Collinson FX Market Commentary - July 30-31- US growth well short

by Collinson FX on 1 Aug 2016 Collinson FX Market Commentary - July 30-31 - Italians sweat on stress tests

The US GDP crushed the hopes of market optimists and with it, any chance of a rate rise, short term!

The growth number was expected to come in at around 2.5%, but missed by a wide margin, contracting to an annualised rate of 1.2%. This confirms the string of weak global economic data releases and associated growth prospects. European Banks remain on shaky ground after the release of the latest round of stress tests.

Much of the focus was on the Italian banks and the non-performing loans. Many of the banks are being impaired by bad debts and need to make huge allowances. The Bank of Japan did not impose negative rate rises, but flagged further QE, pushing the JPY to 102.50. The banks remain a massive challenge to European stability but have been overshadowed by Geo-Political events overwhelming the continent.

The Dollar crashed after the GDP numbers, with the EUR trading 1.1180, while the GBP hit 1.3230. The failure of the Fed to implement telegraphed rate rises, has hit the Dollar as the reserve, triggering support for commodity currencies despite weakness in demand. The NZD now looks to test 0.7200, confounding the impotent RBNZ, while the AUD challenged 0.7600. Look to a big week of economic manufacturing data globally with cameos from Central Banks.

Collinson FX Market Commentary - July 29 - Italians sweat on stress tests
July 29 - The Fed left rates unchanged, shackled by stunted global growth, unable to pursue the intention of rate rises in 2016. Bond yields remained on low levels, with slow growth and benign inflation. European markets remained nervous ahead of the bank stress tests, that many have predicted being testy for some banks, especially Italian.

The US digests yet another inaction from the Fed while markets look ahead to the all important Bank of Japan decision. This may be one of the few times the Bank of Japan has overshadowed the Fed. PM Abe announced massive fiscal stimulus for a laggard economy. Expectations have never been higher for complimentary monetary stimulus.

The JPY remains firm, trading around 105.25, in preparation. Commodity demand was slack on the energy and agricultural front, while metals eked out some gains. This took the shine off the recent rally in the NZD which slipped back to 0.7060, while the AUD continued to toy with the 0.7500 mark.

Collinson FX Market Commentary - July 28 - Japan lights afterburner

July 28 - Japan's PM, Abe, announced a $265 Billion fiscal stimulus to compliment the enormous monetary stimulus. Unfortunately, it was not announced how they were going to pay for this, or how they were going to implement this. The Yen went to 105.25, despite the USD receding, while the EUR rallied to 1.1050. The GBP rallied to 1.3215, boosted by GDP numbers, which improved to 0.6 for the Quarter and 2.2%p.a.!

Economic data continues to improve in the UK, despite all the doom and gloom predicted post Brexit, with relief being a major component. Australian CPI came in slightly above expectations, 0.45 compared to 0.40, but failed to impress markets. Growth is severely retarded, thus encouraging further monetary stimulus, undermining a rally in the currency.

The AUD settled below 0.7500, while the KIWI rallied to above 0.7050, despite all efforts by the RBNZ. The NZ Central Bank has done all it could to jaw-bone the currency lower but will now need to cut interest rates. The RBNZ has been reactive since the 2008 economic collapse and needs to employ a Governor with gratis. Oil declied to $41/barrel reflecting commodity demand and global economic status. The Fed left rates unchanged and must now be seriously questioned on rhetoric.

Collinson FX Market Commentary - July 27 - Steady trade data ups KIWI
July 27 - The FOMC meeting began overnight, with the announcement to come tonight, after a two day meeting. There has been a lot of talk of a rate rise, as US economic fundaments improve, only to fall flat or be upset by yet another disruptive Geo-Political event.

The Case Shiller Home Price Index was flat, while New Home Sales jumped back in to the positives. US data has been progressive but not comprehensive. Commodity demand remains weak, reflecting global demand, which threatens continued confidence and any hope of a rate rise.

The JPY slipped back to 104.70, ahead of the Bank of Japan meeting, while the EUR approached 1.1000. NZ Trade data was steady and allowed for the NZD to push back above 0.7000, while the AUD flirts with 0.7500. All eyes remain on the Fed!

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