Last week ended on a fairly quiet note. EUR and GBP underperformed, following weak PMI data while the NZD continued to trade in a tight range. US treasury yields were little changed against a backdrop of lower yields for the UK and euro area.
TGIM – thank God it’s Monday and we might have a more interesting week than last week’s dull affair in financial markets. The NZD closed the week within a few pips of where it began the week, just above the 0.64 mark, and traded a less than 50pip range for the entire week. The AUD ended the week slightly lower at 0.6785 and with its trading range for the week just above 50pips, so not a great deal of volatility there either.
The week was dominated by US-China trade war headlines and we are none the wiser about the likely outcome. In a Fox News interview, President Trump said that a US-China trade deal was “very close”. He declined to reveal if he’ll sign a bill supporting Hong Kong’s protesters, which would complicate negotiations for a trade deal. He said “We have to stand with Hong Kong, but I’m also standing with President Xi”.
Economic data released looked to have some impact on currencies and rates, with weak data from the UK and euro area dragging rates lower alongside a weaker EUR and GBP, while US data came on the stronger side of expectations. UK PMI data for both the manufacturing and services indices were below expectations, falling further into contraction territory. No doubt the uncertainty about Brexit and the general election were factors. Markit, the index compiler, said that the data suggested a 0.2% contraction in Q4 GDP. In both Germany and the euro-area, manufacturing PMIs beat expectations and were consistent with an evident turning point in the manufacturing cycle but the services PMIs were weaker, adding to evidence that manufacturing sector recessions have spilled over into the services sector.
Largarde made her first major speech as the new ECB President and said that she’ll announce a strategy review of the central bank in the near future. She called for government help to support the euro area economy, saying public investment should be stepped up to ease the burden on monetary stimulus.
For the day, EUR fell by 0.3% to 1.1020 while GBP fell by 0.6% to 1.2835. The UK 10-year rate fell by 5bps while Germany’s 10-year rate was down by 3bps.
The Markit PMIs for the US were both stronger than expected for manufacturing and services, while the final reading of the University of Michigan consumer sentiment index also beat expectations, with sentiment up to a four-month high. The 10-year treasury rate ended the day flat at 1.77%, while the 2-year rate was up 2bps to 1.63%.
The day ahead looks to be another quiet one, with the only economic release of note being Germany’s IFO survey tonight. In the week ahead, at least in NZ’s case, there are some releases to look forward to, including the ANZ business outlook survey, the RBNZ’s financial stability report, retail sales and the inaugural release of monthly employment data. Tomorrow, RBA Governor Lowe talks about “unconventional monetary policy – some lessons from overseas”, a speech that will be closely watched, with the topic of great interest at present.
Apart from that, US-China trade headlines will remain in focus. In the US, over the weekend ex NY mayor Michael Bloomberg announced that he will join the Democratic Presidential race so expect US politics to get some airing alongside the inquiry into impeachment of President Trump.