Weekly Recap 13th July – 19th July

20th July 2020

The Dollar was unchanged last week in trade-weighted terms. As has been the case in recent weeks stronger-than-expected US macro numbers are dampening downward pressure on the Dollar. However, they are on the whole still mostly benefiting US and global equities although the S&P 500 managed to rise only 1.3% last week.

The $-value of US retail sales rose a larger-than-expected 7.5% mom in June and industrial production growth accelerated to 5.4% mom from 1.4% mom in May. The New York and Philadelphia Fed manufacturing indices surprised to the upside in July and in aggregate point to a further pick-up in the US manufacturing sector in July.

The Euro was the outperformer last week, steadily appreciating 1% to its strongest level in at least a decade in trade-weighted terms. Markets have seemingly been pricing in a reasonably high probability that EU leaders will reach an agreement on a € 750bn recovery fund although negotiations at a Special European Council Summit which started on Friday are still ongoing. 

The Euro’s gain was Sterling’s pain, with the British currency dropping over 1% to the weak-end of this month’s admittedly narrow range. UK GDP rose 1.8% mom in May, following a record 20.3% mom contraction in April, but the UK still likely posted a record-contraction in Q2 which could near 20% qoq. Sterling was left unfazed by the avalanche of labour market figures for June while markets seemingly discounted positive noises from British Prime Minister Johnson and Bank of England governor Bailey about the economy gradually re-opening and returning to normal.

The performance of the Australian and Kiwi Dollars last week was almost a mirror image of their respective performances in the week to 10th July. The Australian Dollar rebounded 0.5%, thanks in part to robust employment data for June (the economy created 211,000 jobs, twice as many as expected) while the Kiwi Dollar gave back 0.6%.