Daily summary: Risk-on approach dominates economic data

7:09 PM 17 January 2020

Stocks end the week on a strong footing
Mixed US data, nightmare UK sales report
USD gains for the second day

Friday was another day of risk-taking, despite fairly mixed macroeconomic reports. US indices stormed to new highs with US100 leading the way, DE30 saw the highest level of 2020 and even typical laggards like ITA40 or SPA35 played a catch-up.

The data published on Friday was fairly mixed. Certainly a bright spot came from the US housing market where housing starts soared by more than 16% to 1.608 million annually – the highest number in 13 years! However, this was most likely due to very warm December that biased the number. Building permits seem to confirm this narrative, sliding to 1.416 from 1.474 million. The other data wasn’t so impressive. Industrial output slid from November and in capped a quarter of 3 negative y/y readings, confirming a deteriorating situation in the US manufacturing. Consumer sentiment remained at decent level but was just a notch lower than expected while the job openings data tumbled more than 7% to 6.8 million – the lowest figure since May 2018! Earlier in the day we had reports from China that showed December industrial output recovering to +6.9% y/y but also Q4 GDP growth decelerating to 6% y/y.

US output declined annually in each month of the final quarter of 2019. Source: Macrobond, XTB Research

While the US and Chinese data was mixed, the data from UK was outright awful. Retail sales failed to recover from November slump and instead registered a 0.6% m/m decline. November decline was also downgraded to -0.8% from -0.6% m/m.

Nightmare UK data prevented a GBPUSD recovery and the pair slid towards 1.30 again. EURUSD was equally weak, partly reflecting rising inflation expectations among US households. US dollar was doing very well for the second day and some EM currencies like TRY and PLN were major victims. Interestingly all precious metals were gaining despite strong US dollar.

Next week is shaping up to be very interesting. The earnings season in the US will gather momentum and will be key for this rally to continue. It seems like the easy part is over (with financials that had a good 2019) and reports from techs will be crucial. In Europe the focus will be on the flash PMIs and the ECB: DE30 at the highs means investors hope to see economic recovery and the ECB still printing money at the same time.

 

 

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