Yen Enjoys Safe Haven Flows On Doom And Gloom, More To Come?

This was the week: Worries, worries, worries

The safe-haven yen saw quite a bit of demand in a week that was dominated by concerns.

China kicked off the week by setting a growth target of 6-6.5% for 2019, lower than 6.6% seen in 2018, which was, in turn, the lowest in 28 years. Later in the week, China’s weak trade data also weighed on the mood.

Trade talks between China and the US did not see a breakthrough, and a summit between Presidents Donald Trump and Xi Jinping is not that close. The same goes for Brexit talks, which saw the same difficulties around the Irish Backstop. While a delay in Brexit is on the cards, the failure to reach a new accord is worrying.

The European Central Bank surprised with an early dovish twist that had an impact well beyond Europe, and so did the Bank of Canada. They joined the Fed that reiterated its patience on raising interest rates, with the Bank of Japan already deep in the dovish territory.

US data was mixed. The forward-looking ISM Non-Manufacturing PMI came out at a robust 59.7 points, showing the resilience of the economy. New Home Sales defied the downtrend in housing with 621K annualized in December. However, the broad trade balance may anger Trump that vowed to shrink it.

The US jobs report came out with a poor increase of only 20K in February against 180K projected and 311K in January. However, wage growth accelerated to 3.4% YoY, the unemployment rate dropped to 3.8% and the U-6 underemployment rate slipped to 7.3%. The USD eventually recovered from the initial slide and its prospects remain positive.

All in all, it was not a good week for stocks, and USD/JPY dropped with them.

US events: Consumer data

Markets will not have a lot of time to digest the Non-Farm Payrolls report before another top-tier figure awaits it: Retail Sales for January. Once again, the data comes late due to the government shutdown.

The data for December was devastating: a fall of 1.2% in the headline and a plunge of 1.7% in the all-important Control Group. The figures did not match other reports, and entirely a few analysts cast doubt about them. January is already expected to show rises in all the measures, and markets will also watch revisions for December’s numbers quite closely. Consumption is critical to the US economy.

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