It was a jittery week for global equity markets. Weak PMI data for September, including in the US and UK, reignited talk of recessions and global equities came under pressure, with the S&P 500 dropping 3% over 1-2 October. But markets positively interpreted US labour market figures released on Friday, despite a fall in weekly earnings growth, and Fed Chairperson Powell was seemingly more upbeat about near-term prospects for the US economy. The S&P 500 rallied 2.2% on 3-4 October to end the week down only 0.3%.
Price action in FX markets, however, was ultimately pretty subdued bar marked intra-day volatility in Sterling spurred by a fast-moving Brexit narrative. The Euro, Sterling, Australian and Kiwi Dollars ended the week broadly unchanged while the Dollar posted a 0.3% loss in trade-weighted terms with markets still pricing in a further 40bp of Fed rate cuts by year-end.
British Prime Minister Johnson announced his much-awaited new plan to replace the controversial Irish backstop but the initial reaction from the EU was far from encouraging. French President Macron said that the EU would give its response by the end of this week although a formal response may only come at the European Council summit on 17-18 October.
The Australian Dollar had a wobble mid-week following the RBA policy meeting, hitting a 6-week low in trade-weighted terms, but finished the week strong. The RBA cut its policy rate 25bp to a record-low 0.75%, as expected, and left the door open to further rate cuts. Markets are pricing in a further 40bp of cuts by next August but RBA Assistant Governor Ellis, speaking on Friday, gave the Australian currency a boost by pointing to the manufacturing sector’s strong performance and increasing Australian exports.
The Kiwi Dollar followed a broadly similar path, stringing three consecutive up sessions from Wednesday to Friday, and is currently trading at its strongest level since mid-September in trade-weighted terns. It is, however, still down 1.3% from a month ago.
The Swiss Franc was the biggest underperformer last week, depreciating by 0.7%, but remains broadly in the middle of a narrow one-month range.
