The theme last week was once again one of “weaker Dollar, stronger equities” with global risk appetite running high.
Markets seemingly ignored civil unrest in the US and other countries (including the UK) and growing tensions between the US and China over the status of Hong Kong. Instead, investors pointed to the easing of national lockdowns and signs that economic activity recovered in May, the provision of stimulative fiscal and monetary policies and progress in the development of a vaccine for covid-19. Global equities rallied 6% last week and are up more than 12% from a month ago.
The “safe-haven” Dollar, which appreciated sharply in March when global risk appetite was at its weakest, continued to tumble. The Dollar trade-weighted index fell nearly 2% last week to its weakest level since 11th March. It only temporarily bounced higher on Friday following the release of surprisingly robust US labour market data for May.
The US economy created 2.5 million jobs in May – the largest monthly print on record – whereas the consensus forecast had been for another 8 million job losses. The US unemployment rate fell in May to 13.3% from 14.7% in April, a considerably better outcome than the predicted 19.7%. While interpreting labour market figures has become more tricky in the context of national policies (including furloughs) these numbers pointed to a faster than expected rebound in the US economy.
Unsurprisingly in this context the Swiss Franc only fared slightly better, depreciating 1.5% to its weakest level since end-February.
The Euro had an eventful week but ended unchanged in trade-weighted terms. It appreciated nearly 1% on Thursday after the European Central Bank announced at its policy meeting that it would boost and lengthen its quantitative easing program. However, the Euro subsequently gave back all of its gains on Friday.
Sterling appreciated 1.3% but once again it was the Australian and Kiwi Dollars which stole the limelight, both gaining about 3.3% last week to their strongest levels since respectively April 2019 and February 2020. Decent Chinese export data out yesterday have helped Antipodean currencies extend their gains in the past 24 hours. Moreover, New Zealand Prime Minister Ardern announced this morning that the country currently had no active covid-19 cases for the first time since end-February and that the Alert Level would be lowered to 1 as of midnight today.
