Turmoil in Financial Markets, Despite Upbeat U.S. Economic Data

The highlights of the previous week were the release of better-than-expected official data on U.S. retail sales and initial jobless claims, following disappointing data fuelling concerns over the outlook of China’s economy and tensions between Russia and the West over Crimea annexation.

U.S. retail sales and initial jobless claims

The U.S. Commerce Department reported on Thursday, March 13, that retail sales rose by a seasonally adjusted 0.3% in February for the first time in three months. The median forecast was expecting a 0.2% rise. Retail sales for January were revised down to a 0.6% drop from a previously reported decline of 0.4%.

Core retail sales, which exclude automobile sales, also rose 0.3% last month, compared to forecasts for a 0.2% increase. Core sales in January were revised down to a decline of 0.3% from a previously reported flat figure. The rise of retail sales signifies a rebound in demand, which was previously affected by harsh weather conditions, while easing concerns over the outlook of the U.S. economic recovery.

A separate report released from the Department of Labor the same day, showed that the number of people who filed for unemployment assistance in the U.S. last week (week ended March 8) declined unexpectedly, reaching the lowest level since late November. The number of initial jobless claims declined by 9,000 to 315,000, from the previous week’s revised total of 324,000. Analysts anticipated jobless claims to increase by 6,000 to 330,000 last week.

The stronger-than-expected data published on the economic calendar of the day, showed signs of improvement in the labor market and enhanced the assessment that the Federal Reserve is likely to continue to progressively taper its bond-buying programme. TeleTrade analysts commenting on the figures, said: “Stronger job and income growth should develop a more advantageous background for increased consumer spending”.

Chinese economy declines

Despite the upbeat U.S. figures, market sentiment remained jittery, following data released earlier in the day, showing that Chinese industrial production increased 8.6% over the first two months of the year, the weakest over the same period since 2009 and below forecasts for a 9.5% rise. At the same time, Chinese retail sales rose by a smaller-than-forecast 11.8% in the same period a year earlier, which is the slowest since 2004. The weak data came just days after China released a report showing that exports declined greatly in February, pointing strong signs of slowdown in the world’s second largest economy.

Standoff in Ukraine

Meanwhile, investors remained wary after Russia initiated new military exercises near its border with Ukraine on Thursday, 13, showing no intention of retreating on plans to annex Crimea. This came only one day after U.S President Obama warned that unless Russia pulls back from ratifying a referendum on Crimea joining Russia, the U.S. and Europe will be forced to impose considerable sanctions, as a cost to Russia’s breaches of international law. President Obama’s comments came after G-7 leaders warned Russia not to proceed with Crimea annexation, as they would respond with further severe actions.

Gold to a 6-month high

Gold prices reached a six-month high for the second consecutive day on Thursday, as demand for safe haven assets remained greatly supported, among rising concerns over the turmoil in Ukraine. On March 13, gold futures for April delivery on the Comex division of the New York Mercantile Exchange rose to a session high of $1,375.40 a troy ounce - the highest since September 9, 2013 - before edging down to last trade at $1,365.70 during U.S. morning hours.

Euro to 2-1/2 year high

The single currency hit a two-and-a-half year high against the greenback on Thursday, following last week’s decision by ECB to hold off on implementing stimulus measures and leave monetary policy unchanged, amid improved outlook of the Eurozone’s economy. EUR/USD rose to 1.3966, the strongest since October 31, 2011 and was last trading up 22% to 1.3934. On Wednesday, Benoit Coeure – ECB member – stated the monetary authority saw no signs of deflation in the Eurozone, while Peter Praet - ECB chief economist – said that the Eurozone’s economy has improved over the last two years.

Dollar remains weak

Although the U.S. dollar found some support on Thursday, after the release of upbeat retail sales and initial jobless claims figures, it remained weaker than other major currencies. The greenback fell to the lowest point of the week against the yen, as soft economic data from China triggered risk dislike, while the Australian and New Zealand dollars rose after better than anticipated Australian jobs data and a rate increase from the Reserve Bank of New Zealand. The dollar also dipped to two-and-a-half year lows against the Swiss franc. USD/CHF dropped to 0.37% at 0.8705, the weaker since October 31, 2011, as concerns over China and standoff in Ukraine fuelled safe haven demand.

The dollar was little changed against major currencies on Friday, 14. It remained well below the euro and the yen, with EUR/USD up 0.17% to 1.3891 and USD/JPY falling 0.18% to 101.61. It changed little against the Swiss franc, as USD/CHF was down to 0.8742 by 0.03%. Moreover, the greenback remained unchanged against the Australian, New Zealand and Canadian dollars. AUD/USD rose 0.03% to 0.9034, NZD/USD inched 0.02% to 0.8543 and USD/CAD added 0.06% to 1.1080. On Friday, 14 the U.S. dollar index was down 0.08% to 79.66.

Sterling stays higher

Sterling remained higher against the greenback on Thursday, 13. GBP/USD rose to 1.6717 on U.S. morning trade, the strongest since March 10 and consolidated at 1.6687 up 0.41%. Cable remained steady against the dollar on Friday, amid the release of soft U.K trade deficit data. GBP/USD traded on 1.6594 on European morning trade, the lowest since Wednesday and consolidated at 1.6617 up 0.04%.