Weekly Wrap – Stats, Monetary Policy and Trade Sentiment Drove the MajorsA shift in FED sentiment towards monetary policy and hopes of progress in trade talks drove the majors in the week.
It was a busy week on the economic calendar in the week ending 7th June,
A total of 71 stats were monitored throughout the week.
Of the 71 stats, 33 came in below forecasts, with just 23 economic indicators coming in ahead of forecast. 15 stats were in line with forecasts in the week.
Looking at the numbers, 33 of the stats reflected a deterioration from previous figures. Of the remaining 38, 24 stats reflected an upward trend.
In spite of the economic data skewed to the negative, the U.S Dollar Index (“DXY”) tumbled by 1.23% to 96.544 on the week, reversing the previous week’s 0.14% gain with interest.
For the EUR, the path was upwards through the week, with the EUR seeing green in 4 out of the 5 days. It was a battle of the Banks on the week, with FED Chair Powell ultimately taking a far more dovish stance on monetary policy than ECB President Draghi.
Out of the U.S,
On the data front, key stats were skewed to the negative again in the week.
On the positive front, the all-important ISM non-manufacturing PMI increased from 55.5 to 56.9 in May. Alongside the headline number, both the new orders and employment sub-indexes also improved on the month.
For the manufacturing sector, while the ISM manufacturing PMI fell in May, the employment and new orders sub-indexes also improved on the month.
The only other positive was a less than forecasted fall in factory orders in April. Partially reversing a 1.3% increase in March, factory orders fell by 0.8%. Economists had forecasted a 0.9% decline.
On the negative side, the ADP nonfarm employment change, average wage growth, and nonfarm payrolls had the greatest impact on the Greenback.
Following dire ADP numbers on Wednesday, the latest government figures also sounded the alarm. Wage growth slowed to 3.1%, with just 75,000 jobs added, which was well short of a forecasted 185,000.
Finalized 1st quarter unit labor cost and nonfarm productivity numbers also came in short of 2nd estimates.
On the trade side, with the U.S President looking to throw Mexico into the trade warpath, the extended U.S – China trade war had a limited impact on the U.S trade deficit.
In April, the trade deficit widened from $50.0bn to $50.8bn…
Outside the numbers, FED Chair Powell managed to sink the Greenback early on in the week. Following last week’s global equity market sell-off and trade war chatter, the FED chair stepped forward to assure the markets of the FED’s willingness to cut rates should the need arise.
While Powell delivered the greatest support for the majors, hopes of progress in U.S – China trade talks and a decision to delay Mexican tariffs also provided support later on in the week
In the equity markets, the U.S majors reversed previous week losses, supported by FED Chair Powell’s dovish commentary. The Dow rallied by 4.71%, with the NASDAQ and S&P500 rising by 3.88% and 4.41% respectively.
The gains made a sizeable dent into last month’s losses.
Out of the UK,
It was a relatively quiet week on the economic data front.
May private-sector PMI figures provided mixed sentiment towards the UK economy.
While both the manufacturing and construction sectors contracted in May, the services sector saw a pickup in activity. With the services sector accounting for the lion’s share of the UK GDP, it wasn’t all doom and gloom.
Another negative in the week, however, was a 3% slide in the BRC Retail Sales Monitor in May.
Outside of the stats, U.S President Trump visited the UK delivering the promise of a phenomenal trade deal.
From Downing Street, Theresa May spent her last day as the Conservative Party leader on Friday.
There was little chatter on Brexit to rock the Pound, which managed to move back through to $1.27 levels. The gains were largely down to the Greenback’s demise, however.
The Pound gained 0.86% in the week, reversing a previous week 0.67% decline, to end the week at $1.2737.
For the FTSE100, the stronger Pound had a muted impact on the 100. The Index rallied by 2.38% in the week, partially reversing the 3.46% loss from May.
Hopes of progress in the trade war between the U.S and China and the U.S decision to delay tariffs on Mexico provided support in the week. The Index was up for 5-consecutive days at the start of June.
Out of the Eurozone,
It was a particularly busy week, with the stats skewed to the positive.
Private sector PMI and German factory orders, industrial production, and trade figures were the main areas of focus for the markets.
The only positive from the manufacturing sector was a slower pace of contraction in Italy and continued expansion in France. Spain’s manufacturing sector ground to a halt, leaving the Eurozone manufacturing sector in contraction. Germany’s manufacturing sector continued to contract for a 5th consecutive month.
Service sector activity was far better. While Italy’s services sector stagnated, Germany and Spain continued to support, leaving the Eurozone services sector PMI at 52.9 and the Composite PMI at 51.8.
Out of Germany, factory orders came in better than forecast, rising by 0.3% following a 0.6% rise in March. However, the trade surplus narrowed from €20bn to €17bn and industrial production fell by 1.9% in April.
From the Eurozone, retail sales fell by 0.4%, while the unemployment rate fell from 7.7% to 7.6%.
The key driver in the week, however, was the ECB monetary policy decision on Thursday. The ECB delivered on round 3 of the TLTRO, which was in line with expectations. Driving support for the EUR, however, was the ECB announcement that there would be no adjustment to interest rates until the 2nd half of next year.
While still on the dovish side, Draghi’s unwillingness to talk of near-term rate cut amidst the economic doom and gloom surprised.
A dovish FED Chair and a less dovish than expected ECB President gave the EUR a 1.48% gain for the week.
In the equity markets, the stronger EUR failed to pin back the majors. The CAC40 gained 3%, with the DAX30 ending the week up by 2.72%. The pair reversed previous week losses.
It was a positive week for the Aussie and Kiwi Dollars.
The Aussie Dollar gained 0.91% to end the week at $0.7001. The Kiwi Dollar, however, rallied by 2.05% to end the week at $0.6665.
For the Aussie Dollar,
The gains came in spite of the stats being skewed heavily towards the negative.
1st quarter gross company operating profits rose by 1.7%, coming up short of a forecasted 3% rise. The AIG manufacturing Index fell from 54.8 to 52.7 in May.
Of greater significance, retail sales fell by 0.1%, with the trade surplus narrowing from A$4.949bn to A$4.871bn
Economic growth also slowed in the 1st quarter. Year-on-year, the economy grew by 1.8%, down from 2.3% in the 4th quarter. Quarter-on-quarter, the economy grew by 0.4%, up from a 4th quarter 0.2%, whilst falling short of a forecasted 0.5%.
With the stats stacked against the Aussie Dollar, the RBA also delivered a rate cut on Tuesday.
A tumbling U.S Dollar offset the negatives, however, alongside hopes of progress on trade talks.
For the Kiwi Dollar,
There were no material stats to rock the boat, allowing the Kiwi to make stronger gains on the week.
For the Loonie,
The stats were skewed to the positive once more.
The trade deficit narrowed by C$2.34bn to C$0.97bn in April, with a 27.7k increase in employment leading to a fall in the unemployment rate from 5.7% to 5.4%.
1st quarter labor productivity also improved, rising by 0.3% following a 4th quarter 0.4% fall.
The only negative on the week was the May Ivey PMI number. The PMI held steady at 55.9, coming up short of a forecasted increase to 56.7.
After a choppy first part of the week, with a slide in crude oil prices pressuring the Loonie, it was onwards and upwards.
The Loonie ended the week up 1.84% to C$1.3267 against the Greenback.
For the Japanese Yen,
It was relatively flat through the week, rising by just 0.09% to end the week at ¥108.19.
While market concerns over the ongoing trade war and threat of tariffs on Mexico improved, it was the pullback in the Dollar that left the Yen in the green for the week.
Out of China,
The manufacturing PMI held steady at 50.2, supporting risk appetite, while the service sector PMI fell from 54.5 to 52.7.