Last week was quiet in terms economic indicators. However, fresh concerns over tensions between Russia and Ukraine strengthened the demand for safe-havens. Market sentiment was hit after Russia launched new military exercises near its border with Ukraine on Thursday, showing no sign of backing down on plans to annex Crimea. US Secretary of State John Kerry said serious steps would be imposed by the US and Europe if the referendum on Crimea joining Russia takes place on Sunday as planned. AUD, EUR, GBP and USD lost some of their gains after the news.
In spite of the risk-off trade, the Euro managed to rally against its US Dollar counterpart, reaching a two and a half year high of 1.3967. The Euro was well supported after the European Central Bank President Mario Draghi suggested that economic recovery in the Euro Zone was on track and did not require a shift in monetary policy.
Sterling fell to a one-month low against the Euro and weakened against the US dollar on Monday, after a senior Bank of England policymaker said further gains by the pound would be unwelcome. Deputy BoE Governor Charlie Bean said that efforts to build an export-based recovery would be curbed by a higher Sterling. Cable has risen for the past three quarters on a trade-weighted basis, as investors priced in chances that the BoE would tighten monetary policy in the spring of 2015 if economic data out of the UK remains solid. However, investors have shifted towards the Euro as the ECB signalled it would refrain from easing its policy further. The currency continued to lose momentum.
The Japanese Yen climbed against most of its counterparts as underlining concern about a decline in the Asian economy that has sent commodity prices tumbling. Demand for Japan’s safe-haven assets was supported by the standoff over Ukraine’s Crimean peninsula. The USDJPY started the week off at the 103.00 level. The pair then started to drop gradually towards the end of the week breaking through major support levels as investors fled to safety. The currency closed the week at 101.37.
The Aussie held steady at 0.9027, from 0.9016 at the beginning of the week, having reached a three-month high of 0.9135 late last week. It lost some altitude after a sharp fall in China’s exports in February, which highlighted global outlook concerns. The currency rallied sharply against its US Dollar counterpart, after better than expected employment data. The Aussie then lost some of its gains as investors moved to safer assets as concerns over the Ukraine situation escalated. The Aussie closed the week close to its opening level at 0.9030.
Retail sales in the US rose in February for the first time in three months, a sign consumers are starting to shake off the effects of the harsh weather that curbed spending even more than previously estimated. Sales rose by 0.3 percent versus a 0.6 percent drop in January that was larger than initially reported. Similarly, Core retail sales, which exclude automobile sales, also rose 0.3 percent last month, ahead of expectations for a 0.2 percent rise.
The number of Americans filing applications for unemployment benefits unexpectedly fell last week to the lowest level since the end of November, a sign of further improvement in the labour market. Jobless claims dropped by 9,000 to 315,000 in the week ended March 8, versus economist’s expectation of a rise to 330,000. Faster gains in hiring will help to boost consumer spending, the biggest part of the economy, after harsh winter weather weighed on everything from retail sales to home purchases earlier this year.
On Wednesday, ECB executive board member Coeure said the monetary authority saw no indications of deflation in the euro area, while ECB Chief Economist Peter Praet noted that the euro area’s economy has improved over the past two years. Also on Wednesday, German Finance Minister Wolfgang Schauble said interest rates in the euro zone are too low from a German point of view. The euro rose as markets bet that the European Central Bank will hold off on implementing stimulus measures even though recent inflation rates have come in softer than market expectations. The ECB left interest rates at a record low 0.25 percent at its policy meeting last week and implemented no new policy measures to shore up growth despite forecasting low inflation for years to come.
Bank of England Governor Mark Carney signalled he was not concerned that Britain’s economy was close to overheating, despite a strong recovery since last year, putting himself in the dovish camp among policymakers. Speaking to lawmakers on Tuesday, Carney said the amount of spare capacity in the economy was probably slightly more than 1.5 percent of gross domestic product, suggesting the BoE can hold off on raising interest rates for longer. Carney also said Britain’s natural rate of unemployment could be less than the Bank has estimated, meaning the labour market can strengthen further without pushing up inflation. Sterling weakened as Carney spoke.
UK factory production rose more than forecast in January in a sign the economic recovery is gaining traction. Output rose 0.4 percent from December, when it gained an upwardly revised 0.4 percent. Market expectation was for 0.3 percent growth. Industrial production, which also includes utilities and mines, rose 0.1 percent, less than the 0.2 percent forecast, as bad weather hit oil and gas output. The UK economy continues to show signs of a robust recovery yet risks remain from fragility in Europe, and the global economy.
China’s exports unexpectedly tumbled in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world’s second-largest economy despite the Lunar New Year holidays being blamed for the slide. Exports in February fell 18.1 percent from a year earlier, following a 10.6 percent jump in January. Imports rose 10.1 percent, yielding a trade deficit of $23bn for the month versus a surplus of $32bn in January. Market expectations were for a rise of 6.8 percent in exports and an 8 percent rise in imports and a trade surplus of $14.5bn. THE PENINSULA
