The Weekly Wrap – Riskier Assets Gain at the Expense of the USD

The Stats

It was a busier week on the economic calendar for the week ending 18^th March.

A total of 59 stats were monitored, following 50 stats in the week prior.

Of the 59 stats, 29 came in ahead of forecasts, with 23 economic indicators coming up short of forecast. 7 stats were in line with forecasts in the week.

Looking at the numbers, 32 of the stats reflected an upward trend from previous figures. Of the remaining 27 stats, 25 reflected a deterioration from previous numbers.

While the stats influenced, geopolitics and monetary policy were the key drivers for the global financial markets. Hopes of Russia agreeing to a ceasefire delivered support for riskier assets. Market reaction to the FED’s rate hike and projections was also risk-on.

Out of the U.S

In the first half of the week, wholesale inflation and retail sales were the key stats. The numbers were dollar negative.

The core producer price index increased by 0.2% in February, softer than a 1.0% rise in January.

More significantly, retail sales were also disappointing. Core retail sales rose by just 0.2%, with retail sales up 0.3% in February. Both had seen marked increases in the month prior.

Jobless claims and Philly FED Manufacturing numbers were more upbeat later in the week. In February, the Philly FED Manufacturing PMI rose from 16.0 to 27.4, with initial jobless claims falling from 229k to 214k in the week ending 10^th March.

While the stats drew plenty of interest, the FED monetary policy decision and projections were key in the week.

In line with market expectations, the FED raised interest rates by 25 basis points on Wednesday, with interest rate projections hawkish for the remainder of the year. FOMC members projected interest rates to hit 2.8% by Q1 2023 versus a previous forecast of 0.9%.

In the week ending 18^th March, the Dollar Spot Index fell by 0.90% to end the week at 98.229. In the week prior, the Index rose by 0.48% to 99.124.

Out of the UK

Claimant counts and the UK’s unemployment rate were the key stats of the week. The numbers were Pound positive. Claimant counts fell by a further 48.1k in February, with the unemployment rate declining from 4.1% to 3.9%.

While the stats were Pound positive, the Bank of England monetary policy decision was the main event.

In line with market expectations, the BoE lifted interest rates to 0.75%, with the UK bracing for double-digit inflation for the first time since the 1980s.

The Pound rose by 1.08% to end the week at $1.3178. In the week prior, the Pound slid by 1.46% to $1.3037.

The FTSE100 ended the week up 3.48%, following a 2.41% gain from the previous week.

Out of the Eurozone

ZEW Economic sentiment figures for Germany and the Eurozone disappointed in the week. The markets were expecting weak numbers, however, as analysts assessed the impact of the Russian invasion of Ukraine on the economic outlook.

Late in the week, Eurozone trade data and wage growth had a muted impact on the EUR. The markets brushed aside the figures despite wages growing at a softer pace in Q4 and the Eurozone’s trade deficit widening from €4.6bn to €27.2bn in January.

For the week, the EUR rose by 1.27% to $1.1051. In the previous week, the EUR fell by 0.15% to $1.0912.

The EuroStoxx600 rose by 5.26%, with the CAC40 and the DAX ending the week up 5.75% and by 5.76%, respectively.

For the Loonie

Inflation and retail sales were in focus in the week. Inflationary pressures picked up in February, with the core annual rate of inflation accelerating from 4.3% to 4.8%. The retail sales figures were also Loonie positive. Consumer spending jumped 3.2% in January, reversing a 2% slide in the month prior.

The numbers were not enough to sink the Loonie, however. An upward trend in crude oil prices in March continued to deliver Loonie support.

In the week ending 18^th March, the Loonie rose by 1.11 to C$1.2603 against the Greenback. In the week prior, the Loonie declined by 0.10% to C$1.2744.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 1.67% to $0.7415, with the Kiwi Dollar gaining 1.45% to end the week at $0.6908.

For the Aussie Dollar

Employment figures impressed in the week, providing Aussie Dollar support.

In February, full employment surged by 121.9k, reversing a 17.0k fall from January. As a result, Australia’s unemployment rate fell from 4.2% to 4.0%.

Also positive for the Aussie Dollar in the week was the hope of Beijing delivering economic stimulus to support growth.

For the Kiwi Dollar

Economic data was limited to Q4 GDP numbers that fell short of forecasts. The numbers were not bad enough, however, to weigh on the Kiwi Dollar.

In Q4, the New Zealand economy grew by 3.0%, rebounding from a 3.7% contraction in the quarter prior.

For the Kiwi, the hopes of Beijing stimulus to support the Chinese economy were also positive.

For the Japanese Yen

Trade data and inflation were in focus in the week. A sharp jump in exports led to a narrowing of Japan’s trade deficit in February. Inflationary pressures also picked up, however. Japan’s core annual rate of inflation accelerated from 0.2% to 0.6%.

Ultimately, monetary policy divergence left the Japanese Yen on the back foot against the Dollar.

On Friday, the BoJ left monetary policy unchanged, while raising concerns over the impact of Russia’s invasion of Ukraine on growth.

The Japanese Yen slid by 1.60% to end the week at ¥119.170 against the Dollar. In the week prior, the Yen ended the week tumbled by 2.15% to ¥117.290.

Out of China

Fixed asset investment and industrial production figures were in focus. The numbers didn’t disappoint, though concerns over fresh lockdown measures to contain a new wave of COVID-19 infections overshadowed the upbeat numbers.

In February, fixed asset investments rose by 12.2%, year-on-year, which was up from 4.9% in January.

Industrial production increased by 7.5%, which was up from 4.3% in January.

Hopes of fresh stimulus to support China’s economy supported riskier assets in the week.

In the week ending 18^th March, the Chinese Yuan fell by 0.35 to CNY6.3612. Through the week prior, the Yuan ended the week down by 0.31% to CNY6.3393.

The Hang Seng Index ended the week up 4.18%, while the CSI300 fell by 0.94%.