It was another week of strong risk aversion in the markets as last Friday’s NFP data was quickly shrugged aside. Gold, Yen and the Euro gained over the week with Yellen’s testimony offering little support for the Dollar. At the time of writing, the US Dollar remains the weakest currency while the Japanese Yen is up by over 3.00% for the week, followed by the Swiss Franc.
The week opened on a soft note with no major releases on Monday and Tuesday and China being closed for the most of this week on account of the Lunar holiday. The markets remained flat initially but by Tuesday’s NY trading session open, the US Dollar saw a strong sell-off leading to risk aversion. Equity markets were tracking Crude Oil prices which touched a 13-year low this week briefly trading near $26.05 before managing to pull back higher.
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In the UK, industrial and manufacturing production data for the month of January remained weak losing -0.20% and -1.10% respectively. The British Pound eased back after last week’s strong rally near the 1.46 handle and was seen trading sideways for the most part of this week. The flat GPB, however, helped EURGBP to test the highs of 0.78 over the week.
Janet Yellen’s testimony was the main event of the week. In her opening remarks, she noted that the recent economic turmoil warranted a gradual and a cautious pace of rate hikes. She ruled out any rate cuts and rather blamed the recent market turmoil on the lack of communication from China and the PBoC. When asked if the December rate hikes were anything to do with the current market conditions, Ms. Yellen noted that the December rate hike was well communicated and that the markets remained largely calm for nearly two weeks after the Fed hiked rates.
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More interesting, the US Senate testimony from Yellen also saw the topic of negative interest rates being discussed. For the moment, however, the Fed remains unclear on the legality of introducing negative rates. But the fact that NIRP or Negative Interest Rate policy was being discussed certainly seemed to touch the nerve for investors who continued to shun the risk assets.
Gold prices this week tested $1250 albeit briefly. The precious metal is now into its fourth week of the rally from the lows of 1087 in mid-January. On Thursday, 11th February, Gold prices surged by over 4.0%, posting one of the strongest daily gains in over a year.
Crude Oil prices, on the other hand, turned weaker with the 29.5/30 support level giving way for sharp declines. Prices dropped to $26.05 briefly while OPEC production cut rumors continued to hit the news wires.
In Europe, flash GDP data released earlier today showed Germany’s quarterly GDP staying relatively flat at 0.30% growth from the previous quarter. It was the same with Eurozone GDP flash estimates as well. The Euro, however, remains resilient as EURUSD touched 1.137 by Thursday before easing back strongly by Friday’s trading. Prices remain bullish above the 1.10 handle.
By Friday’s trading, the markets were seen retreating early in the day with Gold, Euro and the Yen all seen weakening modestly. US retail sales numbers for January came to the rescue with the core retail sales rising 0.10% and headline retail sales rising 0.20%, both above estimates.
Economic events this week
- Japan Average Cash Earnings y/y 0.10% vs. 0.70%
- Switzerland unemployment rate 3.40% vs. 3.50%
- Germany industrial production m/m -1.20% vs. 0.20%
- US Wholesale inventories m/m -0.10% vs. -0.10%
- Australia new home sales m/m 6.05% vs. -2.70% previously
- UK Manufacturing Production m/m -0.20% vs. 0.0%
- UK Industrial Production m/m -1.10% vs. -0.10%
- Fed Chair Yellen semi-annual testimony
- US Weekly unemployment claims 269k vs. 287k
- Australia home loans m/m 2.60% vs. 2.90%
- Germany prelim GDP q/q 0.30% vs. 0.30%
- Germany final CPI m/m -0.80% vs. -0.80%
- Eurozone Flash GDP q/q 0.30% vs. 0.30%
- Eurozone industrial production m/m -1.0% vs. 0.30%
- US Core retail sales m/m 0.10% vs. 0.0%; retail sales m/m 0.20% vs. 0.10%
- US Import prices m/m -1.10% vs. -1.40%
