Weekly Wrap – Trade War Angst and a Slew of Weak Stats WeighedA string of weak economic data and an escalation in the U.S – China trade war drove the majors, which also led to a surprise move by the RBNZ.
It was a less busy week on the economic calendar in the week ending 9th August.
A total of 58 stats were monitored throughout the week, compared with 71 in the week prior.
Of the 58 stats, 26 came in ahead forecasts, with 29 economic indicators coming up short of forecast. 3 stats were in line with forecasts in the week.
Looking at the numbers, 22 of the stats reflected an upward trend from previous figures. Of the remaining 36, 32 stats reflected a deterioration from previous.
With the economic data skewed to the negative, the Dollar struggled on the week, with negative sentiment towards the U.S – China trade war weighing.
Central bank monetary policy, geopolitical risk and economic data were all in focus throughout the week. With the trade war in full swing, a currency war was also afoot…
The U.S Dollar Index (“DXY”) fell by 0.62% in the week to 97.491.
Out of the U.S
It was a relatively quiet week on the economic data front.
In the early part of the week, key stats included service sector PMI numbers on Monday, JOLTs job opening figures for June on Tuesday.
While the Markit survey reported a pickup in service sector activity in July, the market’s preferred ISM survey weighed.
The July ISM non-manufacturing PMI fell back from 55.1 to 53.7 providing further evidence of slower economic growth.
In the 2nd half of the week, stats included the weekly jobless claims and July wholesale inflation figures.
While initial jobless claims slipped back on Thursday, the core producer price index hit reverse in July. Friday’s stats suggested that inflationary pressures are likely to ease further.
All in all, the stats supported a more dovish FED in the coming FOMC…
In the equity markets, the U.S majors closed out the week in the red. The Dow led the way, falling by 0.46%, with a Friday 0.66% decline dragging the index into the red. The NASDAQ and S&P500 weren’t far behind, with losses of 0.56% and 0.46% respectively. Following a Thursday rebound, a pullback on Friday also left the pair in the red for the week.
Out of the UK
It was another particularly busy week on the economic data front.
Key stats included July service PMI and BRC Retail Sales Monitor figures in the 1st half of the week.
It was a positive start to the week, with the July service PMI rising from 50.2 to 51.4 on Monday. Also supporting the Pound was a 0.1% rise in the Retail Sales Monitor on Tuesday. The pickup came off the back of a 1.6% slide in June, which had punished the Pound last month.
The markets then had to wait until Friday for the main event. 2nd quarter GDP and manufacturing production figures weighed heavily on the day.
Quarter-on-quarter, the UK economy contracted by 0.2% in the 2nd quarter, supporting the talk of a UK recession. Year-on-year, the economy slowed from 1.8% to 1.2%.
Manufacturing production fell by 0.2%, following a 1.4% rise in May, leading to a 0.1% fall in industrial production.
The only positive on the day was a narrowing in the UK’s trade deficits in June. While the headline figures were positive, the narrowing was as a result of a material fall in imports and not jump in exports.
On the Brexit front, there were no major developments to weigh on the Pound. Friday’s stats ultimately pulled the Pound back to $1.20 levels.
The Pound ended the week down by 1.06% to $1.2033.
For the FTSE100, it was another week in the red, with the index sliding by 2.07%. The fall in the Pound failed to provide support, as trade war angst weighed on resource stocks. Rio Tinto tumbled by 7.53% in the week. Anglo American, Antofagasta, BHP, and Glencore also saw heavy losses.
Out of the Eurozone
It was a relatively busy week.
Key stats included July service PMI numbers on Monday. Focus through the remainder of the week was on Germany. German factory orders on Tuesday, industrial production numbers on Wednesday and trade data on Friday provided direction.
On the service sector PMIs, it was a mixed bag, slower sector growth in Spain offset a pickup in activity in Italy. The Eurozone service PMI came in at 53.2, down from a prelim 53.3 and June 53.6. While in line with prelim, the Eurozone Composite PMI also slipped in July, falling from 52.2 to 51.5.
Out of Germany, the only positive was a 2.5% jump in factory orders on Tuesday, reversing a 2% slide from May.
Industrial production slid by 1.5% in June, with Germany’s trade deficit coming in at €18.1bn, unchanged from a downwardly revised €18.1bn in May.
In the week, the ECB also released its Economic Bulletin, which continued to highlight economic woes.
The EUR ended the week up by 0.84% to $1.1201 against the Dollar, supported by a weaker Greenback. Negative sentiment towards the effects of the U.S – China trade war on the U.S economy was key.
For the European major indexes, it was another bearish week for the majors. The DAX30 fell by 1.5%, while the CAC40 fell by a more modest 0.58% on the week.
It was another bearish week for the Aussie and Kiwi Dollars.
The Aussie Dollar fell by 0.22% to $0.6786, with the Kiwi Dollar sliding by 1.04% to $0.6468.
For the Aussie Dollar
It was a relatively quiet week on the data front. Stats were limited to June trade data on Tuesday and June home loans on Wednesday.
Australia’s trade surplus jumped from A$6.173bn to A$8.036bn in June, providing the Aussie Dollar with support. A larger than expected fall in home loans had a muted impact on Wednesday.
Whilst negative sentiment towards the U.S – China trade war weighed, support came from a more hawkish than expected RBA hold on interest rates on Tuesday.
On Friday, the RBA was back in action, with RBA Governor Lowe speaking ahead of the release of the RBA Statement of monetary policy. Both the speech and the statement were Aussie Dollar negative…
For the Kiwi Dollar
Economic data was limited to 2nd quarter employment figures and 3rd quarter inflation expectation numbers.
The employment numbers impressed on Tuesday, with the unemployment rate falling from 4.2% to 3.9%.
Inflation expectations were negative, however, with inflation expectations for 1-year out falling from 1.97% to 1.71%.
While the stats were mixed, it ultimately came down to the RBNZ, which caught the markets off-guard with a 50 basis point rate cut. The markets had anticipated a 25 basis point cut.
Adding further pressure on the Kiwi Dollar was the talk of a possible move into a negative rate environment…
For the Loonie
It was a mixed bag on the economic data front.
On Wednesday, the Ivey PMI picked up from 52.4 to 54.2 in July, providing some much-needed support.
The end of the week was Loonie negative, however. The unemployment rate rose from 5.5% to 5.7% in July, as a result of a 24.2k fall in employment.
Outside of the stats, falling crude oil prices and negative sentiment towards the global economic outlook also weighed.
A struggling Greenback limited the Loonie’s losses for the week, however.
The Loonie ended the week down by 0.11% to C$1.3222 against the Greenback.
For the Japanese Yen
Economic data included July Service PMI and June household spending figures on Monday and Tuesday and 2nd quarter GDP numbers on Friday.
On the negative front, the Service PMI fell from 51.9 to 51.8 in July.
The rest of the stats came in ahead of forecast but were ultimately weaker numbers.
Household spending fell by 2.8% in June, month-on-month, partially reversing a 5.5% rise in May. Year-on-year, spending rose by 2.7%, down from a 4% rise in May.
Japan’s economy saw slower growth in the 2nd quarter. Year-on-year, the economy grew by 1.8%, down from 2.2% in the 1st quarter. Quarter-on-quarter, the economy grew by 0.4%, down from 0.6% in the 1st quarter.
While the numbers were better than forecast, the escalation in the U.S – China trade war suggests a further slowdown is on the cards.
For the week, the Japanese Yen rose by 0.84% to ¥105.69, with the upside coming from the risk-off sentiment in the week.
Out of China
It was a relatively busy week on the data front. At the start of the week, the Service PMI disappointed, with the PMI falling from 52.0 to 51.6 in July.
The markets then had to wait for July trade data on Thursday, which provided the global financial markets with some much-needed support.
While China’s trade surplus narrowed from $50.98bn to $45.06bn, an unexpected 3% rise in exports was the key. Imports fell by 5.6%, which was better than forecast, providing further support.
At the end of the week, inflation numbers were mixed. While the annual rate of inflation picked up from 2.7% to 2.8%, the annual rate of wholesale inflation weighed. The producer price index fell by 0.3% in July, following a 0.6% rise in June.
For the week, it ultimately came down to how the Chinese Government responded to Trump’s announcement of more tariffs.
The Yuan did the talking, with the PBoC allowing the Yuan to rise to beyond CNY7.00 against the Greenback on Monday.
While the PBoC strengthened the Yuan through the rest of the week, the Monday move was a statement of intent that rattled the markets…