Weekly Wrap – Central Banks, Stats, and Geopolitics Drove the Majors

The Stats

It was a relatively quiet week on the economic calendar in the week ending 21^st June,

A total of 55 stats were monitored throughout the week.

Of the 55 stats, 27 came in below forecasts, with just 20 economic indicators coming in ahead of forecast. 8 stats were in line with forecasts in the week.

Looking at the numbers, 32 of the stats reflected a deterioration from previous figures. Of the remaining 23, 18 stats reflected an upward trend.

While the economic data was skewed to the negative, monetary policy ultimately defined the path of the Greenback and the majors. The U.S Dollar Index (“DXY”) slid by 1.39% in the week to 96.22.

For the EUR, Draghi failed to jawbone the EUR in the week. The EUR ended the week up 1.44% to $1.1369 against the Dollar.

Out of the U.S

On the data front, key stats were skewed to the negative once again in the week.

On the positive front, there were some better numbers from the housing sector, supported by the downward trend in mortgage rates. Weekly jobless claims also held relatively steady, with better than forecasted initial jobless claims.

That was it on the positive front, however, with the rest of the stats disappointing.

The NY Empire State and Philly FED Manufacturing Index numbers were particularly weak, with private sector activity also grinding to a halt.

While the stats were skewed to the negative, it was ultimately the FED that delivered the knockout blow.

The economic projections showed that a large number of FOMC members favored 2 rate cuts before the year-end. Inflation forecasts were also revised downwards.

Outside of the stats, market sentiment towards the U.S – China trade war provided limited support as tensions rose in the Middle East.

In the equity markets, the U.S majors saw green for a 3^rd consecutive week as record highs were revisited in the week. The NASDAQ led the way, rising by 3.01%. The S&P500 and Dow rose by 2.20% and by 2.41% respectively.

Out of the UK

It was a particularly busy week.

On the economic calendar, key stats included inflation and retail sales figures. Following on from particularly hawkish Carney chatter last month, there was a material shift going into the 3^rd quarter.

The annual rate of core inflation eased from 2.1% to 2%, while retail sales also softened, affirming the hoarding view.

On the monetary policy front, the BoE revised economic growth forecasts downwards, forecasting zero growth for the 2^nd quarter. The BoE did shift on its forward guidance, however. Further rate rises were likely, but at a gradual and to a limited extent. This was the shift from Carney’s previous talk of a need for aggressive rate hikes to curb inflation.

Monetary policy favored the Pound, however, with central banks elsewhere delivering the promise of monetary policy easing.

The Pound ended the week up 1.18% to $1.2737.

For the FTSE100, the stronger Pound limited the upside to just 0.84% for the week. The news of a Trump – Xi meeting at the G20 provided support to mining sectors. Rising tensions in the Middle East pressured risk sentiment at the end of the week, however, while supporting BP and Royal Dutch.

Out of the Eurozone

It was also a busy week.

1^st quarter Eurozone wage growth kicked off the week, with wage growth picking up from 2.3% to 2.5%.

Stats out of Germany disappointed once more on Tuesday, with economic sentiment sliding in June. With the Eurozone’s ZEW consumer sentiment index also on the slide, the Eurozone’s flash consumer confidence index also slipped, according to figures released on Thursday.

The highlight of the week for the EUR was a marginal improvement in private sector PMI numbers.

Prelim June figures showed that private sector PMIs improved in both France and Germany. Germany’s manufacturing sector continued to contract, however.

Of less influence in the week were finalized Eurozone inflation figures and April’s trade data, all of which were skewed to the negative.

Outside of the numbers, Draghi delivered the promise of monetary policy support to pin back the EUR. The ECB also released its economic bulletin that continued to reflect downside risks, whilst also revising down growth for this year.

In the equity markets, the weaker EUR failed to pin back the majors, which found support from central banks. The CAC40 rallied by 2.99%, with the DAX30 ending the week up by 2.01%.

Elsewhere

It was a particularly bullish week for the Aussie and Kiwi Dollars.

The Aussie Dollar rose by 0.79% to $0.6926, while the Kiwi Dollar rallied by 1.49% to $0.6589.

For the Aussie Dollar

The gains came in spite of the stats being skewed towards the negative.

House prices continued to slide in the 1^st quarter, according to figures released on Tuesday.

Of greater significance, however, was the RBA meeting minutes, also released on Tuesday. While cutting rates in June, the RBA also talked of the possible need for another rate cut down the road.

The combination of a dovish FED and a planned Trump – Xi meeting at the G20 next week delivered the upside.

For the Kiwi Dollar

Consumer sentiment held relatively steady in the 2^nd quarter, according to figures released on Tuesday. Of greater influence, however, was 1^st quarter GDP numbers. The New Zealand economy grew by 0.6% in the 1^st quarter, which was at the same pace as in the 4^th.

With the FED talking of the need for as many as 2 rate cuts this year, the Kiwi managed to bounce back from $0.64 levels.

For the Loonie

It was also a busy week.

May inflation and April retail sales figures on Wednesday and Friday delivered mixed results. Whilst inflationary pressures were on the rise, retail sales failed to impress.

Of less influence were manufacturing sales and foreign security purchase numbers released earlier in the week.

Outside of the stats, rising tensions in the Middle East provided the Loonie with plenty of support, as did monetary policy divergence.

The Loonie ended the week up 1.43% to C$1.3222 against the Greenback.

For the Japanese Yen

Trade data on Wednesday and inflation and manufacturing PMI numbers on Friday raised further red flags.

Exports tumbled by 7.8% in May, with Japan’s trade balance falling into a deficit, as the extended U.S – China trade war took a bite.

Inflationary pressures eased further in May, with the annual rate of core inflation easing from 0.9% to 0.8%.

On the policy front, however, the BoJ held steady.

With rising tensions in the Middle East, there was plenty of support for the Yen on the week.

For the week, the Japanese Yen rose by 1.14% to ¥107.32.

Out of China

There were no material stats to influence the global financial markets.

Government support for the economy and hopes of progress on trade talks at next week’s G20 Summit were the positives.

As a result, the CSI300 ended the week up 4.9% following the previous week’s 2.53% gain.