Weekly Wrap – Trump Tweets the Dollar and the Equity Markets into the Red…Trump and the FED at odds coupled with an escalation in the U.S – China trade war distracted the majors from a better week on the data front.
It was a particularly quiet week on the economic calendar in the week ending 23rd August.
A total of 35 stats were monitored throughout the week, compared with 61 in the week prior.
Of the 35 stats, 22 came in ahead forecasts, with 8 economic indicators coming up short of forecast. 5 stats were in line with forecasts in the week.
Looking at the numbers, 21 of the stats reflected an upward trend from previous figures. Of the remaining 14, 11 stats reflected a deterioration from previous.
While the economic data was skewed to the positive, the Dollar took a dive on Friday extending losses from the week. Market reaction to Trump’s Friday Tweets did the damage.
Central bank monetary policy, geopolitical risk and economic data were all in focus throughout the week.
The U.S Dollar Index (“DXY”) fell by 0.63% in the week to 97.587.
Out of the U.S
It was a relatively quiet week.
The markets had to wait until Wednesday for July existing home sales numbers that had a muted impact.
Of greater significance were private sector PMI numbers on Thursday. The U.S manufacturing sector contracted in August and the services sector saw a material slowdown in growth.
With negative sentiment towards the economy, the numbers were yet more red flags for the FED to consider.
Wrapping up the week were July new home sales that also had a muted impact on the Dollar.
Of greater influence were the FOMC meeting minutes released on Wednesday and FED Chair Powell’s speech on Friday.
In line with the minutes, Powell reiterated the FOMC willingness to step-in should the need arise. For the markets, this was considered a green light for a September rate cut.
Of even greater significance on Friday was yet another escalation in the U.S – China trade war.
China announced tariffs on U.S goods, which include auto and crude. Trump responded, not only to Powell’s speech but to China’s move.
In the equity markets, the U.S majors closed out the week in the red once more. A Friday sell-off dragged the majors into the red for the week. The NASDAQ led the way, falling by 1.83%, with a Friday 3% slide doing the damage. The Dow and S&P500 weren’t far behind, with losses of 0.99% and 1.45% respectively.
Out of the UK
It was a particularly quiet week on the economic data front. CBI Industrial Trend Orders for August was the only influence on the Pound in the week.
While positive, the downward bias was of little comfort, however, following the UK’s contraction in the 2nd quarter.
Outside of the numbers, Brexit was of far greater significance. Both German Chancellor Merkel and French President Macron left the door ajar for further negotiations.
The Pound ended the week up by 0.96% to $1.2266.
For the FTSE100, it was another week in the red, with the index falling by 0.31% off the back of a 1.88% fall from the previous week.
Out of the Eurozone
It was another particularly busy week on the economic data front.
The Eurozone’s July inflation figures kicked off the week. Monday’s numbers showed an easing in inflationary pressures supporting a near-term move by the ECB.
On Thursday, prelim private sector PMI numbers for August failed to provide support to the EUR. While better than forecasted and improving on July, optimism faded further as did new export orders. The figures continued to raise the threat of a Eurozone recession.
Outside of the stats, the ECB released its monetary policy meeting minutes that affirmed the threat and talked of stimulus next month.
The EUR ended the week up by 0.49% to $1.1144 against the Dollar. The gains came off the back of a 0.58% rally on Friday stemming from an escalation in the trade war.
For the European major indexes, it was a better week for the majors. The CAC40 and DAX30 rose by 0.49% and 0.42% respectively.
It was another bearish week for the Aussie and Kiwi Dollars. The Aussie Dollar fell by 0.34% to $0.6756, with the Kiwi Dollar down by 0.37% to $0.6405.
For the Aussie Dollar
It was a particularly quiet week, with no material stats to provide the Aussie Dollar with direction.
The lack of stats left the markets to focus on the RBA meeting minutes on Tuesday. The minutes provided support to the Aussie Dollar early in the week, as there was no talk of any further rate cuts near-term.
Unsurprisingly, the trade war, deteriorating global economic conditions, and a U.S Treasury yield curve inversion added pressure.
For the Kiwi Dollar
Economic data was limited to 2nd quarter wholesale inflation figures on Monday and 2nd quarter retail sales numbers on Friday.
An unexpected jump in wholesale inflation and better than forecast retail sales figures provided support.
The figures were not enough to pull the Kiwi out of the doldrums, however, as concerns over the global economy weighed.
For the Loonie
It was a busier week than normal on the economic data front.
Key drivers in the week included July inflation figures from Wednesday and June retail sales figures on Friday.
A pickup in inflationary pressure provided the Loonie with support, though it may not be enough to prevent a dovish BoC next month.
Retail sales came in ahead of forecast on Friday, with core retail sales rising by 0.9% in June. Core sales had fallen by 0.4% in May. Retail sales were flat, however, following a 0.2% fall in June, limiting the upside for the Loonie.
Of less influence were June manufacturing sales and wholesale sales figures from Tuesday and Thursday.
The Loonie ended the week down by 0.11% to C$1.3283 against the Greenback.
For the Japanese Yen
Economic data included July export figures on Monday, private sector PMIs on Thursday and inflation numbers on Friday.
Japan saw its trade balance fall into deficit in July, sounding the alarm bells once more. The effects of the U.S – China trade war are showing.
This was also evidenced by disappointing a manufacturing PMI on Wednesday that suggested more pain to come.
Inflation figures at the end of the week had a muted impact. The core annual rate of inflation continued to sit well below the BoJ’s objective.
Geopolitics and sentiment towards FED monetary policy were ultimately the key drivers, however.
For the week, the Japanese Yen rose by 0.93% to ¥105.39.
Out of China
Out of China, it was a quiet week on the economic data front. With no material stats to influence the markets, a move by the PBoC to support the economy supported risk appetite.
The PBoC introduced reforms to lower interest rates to support the economy amidst the ongoing trade war.
The Yuan ended the week down by 0.75% to CNY7.0956 against the Dollar.
The Trade War
On the trade war front, there were no positives to consider, however…
On Friday, China announced tariffs on $75bn worth of U.S imports, which included reintroducing tariffs on autos. China also targeted U.S crude…China’s move came ahead of FED Chair Powell’s speech and resulted in a Twitter tantrum, as the U.S President retaliated.
Trump said that U.S companies should cut ties with China. The tariff retaliation also came. The U.S President stated that he would raise tariffs from 25% to 30% on $250bn worth of Chinese goods and from 10% to 15% on an additional $300bn worth.
Judging by Trump’s reaction to Powell and China’s latest move, it looks like Beijing is winning the war. Next up, the G7 which kicks off today.