The Weekly Wrap – The EUR and the Pound Saw Green, while the Loonie Tanked

The Stats

If the markets were looking for some semblance of calm but the week was far from it, with a mass of stats and some significant geopolitical events providing direction.

On the data front, it was a mixed bag. The data count was skewed to the negative, with 41 of a total 83 stats monitored coming in below market forecasts through the week

Out of the U.S

Consumer confidence got a boost in February, suggesting that domestic consumption would continue to provide strong support to the U.S economy. For the housing sector, the slide in mortgage rates likely contributed to a jump in pending home sales in January and building permits in December.

While both the manufacturing PMI surveys disappointed, the Chicago PMI surged in February. The figures suggest that it’s not all doom and gloom in the manufacturing sector.

The Greenback found little love through the week, rising by just 0.02%. 4^th quarter GDP numbers could have been far worse. Slower U.S economic growth in the 4^th quarter and the FED’s preferred core PCE price index likely contributed to the Dollar’s flatness by the week.

Concerns over the economic outlook continue to linger, which has ultimately led to a shift in forward guidance by the FED. FED Chair Powell’s 2-day testimony to Congress provided plenty of pressure on the Dollar, whilst providing further support to the U.S equity markets.

Out of the UK

Stats were limited to the UK’s manufacturing PMI. While the manufacturing sector saw output slow marginally, there were no major alarm bells for the UK economy. The lion’s share of contribution to the economy comes from services and not manufacturing.

A light economic calendar worked in favor of the Pound through the week. Following Theresa May’s decision to delay Brexit’s meaningful vote until 12^th March, support kicked in on expectations of a delay to Britain’s departure from the EU.

There are two big parliamentary votes that the markets will need to look out for. First up is the 12^th March vote on Theresa May’s deal. The second is a 14^th March vote to decide whether the 29^th March departure date should be delayed.

Assuming Theresa May’s deal is thrown it, and that is the current view when looking at the Pound, there does remain a slight chance of the 14^th March vote not going the way the bulls…

Out of the Eurozone

A heavy calendar was skewed to the positive. While sentiment towards ECB monetary policy was a EUR negative, risk appetite provided support for the EUR and European equities through the week.

Consumer confidence in Germany held its ground and the Eurozone’s unemployment rate fell to 7.8% in January. A combination of positive consumer spending figures out of France and Germany and stronger than expected labor market figures were also key in the week.

The EUR closed out the week with a 0.26% gain. The rise came even with inflationary pressures in the Eurozone easing in February, according to prelim figures. Manufacturing remains the key and, while the threat of U.S tariffs on EU exports to the U.S remains every present, there was a brief visit to $1.14 levels before easing back.

Risk-on sentiment also supported the European equity markets in the week. Hopes of a resolution to the U.S – China trade war supported the DAX and EuroStoxx50 to 1.26% and 1.27% gains respectively. Only the CSI300 outperformed the pair, the gains coming in spite of a pickup in the EUR.

Whether the EUR and the equity majors can stand their ground remains to be seen. The U.S President and the ECB will likely be in control of the EUR’s fate this week.

Elsewhere

The Loonie went for a dive on Friday. A 1.23% slide on Friday saw the Loonie give up gains from the week. The Canadian economy contracted in December, ultimately supporting the material shift in the Bank of Canada’s recent forward guidance. With the BoC’s March interest rate decision due next week, the Loonie could be in for a spin. A dovish BoC and the Loonie could hit C$1.34 levels against the U.S Dollar. Oil prices certainly haven’t helped and neither has Twitter.  Trump tanked crude oil prices in the early part of the week, which came before Friday’s sell-off.

Geo-Political Risk

Focus had ultimately been on geopolitical risk, the economy bundling along in support of robust labor market conditions and consumption.

Trump’s North Korea Summit in Hanoi left the U.S President empty-handed, which caught the markets by surprise. An unwillingness by the U.S to remove sanctions led to an abrupt end to the Summit.

For the U.S President, there was then some time to respond to the chatter over Michael Cohen. Time will tell, perhaps, on who is telling the truth. The Trump attack was scathing, but not enough to throw risk appetite into the abyss. Can the Democrats and Cohen demonstrate a link between campaign funds and the Daniels pay-off? It could be quite a scandal… The Republicans have doused the flames for now, but they’re not out of the woods just yet…

While the North Korea Summit and Cohen were certainly negatives, U.S – China trade talks were ultimately positive. While the DJIA closed out the week in the red, the S&P500 broke through to 2,800 levels for the first time since 8^th November. That’s quite a bounce back from a late 2018 slide to $2,351 on Christmas Eve.