Weekly Wrap – Trade, Politics and a Busy Economic Calendar Drove the MajorsA material shift in the geopolitical landscape provided much-needed support. Positive news from HK, Italy, the UK and China, and the U.S was key.
It was another busy week on the economic calendar in the week ending 6th September.
A total of 62 stats were monitored throughout the week, compared with 57 in the week prior.
Of the 62 stats, 28 came in ahead forecasts, with 27 economic indicators coming up short of forecast. 7 stats were in line with forecasts in the week.
Looking at the numbers, 28 of the stats reflected an upward trend from previous figures. Of the remaining 34, 29 stats reflected a deterioration from previous.
While the economic data was skewed to the negative, the Dollar also ended up in the red. A material shift in the geopolitical landscape eased demand for the Greenback in the 2nd half of the week.
The U.S Dollar Index (“DXY”) fell by 0.42% in the week to $98.394, reversing August’s 0.3% gain.
Out of the U.S
It was a busy week for the Dollar.
August private sector PMI and Labor market figures were the key drivers through the week.
The PMI numbers delivered mixed results, with the markets focused on the ISM Surveys.
On Tuesday, the ISM Manufacturing PMI slid from 51.2 to 49.1 to cause a stir. While the ISM PMI reflected a contraction, the Markit Survey PMI came in at 50.3.
Brushing aside trade figures on Wednesday, ADP nonfarm employment change figures and the August ISM non-manufacturing PMI impressed on Thursday.
According to the ADP, 195k nonfarm jobs were added in August, up from 142k in July.
Perhaps more impressive was a jump in the ISM non-manufacturing PMI. The PMI rose from 53.7 to 56.4 in August.
Other positives included a 1.4% rise in factory orders, which came off the back of a 0.6% rise in June.
The main event of the week, however, was Friday’s labor market figures. While wage growth held steady year-on-year at 3.2%, nonfarm payroll figures disappointed. Nonfarm payrolls increased by 130k, following a 159k rise in July. Private nonfarm payrolls rose by just 96k…
In spite of the disappointing numbers, the unemployment rate held steady at 3.7% to limit the downside for the Dollar.
News of China and the U.S agreeing to resume trade negotiations next month failed to give the Dollar a boost.
Political events in the UK Parliament, HK, and Rome led to an easing in geopolitical risk and demand for the dollar over the week.
In the equity markets, the U.S majors closed out the week in positive territory for the 2nd consecutive week. The S&P500 led the way, rising by 1.79%, with the Dow and NASDAQ gaining 1.49% and 1.76% respectively.
Out of the UK
It was a relatively busy week on the economic data front. Economic data included August private sector PMIs, retail sales figures, and house price data.
There was nothing positive about the numbers. Both the manufacturing and construction sectors contracted at a faster pace in August.
Of greater significance was a slide in the service PMI from 51.4 to 50.6.
Retail sales figures also failed to provide support. August sales fell by 0.5%, year-on-year, according to the BRC Retail Sales Monitor.
House price figures at the end of the week had a muted impact on the Pound.
Throughout the week, it was British politics and Brexit that ultimately provided the Pound with support.
The UK Parliament managed to pass legislation to prevent Johnson from dragging Britain out of the EU without a deal. MPs delivered the PM with multiple defeats in the week. Johnson also failed to force a snap general election that would have raised the probability of a no-deal Brexit.
As things stand, a Brexit extension to the end of January 2020 is now on the cards assuming that the EU approves the request. Once approved, Johnson is then likely to get the support for a snap general election if a vote of no confidence doesn’t come first…
The Pound ended the week up by 1.04% to $1.2283, reversing a 0.9% fall from the previous week.
For the FTSE100, a 1.04% gain came in spite of the stronger Pound, marking a 2nd consecutive week in the green.
Out of the Eurozone
It was another particularly busy week on the economic data front.
August private sector PMI figures were in focus through the first half of the week and the stats were skewed to the positive.
On Monday, figures showed that Germany, Spain, and Italy’s manufacturing sectors contracted at a slower pace.
More impressively, France’s manufacturing sector returned to growth in August. While the stats were skewed to the positive, the Eurozone manufacturing sector PMI continued to paint a gloomy picture. The Eurozone’s PMI stood at 47 in August, up from 46.5 in July.
On Wednesday, the services sector PMIs were also skewed to the positive.
France, Germany, and Spain saw services sector activity accelerate in August, while Italy saw activity slow. The upward trend across the bloc supported the Eurozone’s PMI, which rose from 53.2 to 53.5.
Economic data through the latter part of the week was limited to German factory order and industrial production figures. Neither impressed, with orders sliding by 2.7% and production falling by 0.6%.
The figures had a muted impact on the EUR, however, as geopolitics within the region provided upside in the week.
Of little influence in the week were 3rd estimate GDP numbers out of the Eurozone and Spanish employment figures.
On the political front
Italy’s Five Star Movement eased market fears of a snap general election by forming a coalition with the Democratic Party.
In the UK, MPs returned from the summer recess to block British PM Johnson’s plans to drag Britain out of the EU next month, deal or no deal.
The EUR ended the week up by 0.43% to $1.1029 against the Dollar
For the European major indexes, it was a 3rd consecutive week in the green. The CAC40 and DAX30 rose by 2.25% and 2.11% respectively, with the EuroStoxx600 rising by 2.02%.
The gains came in spite of dire stats out of Germany, with hopes of progress on the trade war front also delivering a boost.
It was a bullish week for the Aussie and Kiwi Dollars after 3 consecutive weekly losses.
The Aussie Dollar rallied by 1.68% to $0.6846, with the Kiwi Dollar up by 1.20% to $0.6404.
For the Aussie Dollar, the gains for the week reversed August’s 1.64% slide. The Kiwi has some way to go, however, having tumbled by 3.52% in August.
For the Aussie Dollar
It was a busy week, with the stats skewed to the positive.
At the start of the week, the manufacturing sector and company operating profit figures impressed.
The AIG Manufacturing Index rose from 51.3 to 53.1 in August. More impressively, company gross operating profits jumped by 4.5% in the 2nd quarter, up from 2.6% in the 1st.
On Tuesday the market focus was on the RBA. Disappointing retail sales figures failed to rock the boat. Sales fell by 0.1% in July.
Support for the Aussie Dollar came from the RBA’s decision to hold interest rates steady and hold back from any talk of a near-term rate cut.
The focus then shifted to 2nd quarter GDP numbers on Wednesday and trade data on Thursday.
Quarter-on-quarter, the economy grew by 0.5%, up from 0.4% in the 1st, providing further upside for the Aussie. The gains came in spite of the economy slowing from 1.8% to 1.4% year-on-year.
On Thursday, the trade surplus narrowed from A$7.977bn to A$7.269bn, which came in ahead of forecasts.
Out of China, private sector PMIs provided further support as did the shift in sentiment towards the U.S – China trade war.
For the Kiwi Dollar
There were no material stats to provide the Kiwi with direction through the week.
The lack of stats left the Kiwi in the hands of geopolitics and data out of China, both of which were Kiwi positives.
For the Loonie
It was a relatively busy week on the economic data front.
2nd quarter labor productivity and July trade data disappointed on Wednesday ahead of the BoC monetary policy decision.
Canada’s trade balance shifted from a C$0.06bn surplus to a C$1.12bn deficit in July. Labor productivity eased from 0.4% to 0.2% in the 2nd quarter. Both figures were worse than forecasts.
The main event of the week, however, was the BoC Interest rate decision. The Loonie found strong support from the Bank of Canada’s hold and lack of talk of a near-term rate cut.
At the end of the week, employment and PMI numbers impressed, providing further upside for the Loonie.
A jump in crude oil prices through the week didn’t hurt…
The Loonie ended the week up 1.04% to C$1.3173 against the Greenback.
For the Japanese Yen
Economic data continued to disappoint.
Capital spending rose by just 1.9% in the 2nd quarter, down from 6.1% in the 1st. Japan’s manufacturing sector also failed to impress, with the PMI falling from 49.4 to 49.3 in August.
On Wednesday, service sector activity provided some support, with the PMI rising from 51.8 to 53.3. Economists had forecast a rise to 53.4, however.
On Friday, household spending figures were unimpressive. Month-on-month, spending fell by 0.9%, following a 2.8% fall in June. Year-on-year, spending rose by just 0.9%, following a 2.7% rise in June.
Outside of the stats, however, the shift in the geopolitical landscape ultimately pinned the Yen back.
For the week, the Japanese Yen fell by 0.90% to ¥106.92.
Out of China
August private sector PMI figures were in focus, both of which were positives for the broader market.
On Monday, the August Manufacturing PMI came in at 50.4, up from 49.9 in July. The service sector PMI also provided support, rising from 51.6 to 52.1 in August.
Positive numbers and news of the U.S and China meeting next month to discuss trade terms supported risk through the week.
The Yuan rose by 0.56% to CNY7.1164 against the Greenback.