Market News – 03 July 2017
STERLING
Last week was broadly positive for the pound after Bank of England Governor Mark Carney surprised the markets with his comments on Wednesday. In a prepared text released before an ECB forum, he suggested that the monetary policy committee would be debating the removal of some stimulus in the coming months. Only last Tuesday, he assured in his Mansion House speech now is not the time to begin adjusting rates higher.
There were also hawkish remarks from Chief Economist Haldane who said the central bank needs to look seriously at the possibility of raising interest rates to keep the lid on inflation.
Also providing support last week was news that the Conservative-DUP deal had been agreed although the situation remains tense with protests on Friday calling for PM May’s resignation.
Data wise, UK Q1 GDP was confirmed at +0.2% month-on-month and +2.0% year-on-year on Friday.
For the week, Sterling gained 2.4% versus the US Dollar, 3.4% versus the Yen and 0.3% versus the Euro.
Brexit developments, if any, will be the main focus for Sterling again this week although we have some macro-releases to note including Markit PMI’s, industrial and manufacturing production along with trade figures.
EURO
It was a mostly positive week for the Euro, buoyed by hawkish remarks from ECB President Mario Draghi. Speaking at an ECB event in Sintra, Portugal on Tuesday he said that “the threat of deflation has gone and reflationary forces are at play”.
We saw a brief pullback in the single currency after two separate sources stories attempted to play down his comments as misinterpreted by the markets but this proved short lived.
Data releases also provided a lift to the Euro last week as higher German CPI prints on Thursday were followed by higher Euro Zone readings on Friday while German retail sales and employment figures also beat expectations.
This week, we await Euro Zone manufacturing PMI and unemployment later today with PPI tomorrow and retail sales on Wednesday.
ECB Governing Council members Praet and Nowotny speak tomorrow with Villeroy and Weidmann on Thursday.
US DOLLAR
The US Dollar fell against most of the major currencies last week, weighed by political risk and mixed signals on the US economy.
Investors began the week hoping for some positive developments out of Washington but were let down on Tuesday after a vote on the Senate healthcare bill was delayed. Senate Majority leader McConnell later added he was optimistic they will eventually pass the bill.
Data wise, US GDP figures were out on Wednesday and an upward revision to the second quarter print provided a modicum of support to the Dollar although the slightly softer core PCE read would have offered some balance. This was followed by lower forecasts for growth from the CBO who also predicted a wider budget deficit for FY 2017.
At the Federal Reserve, Chair Yellen was the main focus for investors although her comments offered little new insight as she repeated her belief that gradual rate hikes are appropriate.
Looking ahead, the FOMC minutes due on Wednesday will be closely watched by investors after officials voted to hike rates last month. Data wise, we begin the week with ISM manufacturing later today while factory orders, Markit PMI and ADP follow ahead of the US jobs report on Friday.
YEN
The Yen was the weakest G10 currency last week having posted sizeable losses at the start of the week as hawkish ECB/BOE chatter drove core European and US yields higher.
The BoJ Summary of Opinions also showed little appetite among officials to begin unwinding their ultra-loose policy stance. BoJ Governor Kuroda did speak later in the week although his comments were largely ignored.
Following the overnight Tankan figures, we await Japanese PMI figures on Wednesday, cash earnings on Thursday and leading index on Friday.
SWISS FRANC
There were no sizeable moves in the Swiss Franc last week although we did see some safe-haven demand as European and US equity markets moved lower.
Data releases were mixed with the ZEW Survey (expectations) falling to 20.7 from 30.8 but the KOF leading indicators jumping to 105.5 (f/c. 102.5) from 102.0.
AUSTRALIAN DOLLAR
The Australian Dollar was one of the stronger G10 currencies last week. Gains in iron ore prices and a broadly positive bias around commodities in general underpinned gains as US crude futures extending their winning streak to seven sessions on Friday.
The Aussie Dollar also derived support from stronger-than-expected Chinese macro releases with both manufacturing and non-manufacturing PMI rising on Friday.
The RBA policy decision tomorrow will be the main focus for the Australian Dollar this week ahead of trade figures on Wednesday and the AIG construction index on Thursday.
CANADIAN DOLLAR
The Canadian Dollar gained against most the major currencies last week, driven by hawkish remarks from the Bank of Canada Governor Poloz on Tuesday. He remarked that Canadian growth is expected to stay above potential, while it looks as if rate cuts have done their job.
Deputy Governor Patterson followed on Thursday by saying that the economic drag from lower oil prices is largely behind them.
Ahead, we await manufacturing PMI tomorrow, trade data on Wednesday and employment data on Friday. Any comments from Bank of Canada officials will also be closely watched after the hawkish tilt this week.
NEW ZEALAND DOLLAR
US crude futures extended their winning streak to seven sessions on Friday, adding just shy of seven-percent for the week.
The New Zealand Dollar had been one of the best performing G10 currencies in recent weeks so it may not be much of a surprise to see some consolidation.
Data impulses were mixed as trade figures fell short of expectations on Tuesday but the business confidence survey on Thursday jumped to a nine-month high.
A quiet week ahead for the New Zealand Dollar although the RBA decision could prompt some reaction.
SWEDISH KRONA
The Swedish Krona was one of the best performing currencies last week although fresh impulses for the pair were somewhat limited.
There were a few press articles doing the rounds suggesting that the Riksbank will follow the ECB and remove their easing bias which may have underpinned the pair.