Weekly Market Wrap 10/02/2020-14/02/2020

Marius Paun | London, UK | Senior dealer | Friday, 14th February 2020

On Friday we saw that the retail sales in the US rose 0.3% in January, matching expectations. Although spending was relatively soft going into the new year, with clothing stores being the biggest losers, versus people spending more on restaurants. Meanwhile, inflation moves slightly higher to 2.5% from 2.3% last month.

We also saw the Fed Chair Jerome Powell testifying in front of the Congress saying there is no reason why economic expansion cannot continue, nothing about current growth is unsustainable and that the Fed is not in favour of negative interest rates (see Switzerland).

Amid the ongoing coronavirus outbreak in China, a member of the PBOC monetary policy committee suggested the authorities should consider cutting interest rates to support businesses. There are widespread reports that hundreds of Chinese firms are already seeking billions of loans to soften the economic impact of the epidemic.

The Daily Telegraph, the UK newspaper has reported that fundamental differences on the shape of future EU-UK relationship could dent the trade negotiations within months. On another note, the UK Chancellor Sajid Javid has resigned. Prime Minister Boris Johnson wants to create a new economic team to jointly advise the PM and the Chancellor. The sterling currency pushed a little higher against the greenback, trading now above 1.30.

Meanwhile, the Germany economy stagnated dragging down the eurozone – weakened to 0.1%, a seven-year low. The euro mirrored these hard times by slumping against the US dollar to trade around 1.0850 going into the weekend. Bloomberg cited that European Central Bank President Christine Lagarde is speeding up plans for the central bank’s strategic review.

The idea is to try to change the inflation goal going forward. The fact that the same rumours about abandoning the 2% inflation target have also appeared at the US Federal Reserve, speaks volume about the quest to fight deflation in the developed economies.

As expected, the Reserve Bank of New Zealand left its key interest rate unchanged at 1%. The central bank agreed that low rates helped to get inflation around the target level.

Gold continued to benefit from its safe-haven status amid the coronavirus. For now, at least, that support seems to outmuscle the potential downside pressure as a result of the Fed’s inaction on the rates front.