Broadly speaking last week was “risk on”, with markets seemingly willing to look past, at least for now, the rapid spread of the coronavirus in China and other countries and the mounting death toll (910) which has now surpassed the 2002-2003 SARS virus. The S&SP 500 posted four consecutive days of gains and was down only 0.5% on Friday, ending the week up 3.5%, spurred in part by US President Trump’s acquittal in his impeachment trial and strong US ISM and labour market data.
The Dollar inched higher throughout the week and in trade-weighted terms is now at a two-month high. It has been gradually appreciating since late-December irrespective of whether global risk appetite has been improving or deteriorating which suggests that markets are struggling to find other compelling currencies to buy.
The more risk-sensitive Australian Dollar did gain 0.5%, with the Reserve Bank of Australia’s decision to keep its policy rate unchanged at 0.75% early in the week providing the currency with some support. The Kiwi Dollar was broadly unchanged.
Conversely, major European currencies were down last week. The Euro remains rooted near a two-and-a-half-year low in trade-weighted terms with the EUR-USD cross trading below 1.10 – its weakest level since early October. Very weak German macro data for December, in particular a 3.2% mom contraction in industrial output – the largest in a decade – weighed on the Eurozone currency which ended the week down 0.5%.
The safe-haven Swiss Franc, which on 3rd February hit its strongest levels since late-June 2015, was down by a similar amount last week. News that luxury retailers are being hard hit by a slump in Chinese travel and consumption and may be further impacted by possible US tariffs on European luxury goods imports arguably contributed to the Swiss Franc’s correction lower.
However, it was Sterling which underperformed the most, shedding 1.4% and hitting a 3-week low. There was no obvious catalyst but market concerns over negotiations of a new UK-EU trade deal are seemingly weighing on Sterling.
