Global risk appetite rebounded last week, with the S&P 500 rallying nearly 1% on the week to close at 3,007 on Friday (only 0.6% from all its all-time high), thanks to tentative news that the US and China may resume trade negotiations, strong US retail sales data for August and signs that the British government may be willing to soften its stance on the Irish backstop in order to get a Brexit deal through parliament. Nevertheless the Dollar depreciated about 0.3%.
Sterling was the stand-out performer last week, appreciating 1.5% in trade-weighted terms to a 3-month high. Strong labour market data, including a rise in weekly earnings growth to 4.0% yoy, and a better-than-expected 0.3% mom rise in GDP in July gave Sterling some impetus but once again it was Brexit-related developments which were seemingly driving the currency.
Prime Minister Johnson has stuck to his line that the UK would leave the EU on 31st October, with or without a deal. However, parliament’s vote on 4th September in favour of a bill which would force the government to ask the EU for another delay, should parliament fail to pass a Brexit deal by 19th October, has seemingly compelled Johnson to double his efforts to secure a deal acceptable to both the EU and the British parliament. There is nevertheless still a lot of work to be done and only a month left before the critical 19th October deadline and some EU countries – notably France – are seemingly reluctant to revise the terms and conditions of the Withdrawal Agreement which was agreed with former Prime Minister May.
The Euro was very choppy in the wake of Thursday’s ECB policy meeting, where President Draghi announced a 10bp cut to the ECB deposit rate and a resumption of QE as of 1st November. However, the Euro remained broadly unchanged from a week ago in trade-weighted terms, with markets still trying to figure out the short and long-term implications of the ECB’s monetary policy loosening measures.
The Swiss Franc weakened almost 1% last week, to its lowest level since 1st August, with markets increasingly confident that the Swiss National Bank will be forced to cut rates.
While the Australia Dollar was broadly unchanged last week in trade-weighted terms, the Kiwi Dollar shed 1.1% and on Friday hit a 2-week low.
