Weekly Wrap – Stats and the U.S – China Trade War Put the Dollar on Top

The U.S – China trade war continued to grip the markets and, while the China economy showed cracks, U.S stats impressed.
Bob Mason
Light Board

The Stats

The economic calendar was on the busier side in the week ending 17th May.

A negatively skewed set of stats saw the Dollar on the rise for the first time in 3-weeks.

For the week, the Greenback gained 0.68%. Reversing a 0.19% fall from the previous week, the U.S Dollar Index ended the week at 97.955.

The weekly gain saw the Dollar move into the green for the current month and up by 2.04% year-to-date.

Economic data out of the U.S provided support to the U.S Dollar, with stats on the heavier side.

The EUR struggled through the week, however, with key stats skewed to the negative

Having managed to recover to $1.12 levels in the week prior, a 0.67% loss for the week left the EUR at $1.1158 at the end of the week.

A total of 59 stats were monitored through the week ending 17th May.

Of the 59 stats, 17 came in ahead of forecasts, with 29 coming in below forecasts. 13 stats were in line with forecasts through the week.

Looking at the numbers, out of the total 57 stats, 27 economic indicators reflected a deterioration from prior. Of the remaining 32, 22 economic indicators reported better figures from previous.

Out of the U.S,

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

Economic data at the start of the week was skewed to the negative. April retail sales and industrial production figures disappointed on Wednesday.

Retail sales fell by 0.2%, falling short of a forecasted 0.2% rise, with core retail sales rising by just 0.1% month-on-month. Forecasts were for a 0.7% increase.

Industrial production also slipped unexpectedly, falling by 0.5% to reverse a 0.2% rise in March.

In spite of the softer numbers, support for the Dollar came from a jump in the NY Empire State Manufacturing Index. The Index rose from 10.10 to 17.80 in May.

Stats through the 2nd half of the week were on a more positive footing.

April building permit and housing starts were on the rise in April, with the weekly initial jobless claims figures also impressing.

Of greater significance, however, were May’s Philly FED Manufacturing Index and consumer sentiment numbers.

The Philly FED Manufacturing Index jumped from 8.5 to 16.6 in May, with the Michigan Consumer Sentiment Index surging from 97.2 to 102.4.

Outside of the numbers, primary focus through the week remained on the U.S – China trade war.

U.S President Trump upped the ante late in the week, blacklisting Huawei in the week. The move led to Beijing shifting stance on a willingness to resolve the ongoing trade dispute.

Following the tariff hike on Chinese goods in the previous week, China rolled out tariffs on U.S goods last week. The move came in spite of Trump’s warning to Beijing not to retaliate.

In the equity markets, the U.S majors ended the week in the red again. The NASDAQ ended the week down 1.27%, while the S&P500 and Dow fell by 0.76% and 0.69% respectively.

Negative sentiment towards trade ultimately weighed with the losses coming in spite of 3-consecutive days in the green mid-week.

Out of the UK,

Economic data was on the lighter side throughout the week.

Wage growth and employment numbers, released on Tuesday, weighed on the Pound. Wages grew by just 3.2% in March, easing from a 3.5% rise in February.

Claimant counts also weighed, rising from 22,600 to 24,700 in April.

On the positive, the unemployment rate fell from 3.9% to 3.8% in March, through the April claimant count numbers offset any upbeat sentiment towards March number.

While the data was on the negative, a 2.11% slide in the Pound through the week to $1.2724 resulted from political events in the week.

Early on in the week, EU Election polls showed that Farage and the Brexit Party had knocked both the Tories and the Labour party off of their perches to front run into next week’s EU elections.

Theresa May and Jeremy Corbyn failed to deliver an agreement by the end of the week, leading to more Brexit uncertainty.

To wrap the week up, Theresa May also had to give an end date to her position as PM to the 1922 Committee.

With Farage looking to rock the UK political cradle, talk of Boris Johnson waiting in the wings for the top job didn’t do the Pound too many favors.

The slide in the Pound provided much-needed support to the FTSE100, which ended the week up 2.02%. The upside in the week came in spite of the escalation in the ongoing U.S – China trade war.

Out of the Eurozone,

The stats were mixed through the week.

Key stats included German 1st quarter GDP numbers and Germany and the Eurozone’s economic sentiment and Eurozone industrial production figures.

While Germany’s ZEW current conditions index improved in May, the more influential economic sentiment index slid from 3.1 to -2.1, weighing on the EUR.

Adding to the downside was a slide in the Eurozone’s ZEW economic sentiment index and fall in industrial production.

The economic sentiment index fell from 4.5 to -1.6, with industrial production falling by 0.5% in March.

While a recovery in the German economy was good news, it wasn’t spectacular, with the economy growing by just 0.6% year-on-year. In the 4th quarter, the economy had grown by 0.9%.

Of less influence through the week were Eurozone 1st quarter GDP and trade data, in spite of a widening in the Eurozone’s trade surplus.

Finalized April inflation figures also had little impact on the EUR. The Eurozone’s annual core rate of inflation came in at 1.3%, which was well below the ECB target.

The EUR ended the week down 0.67% to $1.1158, the weekly loss dragging the EUR into the red for the current month.

In the equity markets, the majors found strong support, with the CAC ending the week up 2.08%. The DAX and EuroStoxx600 also made gains, rising by 1.49% and by 1.16% respectively.

Support came from the U.S plan to delay a rollout of tariffs on EU autos for 6-months and the U.S majors, and a softer EUR.

The upside was capped, however, with the majors seeing red on Friday, weighed by the ongoing U.S – China trade war.

Elsewhere,

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

The Aussie Dollar slid by 1.91%%, with the Kiwi Dollar ending the week down 1.18%.

For the Aussie Dollar,

The stats were skewed to the negative. While business confidence saw a slight improvement in April, employment and consumer sentiment numbers weighed.

Wages grew by 0.5% in the 1st quarter, coming up short of a forecasted 0.6% rise. Consumer sentiment rose by just 0.6% following a 1.9% increase in April.

Wrapping up a bad week was a 6,300 fall in full employment in April, leading to the unemployment rate rising from 5.1% to 5.2%.

With the RBA’s focus on labor market conditions, the weaker numbers, coupled with sentiment towards the U.S – China trade war, did the damage ahead of the Federal Elections that take place today.

For the Kiwi Dollar,

There were no stats until the end of the week. A slide in both producer input and output prices in the 1st quarter weighed at the end of the week.

Adding to the downside was the April Business PMI. While the actual PMI rose from 51.9 to 53, sub-index numbers were less impressive. New orders and employment conditions weakened.

With the U.S – China trade war thrown in, the question will be whether the RBNZ will need to cut rates for a 2nd time in the coming months.

For the Loonie,

The stats were skewed to the negative.

April inflation figures disappointed on Wednesday. The annual core rate of inflation came in at 1.5%, which was softer than 1.6% in March and a forecasted 1.8%.

Core consumer prices failed to budge, month-on-month, while the consumer price index rose by 0.4%. Consumer prices had risen by 0.7% in March.

March manufacturing sales figures failed to give the Loonie a boost on Thursday. Sales increased by 2.1%, which was far better than a forecasted 1.5% increase.

While the stats were skewed to the negative, news of the U.S, Canada, and Mexico reaching a deal to lift tariffs on steel and aluminum limited the downside for the Loonie on the week.

The Loonie ended the week down 0.31% at C$1.3458 against the Greenback.

For the Japanese Yen,

The Japanese Yen slipped to ¥110 levels to end the week down 0.12% at ¥110.08.

Losses came despite a shift in sentiment towards the U.S – China trade talks and lack of progress on Brexit.

A jump in the Michigan Consumer Sentiment figure on Friday suggests strong support for Trump policy, which ultimately left the Yen in the red.

Out of China,

Stats through the week included April fixed asset investment, industrial production, and retail sales figures.

All the numbers were on the weaker side, with industrial production rising by just 5.4% year-on-year. Production had risen by 8.5% year-on-year in March.

With the latest blacklisting of Huawei, Beijing announced support measures as the extended trade war begins to bite. Time will tell whether there will be a loosening of the purse strings that could raise concerns over ballooning corporate debt levels.

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