the red.
The Aussie Dollar fell by 0.29%, with the Kiwi Dollar sliding by 1.17%.
For the Kiwi Dollar, 1st quarter inflation figures did the damage. The annual rate of inflation came in at 1.5% for the 1st quarter, falling well short of a forecasted 1.7% and 4th quarter 1.9%.
The softer inflation figures raised the prospects of a near-term rate cut by the RBNZ.
Economic data out of Australia included March employment and business confidence figures. A pickup in the unemployment rate came from a rise in the participation rate, leaving the employment change figures to provide support on Thursday. The Aussie Dollar was unable to close out Thursday in the green, however, with business confidence taking a turn for the worst.
From elsewhere, better than expected economic data out of China also limited the downside for the Aussie Dollar.
Outside of the numbers, the RBA released the monetary policy meeting minutes earlier in the week. While dovish, improving labor market conditions will need to deliver a pickup in wage growth to give the RBA breathing room. Tepid wage growth has raised concerns over the consumption outlook, which will ultimately be key to whether the RBA would need to cut rates to ease pressures on households straddled with debt.