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The Weekly Wrap – Brexit, Earnings, Monetary Policy, and Stats Drove Risk Appetite

Bob Mason
It was a big week for the majors, with risk appetite finding its feet following better than expected earnings and stats at the end of the week.

The Stats

In a quieter week on the economic data front, the Dollar reversed the first week of the quarter’s gains, with a 0.43% loss through the week.

While the economic calendar was on the quieter side, there was still plenty of stats, policy decisions, economic reviews and more to keep the markets busy.

Of a total of 53 stats monitored through the week, a total of 17 stats came in below market forecasts, with 18 coming in ahead of forecasts.

From the 12 stats that were in line with consensus, only 3 of the numbers were weaker than previous month figures.

Looking at the negative numbers, which were below forecasts, 6 of the 17 stats were better than previous month figures.

Looking at the positive numbers, it’s also worth noting that of the 18 stats monitored, all but 4 came in ahead of previous numbers.

On the balance, the stats were skewed to the positive, supporting the downward move in the Dollar through the week.

Outside of the stats, earnings provided further support for risk appetite, leading to a steepening in the yield curve. 10-year U.S Treasury yields hit 3-week highs on Friday before closing out at 2.57%. 3-month and 2-year yields ended the week at 2.42% and 2.39% respectively easing recessionary fears.

Out of the U.S,

On the data front, key stats were once more skewed to the negative.

Red flags through the week included an “in-line with” a forecasted 0.5% fall in factory orders, softer core inflation and a marginal pullback in consumer sentiment.

While JOLTs job openings also came in on the lower side, March nonfarm payroll figures and the weekly initial jobless claims figures eased any concerns over a shift in labor market conditions.

Initial jobless claims came in at 196k, which was a 50-year low.

Also on the positive, the key highlights were a monthly pickup in consumer prices and wholesale price inflation.

Outside of the numbers, the FED released the FOMC meeting minutes, which reflected mixed sentiment towards policy. Clear from the minutes was a lack of immediate need to make a move in either direction, which was positive for riskier assets.

In the equity markets, the U.S majors were mixed in the week. The S&P500 and NASDAQ gained 0.51% and 0.57% respectively, while the Dow fell by just 0.05%.

A 1.03% rally on Friday saved the Dow’s blushes, with better than expected bank earnings delivering the upside on the day.

Out of the UK,

Key stats through the week included trade data, industrial production, and manufacturing figures and March GDP figures.

Better than expected GDP and production figures, together with a narrowing of the trade deficits were positives.

For the Pound, it ultimately boiled down to Brexit, however.

At the Emergency Brexit Summit on Wednesday, the EU granted Britain with a flexi-extension until 31st October.

An extension beyond a requested 30th June deadline led to a backlash in Parliament, with calls for Theresa May’s resignation resonating. Most EU member states were looking for a lengthier extension. French President Macron was the hurdle, looking to deliver an optically pro-EU stance for French voters.

With a no-deal Brexit averted, the Pound rose by 0.28% to $1.3074 through the week. There was no relief rally, which was to be expected when considering the failure to find a Brexit solution and uncertainty that now lies ahead.

In spite of better than expected economic data out of China and progress on Brexit, the FTSE100 ended the week down by 0.13%. A stronger Pound will have contributed to the downside.

Out of the Eurozone,

It was a quieter week on the economic calendar.

Key stats were limited to February trade figures out of Germany and industrial production numbers out of the Eurozone.

While Germany’s trade surplus widened from €18.6bn to €18.7bn, industrial production fell by 0.2%. Forecasts had been for production to fall by 0.5%, however, following a 1.9% increase in January.

Finalized inflation figures out of Germany, France, and Spain had a muted impact on the EUR and the equity majors.

Outside of the numbers, the ECB monetary policy decision on Wednesday delivered no surprises. ECB President Draghi maintained his dovish stance, noting that risks remained titled to the downside.

From elsewhere, better than expected export figures out of China on Friday provided support for riskier assets and the EUR.

On the downside, however, was the threat of U.S tariffs on goods from the EU and the IMF’s downward revisions to growth at the start of the week.

For the week, the EUR ended the week up 0.74%.

It was a mixed bag in the European equity markets. The DAX and EuroStoxx600 ended the week down 0.08% and 0.18% respectively. A stronger EUR contributed to the downside. Bucking the trend was the CAC40, which rose by 0.48%.

Bank earnings out of the U.S provided strong support for the financial sector at the end of the week. Across the European majors, UniCredit S.p.A rallied by 4.2%, with BNP Paribas (+3.37%), Commerzbank (+2.5%), and Deutsche Bank (+2.11%) all seeing strong gains on Friday.

The jump in risk appetite also supported the auto sector. Volkswagen, Daimler, and BMW ended the week on a high.

Elsewhere,

Another rise in crude oil prices through the week, coupled with a pickup in risk appetite provided support for the Loonie. The Loonie ended the week up 0.46% against the Greenback. Stats were limited to housing sector figures that had a muted impact on the Loonie in the week.

The Japanese Yen fell by 0.32% against the Greenback on Friday to end the week down 0.26% to ¥112.02. Risk appetite at the end of the week ultimately weighed on the Yen.

For the Aussie Dollar and Kiwi Dollar, it was a positive week.

The Aussie Dollar gained 0.96%, with the Kiwi Dollar up by 0.49%.

Economic data out of Australia included new home loans and consumer sentiment figures, both Aussie Dollar positive. The lion’s share of the week’s gains came on Friday, however. The better than expected trade data out of China driving the Aussie.

While China’s trade data was considered positive, a larger than forecasted slide imports will need to be monitored.

Outside of the numbers, the RBA released its Financial Stability Review on Friday, which painted a gloomy picture. Stats out of China overshadowed the report, contributing to a 1.13% rise in the ASX200 for the week.

For the Kiwi Dollar, a fall in electronic card retail sales and the Business PMI in March capped the upside.

This article was originally posted on FX Empire

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