Developed market currencies made small gains in trade-weighted terms last week as a result of a number of major emerging market currencies, including Latin American currencies and the Russian Rouble, depreciating. On paper this would point to “risk-off” but the S&P 500 hit new record highs on both 20th and 21st January and ended the week up nearly 2% despite weak global macro data (including in the United States, United Kingdom and Australia).
The hope offered by mass vaccination programs and the prospect of Federal Reserve and European Central Bank monetary policies remaining very loose for the foreseeable future and US fiscal policy being loosened are seemingly putting a floor under equities. Moreover the formal inauguration of President Joe Biden on 20th January went smoothly and he has started to reverse the executive orders of his predecessor.
The “safe haven” US Dollar, which was flat the previous week, appreciated about 0.2% as did the Swiss Franc. The Euro was the outperformer, rising 0.7% to trade broadly in the middle of its narrow 4-week range.
Sterling hit its strongest level since early March on 21st January and ended the week up 0.3% despite a wobble on Friday following the release of weak UK macro data for December-January. Retail sales which contracted 4.1% mom in November rebounded only 0.3% mom in December while the UK composite PMI collapsed to 40.6 in January (according to preliminary data) from a downwardly revised 50.4 in December. In level terms this was the weakest number since May while the 9.8 percentage point collapse in January 2021 was the biggest monthly fall since April.
These figures point to a severe double-dip in UK economic growth at the turn of the new year despite the British government’s expansive and very costly fiscal policies. The Public Sector Net Borrowing Requirement (excluding public sector banks) surged to £34.1bn in December, the biggest fiscal deficit since May. As a result the deficit in the fiscal-year to December 2020 was £270.8bn or 4.7 times higher than the deficit in April-December 2019.
The Kiwi Dollar appreciated 0.4% last week in trade-weighted terms and has gained a further 0.3% since Friday to trade at its strongest level in over a fortnight. The Australian Dollar was flat last week.
