Global Market Weekly Recap: Sep 11-15, 2023

This week witnessed a strong performance in risk assets, largely attributed to positive economic developments in the United States and China's implementation of stimulus measures. These factors instilled confidence in the possibility of a "soft landing" for the economy.

In contrast, European currencies, including the EUR, GBP, and CHF, faced depreciations in their exchange rates as disappointing economic data releases highlighted concerns about growth within the region.

Now, let's delve into a comprehensive overview of the performance of major global assets for the week. But before that, let's review the key headlines:

Notable News & Economic Updates

Broad Market Risk-on Arguments

The People's Bank of China (PBoC) set the USD/CNY reference rate at 7.3437, significantly higher than the market's projected rate of 7.2148. This wide gap indicates the PBoC's aggressive stance in defending the yuan's strength.Bank of England (BOE) policymaker Catherine Mann expressed her likely support for further interest rate hikes as a measure to combat inflation.New Zealand experienced a rebound in overseas visitor arrivals, with short-term visitors increasing from 11.3% to 19.8% in July compared to the previous year.Germany's ZEW Economic Sentiment came in at -11.4, slightly better than the forecast of -14.0 but lower than the previous reading of -12.3.Chinese property developer giant Country Garden received approval from its creditors to extend repayments on six onshore bonds by three years.In the United States, the Consumer Price Index (CPI) for August showed a monthly increase of 0.6%, exceeding the forecast of 0.5% and the previous month's reading of 0.2%. The Core CPI also rose by 0.3%, in line with expectations.U.S. Retail Sales for August increased by 0.6% on a monthly basis, surpassing the forecast of 0.4% and the previous month's growth of 0.5%.The U.S. Producer Prices Index (PPI) for August rose by 0.7% on a monthly basis, higher than the forecast and previous reading of 0.4%. The core PPI met expectations, remaining at 0.2% on a monthly basis.The People's Bank of China announced a 25-basis point cut in reserve requirements for cash lenders, lowering it to 7.4%.Chinese industrial production accelerated from 3.7% year-on-year to 4.5% in August, exceeding the estimated increase to 3.9%.Chinese retail sales also improved, rising from 2.5% year-on-year to 4.6% in August, surpassing the projected improvement to 3.0%. Broad Market Risk-off Arguments

BOJ Governor Ueda suggested in an interview that the central bank might reconsider its monetary policies by the end of 2023, depending on the information about wage hikes.In Japan, machine tool orders declined by 6.3% on a monthly basis in July and marked the first monthly decrease in two months. On a year-on-year basis, the decline was at 19.7%.The United Kingdom's GDP unexpectedly contracted by 0.5% on a monthly basis in July, driven by factors such as strikes in hospitals and schools and unusually rainy weather.The unemployment rate in the UK increased from 4.2% to 4.3% in August. Jobless claimants decreased from 29,000 to 0.9K. Average wage growth remained at a record high of 8.5% in July, while net job changes were -207K, well below the forecast of -80K.In Australia, the unemployment rate held steady at 3.7% in August. The participation rate inched up from 66.9% to 67.0%. Employment gains were higher than expected at 64.9K, with part-time gains (62.1K) outpacing full-time job increases (2.8K).The European Central Bank (ECB) raised the deposit rate from 3.75% to 4.00% during the week. ECB President Lagarde did not indicate that this might be the peak of rate hikes.The preliminary reading of the University of Michigan U.S. Consumer Sentiment for September came in at 67.7, down from 69.5 in August. The trading week commenced with the Japanese yen displaying strength, driven by comments from Bank of Japan (BOJ) Governor Kazuo Ueda over the weekend, hinting at a potential departure from the negative interest rate policy as early as January of the following year.

The Australian dollar (AUD) and New Zealand dollar (NZD) also gained momentum, thanks to signals from the People's Bank of China (PBOC) discouraging disruptive market behaviours, particularly shorting the yuan.

The collective resilience of the JPY, AUD, and NZD, coupled with expectations of a less hawkish stance from the Federal Reserve due to positive U.S. economic data, exerted pressure on the U.S. dollar and bolstered assets like gold and equities.

Tuesday witnessed mixed price movements as traders anxiously awaited the U.S. Consumer Price Index (CPI) release scheduled for Wednesday. Notable events included the unveiling of the U.K.'s August employment figures, which contained both favourable and unfavourable components.

Crude oil prices surged to a 10-month peak, driven by predictions of the largest global oil inventory deficit since 2007, while U.S. equities faced selling pressure amid concerns regarding elevated oil prices and profit-taking ahead of the CPI report.

Wednesday marked the European Central Bank's (ECB) interest rate hike, but ECB President Lagarde's comments regarding "peak rates" and the intent to maintain elevated rates for an extended period weighed on European currencies such as the EUR, GBP, and CHF. U.S. economic data supported expectations of a "soft landing."

Thursday witnessed AUD and NZD retracing their gains despite a robust Australian jobs report, revealing a higher number of part-time job creations compared to full-time positions. The ECB's actions and statements continued to impact the euro and other European currencies.

In the meantime, U.S. retail sales and Producer Price Index (PPI) reports reinforced expectations of a "soft landing" and provided a boost to non-European risk assets, including USOIL, Bitcoin (BTC/USD), and the Canadian dollar (CAD). U.S. equity indices registered gains, while gold experienced a dip.

Friday marked a return to risk aversion flows, potentially influenced by several factors, including elevated U.S. import and export prices, wage disputes between labour unions and automotive workers, and weaker U.S. consumer sentiment readings. Overall, market volatility remained a prevalent theme throughout the week.

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