There were few tier-one macro data points out last weeks but markets had to navigate the release of the minutes of the RBA, Fed and ECB policy meetings, mid-week meetings over Brexit between British Prime Minister Johnson and his German and French counterparts and Fed Chairperson Powell’s opening speech at the Jackson Hole symposium on Friday. Moreover, on Friday the Chinese government announced tariffs on another $75bn of US imports to which the US retaliated with increased tariffs on US imports from China ahead of the G7 Summit on 24-25 June.
The fall-out is that the Dollar, Swiss Franc, Euro, Sterling and have appreciated respectively 0.2%, 0.3%, 0.6% and 0.9% in trade-weighted terms while the safe-haven Japanese Yen is up a more substantial 1.6%. Conversely, the more risk-sensitive Australian and Kiwi Dollars and emerging market currencies – in particular the Chinese Renminbi and high-yielders – have on the whole weakened. The S&P 500 ended the week down 1.4%.
The Dollar has inched higher to a two-and-a-half year high despite markets still pricing in a 90% probability of the Fed cutting its policy rate 25bp in September while the Euro got some support from an up-tick in the Eurozone composite PMI in August and the ECB’s discussions about how to boost Eurozone inflation.
Sterling is trading at a one-month high, with markets seemingly taking some comfort from the fact that German Chancellor Merkel and French President Macron did not fully discount the possibility of the UK and EU finding an alternative solution to the Irish backstop before the 31st October when the UK is due to leave the EU with or without a deal. However, with only two months to go, Prime Minister Johnson has stepped up his government’s preparations for a no-deal Brexit which a number of opposition parties (and ruling party members) are trying to oppose.
