US equities, US rates and the USD were all higher on Friday, even in the face of disappointing economic data. The stronger USD backdrop saw the NZD slip a little to close the week around 0.68.
There was a plethora of economic data released on Friday. The US economic releases were on the soft side, with the final reading of the University of Michigan consumer sentiment index for February lower, alongside soft monthly income and spending data. The key US ISM index fell to a 2-year low, coming in lower than expected and with the detail of the report weak as well, with falls for orders, employment, production and deliveries. These soft releases saw Citigroup’s US economic surprise indicator fall deeper into negative territory, down to its lowest level in eighteen months. This highlights the poor run of US economic data of late, in line with the global picture.
However, after the initial fall in US equities, rates and USD post release of the ISM data, the market reversed course. The S&P500 closed up 0.7% and above the 2800 market for the first time since early November. The US 10-year Treasury rate closed 4bps higher at 2.75%, while the key USD indices were 0.3-0.4% higher – perhaps a sign that the market isn’t too worried about the economic outlook and special factors such as the weather and US government shutdown were behind the economic weakness.
CAD was the weakest of the majors following data showing barely positive GDP growth in Q4 and a 2½% fall in WTI oil prices. Rate hike expectations for this year continued to be pared back. The Bank of Canada meets this week, with the odds favouring a less hawkish tone. USD/CAD was almost 1% higher, closing around 1.33.
Euro-area core CPI data came in lower than expected at 1.0%, which comes ahead of the ECB meeting later this week alongside a fresh set of forecasts. There is a chance that the Bank pushes out its expected timing of rate hikes, and we might also hear official confirmation of discussion about further easing measures, such as another round of long-term loans offered to banks on favourable terms to try to stimulate credit growth. After moving above 1.14 after the US ISM data, the currency drifted down into the close, ending the week around 1.1365.
Against a backdrop of broadly based gains in the USD, the NZD ended the week on a slightly soft note, near the 0.6800 mark. During the local trading session we saw slightly weaker consumer confidence, albeit still tracking nicely around average, softer terms of trade for Q4 that are likely to show some reversal in the current quarter, and strong growth in building consents taking them to a 44-year high for new homes. During the local trading session we also saw a lift in China’s Caixin manufacturing PMI, providing further comfort that China’s domestic economy was showing more positive signs.
The AUD showed followed a similar trading pattern to the NZD, seeing a softer close around 0.7080 and NZD/AUD maintaining a trading range around the 0.96 mark.
After the NY close on Saturday, President Trump tweeted “I have asked China to immediately remove all tariffs on our agricultural products (including beef, pork, etc.) based on the fact that we are moving along nicely with trade discussions and I did not increase their second tranche of tariffs to 25% on March 1st.” It remains to be seen what China’s response will be and how negotiations will fare if China refuses, ahead of any final agreement. Trump also gave a long speech at the weekend and commented “I want a strong dollar but I want a dollar that does great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business”.
NZ rates nudged higher on Friday due to global forces and we’d expect the bias to be to the upside today as well. There’s aren’t any highlights on the economic calendar over the next 24 hours but it’s a pretty busy week ahead with policy meetings from the RBA, ECB and Bank of Canada, and key data releases including Australian GDP and the US employment report at the end of the week.
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