Once again the ongoing trade war between the US and China drove acute volatility in equity markets, including in the S&P 500 which ended last week broadly unchanged. Jitters in global risk aversion, along with decent US macro data, helped push the Dollar 0.8% higher in trade-weighted terms, with the safe-haven Swiss Franc appreciating by a similar magnitude. The Euro and Kiwi Dollar were broadly flat last week.
Australian Dollar
Conversely, the Australian Dollar weakened 1.1% to its lowest level since September 2015, in tandem with a weaker Chinese Renminbi. Australian labour market data in April were at first glance robust with 28,400 jobs created, but the number of full-time jobs shrunk by 6,300. The Reserve Bank of Australia has made clear that the health of the labour market is an important input in its setting for monetary policy and markets are pricing in a 68% probability of a 25bp rate cut at the June meeting. The Aussie Dollar has recovered about 0.8% in the past 48 hours.
Sterling
Sterling was again the biggest loser last week, shedding 1.6% and hitting its weakest level in three months. The unemployment rate fell to a new multi-decade low of 3.8% in March but real weekly earnings contracted for the second consecutive month. However, the real driver of Sterling weakness – as often the case – was the ongoing Brexit saga. Talks between the ruling Conservative Party and opposition Labour Party have all but unsuccessfully ended with Prime Minister May under increasing pressure to resign or at the very least set a timetable for her departure.
However, she has seemingly opted for one last throw of the dice by planning to ask parliament to vote on the Withdrawal Agreement Bill (a critical precondition for the UK to officially leave the EU) in the first week of June. As always, there are still doubts as to whether she can command a majority in a bitterly divided parliament and what would happen next should parliament vote against the WAB.
