It was a particularly busy week on the economic calendar, in the week ending 20th December.
A whopping 94 stats were monitored in a data deluge week before Christmas. Just 54 stats had been monitored in the week prior.
Of the 94 stats, 34 came in ahead forecasts, with 43 economic indicators coming up short of forecast. 17 stats were in line with forecasts.
Looking at the numbers, 39 of the stats reflected an upward trend from previous figures. Of the remaining 55, 41 stats reflected a deterioration from previous.
For the Greenback, the focus was back on the economic calendar, with Brexit woes returning, both supporting demand for the Dollar. The Dollar did manage to shrug off the Democrat’s impeachment vote…
For the week, the Dollar Spot Index rose by 0.53% to 97.690.
Out of the U.S
It was a busy week for the Dollar, with the stats skewed to the positive.
On Monday, prelim December private sector PMIs delivered mixed results. While the manufacturing sector activity slowed marginally, the all-important service sector activity picked up at the end of the year.
With services accounting for the lion’s share of the economy, this was a welcome outcome, contributing to a marginal increase in the composite PMI.
Figures from New York State also reflected an upward trend, with the Manufacturing Index rising from 2.9 to 3.5 in December.
On Tuesday, industrial production figures impressed, with production jumping by 1.1% in November, month-on-month. JOLTs job openings were also Dollar positive, with openings rising from 7.032m to 7.267m in October.
With no stats on Wednesday, the focus then shifted to a relatively busy 2nd half of the week.
The Philly FED Manufacturing Index and weekly jobless claims figures were in focus on Thursday. Both sets of numbers disappointed, weighing on the dollar on the day.
On Friday, finalized 3rd quarter GDP numbers were in line with previous estimates, limiting any Dollar reaction. The FED’s preferred Core PCE Price Index figures also failed to pressure the Dollar in spite of the annual rate of core inflation easing from 1.7% to 1.6%.
Consumer sentiment figures and personal pending did have an impact, however. Personal spending was on the rise alongside consumer sentiment, supporting a positive outlook on consumption.
With the U.S and China reaching an agreement and the stats skewed the positive, supporting optimism towards the economy, inflation is unlikely to be in the FED’s sights for now.
From the housing sector
Building permits increased by 1.482m on an annualized basis. Housing starts were up by 1.345m on an annualized basis, with both coming in ahead of October figures and forecasts. The figures reflected home builder confidence that sits at its highest level since 1999.
While existing home sales did disappoint on Thursday, inventories rather than a lack of demand were the issue. A jump in both housing starts and permits is expected to support purchases in the year ahead.
For the bulls, the good news was the lack of a reaction to Trump’s impeachment.
In the equity markets, the Dow rose by 1.14%, while the S&P500 and NASDAQ up 1.65% and by 2.18% respectively. Trump will be happy that the U.S majors entered the holidays sitting at record highs…
Out of the UK
It was also a busy week on the economic calendar.
Private sector PMI figures on Monday delivered more bad news, with both the manufacturing and the service sectors reporting a faster pace of contraction at the end of the year.
On Tuesday, labor market figures were mixed. While the unemployment rate held steady at 3.8%, supported by a 24k increase in employment in October, wage growth disappointed.
Perhaps of greater influence, however, was another jump in claimant counts in November, offsetting any positive numbers from October.
On Wednesday, inflation figures were also mixed. While the annual rate of inflation held steady at 1.5% in November, producer input prices fell by 0.3%, which was worse than a forecasted 0.4% rise.
Retail sales figures had added to a laundry list of weak data for the Pound ahead of the BoE. Month-on-month, retail sales fell by 0.6%, with core retail sales also falling by 0.6%.
In spite of a string of weak stats, the BoE held steady and suggested that there would be no move until late into 2020. It wasn’t enough to support the Pound, however, which saw deep red on Thursday.
The BoE minutes did reveal that monetary policy easing would be delivered should economic conditions fail to improve. Expectations are for the numbers to begin picking up following Johnson’s election victory and clarity on Brexit.
On Friday, finalized 3rd quarter GDP numbers had a muted impact, however, in spite of finalized numbers coming in ahead of prelims. The economy grew by 0.4%, quarter-on-quarter, coming in ahead of a forecast and prelim 0.3%.
UK Parliament and Brexit
Over the week, while the stats certainly added pressure on the Pound, it was ultimately geopolitics that reversed the General Election fueled Friday rally from last week.
Boris Johnson announced plans of pushing through changes to the Brexit Bill that would prevent any extension in negotiations beyond December 2020.
With the street view and that of the EU being that it would take more than a year to negotiate a trade agreement, this points to an increased probability of hard Brexit.
On Friday, Boris Johnson’s majority had its first test. MPs voted in favor of Johnson’s Withdrawal Bill by an overwhelming 134 majority. The Bill ensures that Britain leaves the EU by 31st January and also removes the option to extend the transition period. MPs will have the opportunity to debate the bill further on 7th, 8th and, 9th January.
For the week, the Pound tumbled by 2.49% to end the week at $1.2999.
For the FTSE100, a slide in the Pound and continued support from resource stocks contributed to a 3.11% gain for the week.
Out of the Eurozone
It was a particularly busy week economic data front.
Prelim December private sector PMIs for France, Germany and the Eurozone kicked things off on Monday along with 3rd quarter wage growth figures.
It was another mixed bag. Service sector activity hit a 4-month high while manufacturing output fell to an 86-month low.
That left private sector output for the 4th quarter at its slowest pace since 2013…
While new orders saw a slight uptick, it wasn’t enough to suggest better times ahead. For the ECB, employment growth slowed to a 5-year low, with wage growth slowing in the 3rd quarter. This is a bad combination when relying on consumer consumption to prop up the economy…
On Tuesday, the Eurozone’s trade data spurred the EUR into action, with a marked widening in the trade surplus from €18.7bn to €28.0bn.
Mid-week, economic data included Germany’s Ifo Business Climate Index figures and the Eurozone’s finalized November inflation figures.
Goods news was a pickup in business confidence, supported by improved sentiment towards current conditions and the economic outlook. The headline Ifo Business Climate Index rose from 95.1 to 96.3 in December.
Interestingly, the confidence figures were not reflective of the economic environment in Germany, with the manufacturing sector continuing to struggle.
On the inflation front, there were no surprises with the stats being in line with expectations. It was worth noting, however, that the annual rate of core inflation continued to fall well short of the ECB’s 2%, with consumer prices falling by 0.3% month-on-month.
Downward pressure could build should the disappointing wage growth and employment figures from the PMI survey translate into a pullback in spending…
On Friday, German and Eurozone consumer confidence figures rounded off a busy week. Confidence hit reverse at the end of the year.
The EUR and the European Equity Markets
For the week, a 0.39% slide on Friday left the EUR down by 0.38% at $1.1079.
For the European major indexes, the CAC40 led the way, rising by 1.73%, with the EuroStoxx600 up by 1.55%. The DAX30 gained 0.27%, supported by a 0.81% rebound on Friday.
Negative sentiment towards Brexit had pressured the majors on Tuesday and Wednesday.
It was a mixed week for the Aussie Dollar and the Kiwi Dollar.
For the week, the Aussie Dollar rose by 0.35% to $0.6900, while the Kiwi Dollar ended the week flat at $0.6599.
As we predicted last week, there was some downside, with monetary policy divergence going against the Aussie and Kiwi Dollars. Stats late in the week saved the Aussie Dollar from losses, however.
For the Aussie Dollar
It was a relatively quiet first half of the week for the Aussie Dollar, but an influential one.
October home loan figures, which came in softer than forecast, had a muted impact at the start of the week.
It was the RBA that sent more mixed signals on policy, which pressured the Aussie Dollar on Tuesday.
From the minutes, talk of a February assessment of policy, armed with their latest forecasts, suggested that further easing may be on the horizon.
Recent stats have been far from impressive. On Thursday, employment figures for November delivered a strong boost for the Aussie Dollar, however, reversing RBA driven losses in the week.
Positive data out of China at the start of the week had provided the Aussie Dollar with support before hitting reverse on Tuesday.
For the Kiwi Dollar
It was a busy start to the week on the economic colander.
While there was some good news at the start of the week, with business and consumer confidence improving, it was not enough to prevent the downside from kicking on.
3rd quarter current account figures on Tuesday certainly didn’t help the cause, with the deficits widening in the 3rd quarter.
All of this came ahead of 3rd quarter GDP numbers and November trade data on Thursday.
The trade deficit narrowed in November, with the economy growing at a faster pace in the 3rd quarter. In spite of the positive numbers in the week, skepticism remains over whether the RBNZ can hold off from another rate cut.
For the Loonie
It was a relatively busy week for the Loonie.
Economic data included October foreign securities purchases on Monday and manufacturing sales figures on Tuesday. In spite of manufacturing sales disappointing, the Loonie managed to hold onto positive territory by Tuesday’s close.
On Wednesday, inflation figures did weigh, however, with consumer prices falling by 0.2% in November.
On Thursday, wholesale sales figures added further pressure on the Loonie ahead of retail sales figures on Friday that cut the Loonie’s gains from the week.
Month-on-month, core retail sales fell by 0.5% in October, with retail sales sliding by 1.5%. In September, both had fallen by 0.1%.
Disappointing inflation numbers and dire retail sales figures could test the BoC’s resolve…
Support continued to come from progress on the USMCA agreement, however. In the week, the agreement sailed through in a bipartisan vote that brought an end to 1 year of cross-party wrangling…
From elsewhere rising crude oil prices and positive economic data from China at the start of the week were also supportive.
The Loonie rose by just 0.04% to C$1.3161 against the Greenback. A 0.27% slide on Friday left the Loonie with minor gains.
For the Japanese Yen
There was plenty for the Bank of Japan to consider ahead of Thursday’s monetary policy decision…
Private sector PMI figures delivered mixed results. While service sector activity picked up slightly, the manufacturing sector contracted at a marginally quickly pace in December.
Things were not much better on the trade front. Exports fell by a further 7.9% in November, year-on-year, following a 9.2% slide in October. Imports tumbled by 15.7%, following a 14.8% slide in October.
With the trade balance falling from a ¥15.7bn surplus to an ¥82.1bn deficit in November, the economy is not out of the woods just yet…
On Friday, inflation figures also left the Yen unmoved, leaving it in the red for the week. The annual rate of core inflation came in at just 0.5%…
Outside of the numbers, Brexit woes did provide some support, but not enough to reverse losses from the start of the week. Upbeat sentiment towards the U.S – China trade agreement offset the negative sentiment towards Brexit.
On the monetary policy front, the BoJ stood pat on monetary policy as expected. With the government delivering fiscal policy support, the BoJ will now look to assess the impact on the economy. Members will also want to see how the U.S and China’s phase 1 agreement will impact global trade terms.
The Japanese Yen fell by 0.05% to ¥109.44, against the U.S Dollar.
Out of China
The stats were on the positive side, with industrial production jumping by 6.2% in November. In October, production had risen by 4.7%. Retail sales also impressed, with an 8% rise following a 7.2% increase in October.
It was a positive start to the week, with China’s numbers impressing despite tariffs et al.
Positive stats and a phase 1 trade agreement with the U.S also contributed to the upside for the CSI300 in particular, which rallied by 1.24% in the week.
For the Yuen, it was 4 days in the red out of 5 that left the Yuan down by 0.30% to CNY7.0065 against the Greenback. The PBoC’s hold on loan prime rates on Friday ended the run.
This article was originally posted on FX Empire
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