Weekly Wrap – Trade, Monetary Policy and U.S Nonfarms Drove the MajorsPositive news from the G20 Summit got the week off to a positive start, with a jump in nonfarm payrolls wrapping things up on Friday… There was plenty in between, however.
It was a relatively busy week on the economic calendar in the week ending 5th July,
A total of 60 stats were monitored throughout the week.
Of the 60 stats, 27 came in below forecasts, with just 16 economic indicators coming in ahead of forecast. 9 stats were in line with forecasts in the week.
Looking at the numbers, 29 of the stats reflected a deterioration from previous figures. Of the remaining 32, 29 stats reflected an upward trend.
While the economic data was ultimately skewed to the negative, sentiment towards Iran, the economic outlook and FED monetary policy drove the Greenback and the majors. The U.S Dollar Index (“DXY”) rose by 1.2% in the week to 97.286.
Out of the U.S
On the data front, key stats were skewed to the negative once again in the week.
A positive start to the week saw manufacturing sector PMI numbers come in ahead of forecast. While coming in ahead of forecast manufacturing sector activity saw slower growth in June according to the market’s preferred ISM numbers.
Focus then shifted to the all-important ADP nonfarm and ISM non-manufacturing PMI numbers on Wednesday. The stats were skewed to the negative on Wednesday.
Service sector activity saw weaker growth in June, according to ot the ISM numbers, with ADP Nonfarm Employment Change figures also coming in below forecast.
Interestingly, the trade war failed to stem the inflow of goods into the U.S, with the U.S trade deficit widening from $51.2bn to $55.5bn in May.
Factory orders also continued to slide, with orders falling by 0.7% in May, following a 1.2% fall in April.
While the stats through to Wednesday supported the prospects of a July FED rate cut, Friday’s nonfarm payrolls clouded the issue.
Nonfarm payrolls rebounded in June. While wage growth disappointed, the solid rise in payrolls should ease pressure on the FED to make a move. The FED has been clear that the focus is on labor market conditions. Assuming that there is no outside influence, it should be a hold at the end of the month…
In the equity markets, the U.S majors resumed their upward trend to strike record levels in the week. The NASDAQ led the way, rising by 1.94%%. The Dow and S&P500 gained 1.21% and 1.65% respectively.
Out of the UK
It was a relatively busy week, with the stats skewed heavily towards the negative.
June’s manufacturing PMI on Monday got the Pound on the defensive early, with sector activity contracting at a quicker pace.
The construction sector PMI on Tuesday and the services sector PMI on Wednesday also weighed. While service sector activity stagnated, construction sector activity slumped at the end of the quarter.
BoE Governor Carney, speaking on Wednesday, also tested the bulls. Carney spoke of the downside risks to the UK economy ahead of Britain leaving the EU. The weak economic indicators have coincided with a shift in the BoE’s outlook on monetary policy, which has certainly become more dovish.
Away from the numbers, the leadership race and chatter over Brexit also pegged the Pound back from any breakout on the week.
The Pound ended the week down by 1.38% to $1.2521.
For the FTSE100, a weaker Pound and hopes of progress on trade talks provided support, with the index up by 1.72% for the week.
Out of the Eurozone
It was also another particularly busy week.
For the EUR it was a mixed bag, however. While the manufacturing sector activity disappointed further in June, service sector activity came to the rescue.
In spite of disappointing manufacturing sector activity, the Eurozone composite PMI came in at 52.2, up from a prelim 52.1 and May’s 51.8.
While the EUR found support from the Eurozone composite, the rest of the numbers failed to impress. German retail sales figures slid by 0.6%, weighing on Eurozone retail sales, which fell by 0.3%. At the end of the week, German factory orders also tested the EUR bulls, with orders sliding by 2.2%.
The EUR ended the week down 1.30% to $1.1225 against the Dollar.
For the European major indexes, a Friday pullback failed to reverse gains from earlier in the week. Support from positive updates from the G20 Summit ultimately drove the majors, coupled with expectations of a FED rate cut.
The DAX30 rose by 1.37%, with the CAC40 up by 0.99% for the week.
It was a bearish week for the Aussie and Kiwi Dollars.
The Aussie Dollar fell by 0.57% to $0.6980, with the Kiwi Dollar down by 1.34% to $0.6628.
For the Aussie Dollar
While the Aussie Dollar ended the week in the red, it was a Friday sell-off that left the Aussie in the red for the week.
It was a mixed week on the economic data front. While the manufacturing sector contracted for the 1st time since August 2016, Australia’s trade surplus widened from A$4.871bn to A$5.745bn.
Building approvals also provided support in May, rising by 0.7%, as house prices began to stabilize.
At the end of the week, while retail sales fell short of forecast, a 0.1% rise in May also provided the Aussie Dollar with support early on in the session on Friday.
Outside of the numbers, the RBA rate cut was largely priced in. The lack of commitment to another rate cut led to a rise in the Aussie Dollar on Tuesday.
For the Kiwi Dollar
Stats were on the lighter side. 2nd quarter business confidence and May building consent figures delivered mixed results.
While the construction sector provided support on Tuesday, building confidence waned in the 2nd quarter to pin the Kiwi back.
U.S nonfarm payrolls on Friday ultimately did the damage, as the markets unwound bets of a July rate cut.
For the Loonie
It was a relatively quiet week.
The markets had to wait until Wednesday for Canada’s May trade figures. It was the only positive from the economic calendar, with the trade balance shifting from a C$1.08bn deficit to a C$0.76bn surplus in May.
June employment and PMI numbers weighed at the end of the week.
In spite of the negative bias, rising tensions in the Middle East provided support to the Loonie, which also fell victim to a bounce back in the Greenback on Friday.
The Loonie ended the week up 0.11% to C$1.3081 against the Greenback.
For the Japanese Yen
The stats were finally skewed to the positive.
While 2nd quarter Tankan index numbers were mixed at the start of the week, household spending jumped in May.
In spite of the jump in spending, the numbers are unlikely to be enough to shift the BoE’s outlook towards monetary policy.
Trade terms continue to be of concern as the U.S and China embark on another round of trade talks.
Outside of the numbers, the market reaction towards the outcome of the G20 Summit had a brief impact on the Yen at the start of the week.
For the week, the Japanese Yen fell by 0.57% to ¥108.47.
Out of China
Private sector PMIs were in focus. There was nothing positive for the markets to consider. According to the Caixin Markit survey, the manufacturing sector contracted in June, whilst service sector growth eased.
There was no major panic, however, as Trump and Xi managed to get trade negotiations back on track.