With the Pacific G10 Macro Rates Team
Global Macro Overview
Last week was very quiet within G10 markets after the unexpected volatility experienced over the first week of 2020, driven by the uncertainty in the Middle East. The S&P 500 finished the week at new highs, rates and currencies were mostly range-bound, as a result volatility continued to slide lower. US and China signed the Phase 1 deal, without any surprises. Data continued to point at stabilisation and recovery in Asia-Pacific economies, which should be beneficial for the countries whose economies are reliant on trade (Europe and Japan).
US: Economic data was mixed last week. CPI did disappoint expectations at 0.2% MoM increase (0.3% exp., 0.3% prev.) keeping YoY numbers at 2.3% headline and 2.3% core. NFIB survey came out weaker at 102.7 (104.6 exp., 104.7 prev.) showing that small businesses are feeling less optimistic. Retail Sales were stronger in December with Control Group increasing 0.5% (0.4% exp., -0.1% prev.), however November data was revised lower. Jobless Claims continued to stay around cyclical lows. Finally, Housing Starts data for December came in very strong with 16.9% MoM increase (1.1% exp., 2.6% prev.).
Eurozone: No major data last week, with markets being driven by the issuance and regional politics.
Sweden: Inflation numbers came in around expectations at 1.8% YoY headline and 1.7% YoY CPIF.
Switzerland: US Treasury put Switzerland back on the watch list for currency manipulation, sending EURCHF rate closer to 1.05 levels last seen 3 years ago and putting more pressure on SNB to continue with an extremely easy monetary policy.
Very little significant data this week. Core Machine Orders spiked 18% MoM in November significantly above the forecast for 2.9% increase. Tertiary index for November was stronger as well at 1.3% (1% exp., -5.2% prev.).
UK data for December was very weak last week. Although the data has been undoubtedly affected by the uncertainty around the General Election, the extent of weakness is worrying policymakers. After a number of dovish speeches by MPC members the market started pricing increased chances of immediate monetary policy easing. Monthly GDP for November was much weaker than the expectation with a flat number of -0.3%, with weakness spread across Manufacturing and Industrial Production and Construction rebounding 1.9% mom from the sharp declines in previous months. Retail Sales for December surprisingly contracted by -0.8% in December (0.8% exp.) after -0.8% decline in November. In addition, following the recent trend Inflation numbers were weaker than expected with CPI at 1.3% YoY and core at 1.4% against the expectations for 1.5% and 1.7% increases.
Australia: Continued signs of recovery in the housing market with Home Loans increasing 1.8% in November.
New Zealand: Card spending dropped -0.8% in December after increasing 2.9% in November, primarily driven by the Rugby World Cup spending. Manufacturing PMI dropped back below 50 in December after spending two months in the expansionary territory above 50.
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