Weekly Wrap – Trade War Jitters Gripped the Markets in the WeekWhile the stats were skewed to the positive in the week, it was monetary policy and trade talks that ultimately drove the majors.
The economic calendar was on the busier side in the week ending 10th May.
A positively skewed set of stats saw the Dollar fall for a 2nd consecutive week.
For the week, the Greenback fell by 0.19%. Following on from the previous week’s 0.57% decline, the U.S Dollar Index ended the week at 97.33.
While the week’s decline pulled the Dollar into the red for the current month, the U.S Dollar Index was up by 1.34% year-to-date.
Economic data out of the U.S weighed on the U.S Dollar through the week despite the stats being on the light side.
It was a different story for the EUR, however, with key stats skewed to the positive
Recovering from $1.11 levels mid-week, the EUR ended the week up 0.31% to $1.1233.
A total of 57 stats were monitored through the week ending 10th May.
Of the 57 stats, 29 came in ahead of forecasts, with 19 coming in below forecasts. Just 9 stats were in line with forecasts through the week.
Looking at the numbers, out of the total 57 stats, 18 economic indicators reflected a deterioration from prior. Of the remaining 39, 34 economic indicators reported better figures from previous.
Out of the U.S,
On the data front, key stats were skewed to the negative in the week.
Pressure on the Dollar came from weaker wholesale and consumer inflation in April.
The Producer price index rose by just 0.2% month-on-month. While in line with forecasts, this was materially softer than a 0.6% rise in the previous month. The Core PPI also failed to impress, rising by just 0.1% following a 0.3% rise in March. Forecasts were for a 0.2% rise.
Consumer prices rose by 0.3% in April, coming up short of a forecasted and March 0.4%. The annual rate of core inflation came in at 2.1%, which was in line with forecasts. Whilst accelerating from 2% in March, it wasn’t enough to shift sentiment towards FED monetary policy.
On the positive side, labor market numbers continued to impress. The JOLT’s job openings came in at 7.488m in March, coming in ahead of a forecasted 7.350m and February 7.142m.
While coming in worse than a forecasted 215k, initial jobless claims fell from 230k to 228k.
Of less influence was March trade data. The U.S trade deficit widened from $49.30bn to $50bn.
Outside of the numbers, primary focus through the week remained on the U.S – China trade talks that kicked off on Thursday.
Talks ended on Friday without a deal, with the U.S having already hiked tariffs from 10% to 25% on $200bn worth of Chinese goods.
In the equity markets, the U.S majors were in the red for the week. The Dow ended the week down by 2.18%, while the S&P500 and NASDAQ fell by 2.18% and 3.03% respectively.
A late rebound on Friday on hopes that a trade agreement would eventually be reached eased the pain. The Dow and S&P500 gained 0.44% and 0.37% respectively. The NASDAQ ended the day up just 0.08%.
Out of the UK,
It was a particularly busy week on the economic calendar. The markets had to wait until the end of the week, however, for the bulk of the data.
Early on in the week, the BRC retail sales monitor jumped by 3.7% in April, year-on-year. Forecasts were for a 2.4% rise following a 1.1% fall in March.
A data deluge on Friday supported the hawkish commentary from BoE Governor Carney. According to 1st estimates, the UK economy grew by 1.8% year-on-year in the 1st quarter. While in line with forecasts, there was a material pickup from a 4th quarter of 1.4%.
Quarter-on-quarter, the economy grew by 0.5%, which was also in line with forecasts. In the 4th quarter of last year, the economy grew by just 0.2%.
Industrial and manufacturing production also impressed. Manufacturing production rose by 0.9%, following on from a 1% rise in February. Forecasts were for a 0.2% increase.
Of less influence was UK trade data, with the trade deficit narrowing from £14.43bn to £13.65bn.
On the political front, chatter from the UK Parliament and a lack of progress on Brexit offset the positive impact from the numbers.
The Pound tumbled by 1.33% to $1.2998 in the week.
The slide in the Pound failed to support the FTSE100 and the multinationals. The Index slid by 2.4% in the week, as trade jitters weighed heavily on the resource biased index.
Out of the Eurozone,
The stats were skewed to the positive.
Key stats through the week included March factory orders, industrial production and trade data out of Germany. Of less influence were April service sector PMI numbers, employment figures out of France and Spain and Eurozone retail sales figures.
There was finally some good news out of Germany in spite of the EU Commission downwardly revising growth forecasts.
While falling well short of a forecasted 1.5% rise, factory orders rose by 0.6%. Industrial production increased by 0.5%, which was well ahead of a forecasted 0.5% decline.
Wrapping up the week, Germany’s trade surplus widened from €18.7bn to €20bn in March.
In spite of the positive figures, the markets will be looking for the manufacturing sector to return to expansion before shifting sentiment towards ECB monetary policy.
The EUR ended the week up 0.31% at $1.1233.
It was deep red for European equity markets, however. Leading the way down was the CAC, which slid by 3.99%. The DAX and EuroStoxx600 fell by 2.84% and by 3.39% respectively.
Both the Aussie and Kiwi Dollar saw red again in the week, in spite of another partial recovery on Friday.
The Aussie Dollar fell by 0.23%, while the Kiwi Dollar slid by 0.75%.
For the Aussie Dollar, while retail sales came in ahead of forecasts, a 0.3% rise in March came up well short of February’s 0.8% rise. Trade data also failed to impress, with the surplus narrowing from A$5.14bn to A$4.949bn in March.
Outside of the numbers, the RBA delivered its May monetary policy decision and also released its Statement of Monetary policy. The Aussie Dollar found strong support from the RBA Rate statement that continued to avoid talk of a rate cut.
Friday’s Statement of Monetary Policy, however, had a far more dovish tone.
The Kiwi Dollar was under pressure from the getgo. While economic data was on the weaker side in the week, the stats were skewed to the negative.
Inflation expectations released on Tuesday failed to shift sentiment towards the RBNZ monetary policy decision on Wednesday.
Quarterly inflation expectations for 2-years out came in at 2.01% in the 2nd quarter. Inflation expectations in the 1st quarter had stood at 2.02% back in mid-February.
According to the RBNZ’s survey of expectations, Inflation expectations for 1-year out rose from 1.82% in the 1st quarter to 1.97% in the 2nd quarter.
The damage ultimately came from the RBNZ monetary policy decision and accompanying statements. The RBNZ cut the cash rate from 1.75% to 1.50% and delivered a dovish outlook that left the Kiwi Dollar at $0.65 levels.
For the Loonie, the stats were mixed through the week, though skewed to the positive.
On the positive front, the Ivey PMI jumped from 54.3 to 55.9 in April. Employment numbers from Friday were even more impressive. 106.5k jobs were added in April, coming in well ahead of a forecasted 10k and 7.2k fall in March. As a result, the unemployment rate fell from 5.8% to 5.7%.
Trade data was less impressive, however, with the trade deficit widening from C$2.90bn to 3.21bn in March.
The positive numbers on Friday reversed losses from the week, leaving the Loonie with a 0.02% gain for the week.
The Japanese Yen rallied by 1.04% against the Greenback to end the week at ¥109.95. A 0.19% loss on Friday limited the gains, with a shift in sentiment towards the U.S – China trade easing demand for the safe haven late on Friday.
Out of China, stats through the week included April service sector PMI, trade, and inflation figures. On the positive side was a better than expected service sector PMI and an unexpected rise in imports.
Inflationary pressures also built up in April, with the annual rate of inflation accelerating from 2.3% to 2.5%.
On the negative side, however, were an unexpected slide in exports and narrowing of the trade surplus.
New loan figures on Friday also raised some concern. New loans stood at CNY1,020bn in April, coming up well short of a forecasted CNY1,200bn and March CNY1,690bn.