Collinson FX Commentary: Feb 6 - US share plunge continues
by Collinson FX 6 Feb 2018 19:35 AEDT
6 February 2018
Day 2, Bay of Islands Sailing Week, January 25, 2018 © Richard Gladwell
Collinson FX Commentary: Feb 6 - US share plunge continues
US share markets continued to tank, following on from the massive losses to close last week, the Dow added to the misery.
The Dow has now lost over 1,000 points in just two days trading!
The trigger for the massive sell-off was a spike in interest rates, driven by strong economic performance and rising inflation. This attracts capital flows away from the equity markets, but also threatens debt servicing abilities, adding to market fears.
Mario Draghi has been out touting the EU recovery, citing the 'robust' economic recovery. While noting the improved growth and plunging unemployment, he warned accommodative monetary policy would remain, as required.
The EUR fell back to 1.2420, while the GBP tested 1.4000, on the downside. Commodity currencies are experiencing a correction, as a result of the spike in US interest rates and the associated bump in the reserve.
The AUD looks to break below 0.7900, while the NZD fell below 0.7300, relinquishing recent gains.
Collinson FX Commentary: Feb 3- Biggest US Equity crash in 2yrs
US Equity markets crashed, to close the worst week in two years. Non Farm Payrolls beat expectations, adding 200,000 jobs, triggering a further surge in Bond Yield rates! This is how normal markets function. Growth leads to inflation, which in turn leads to rising interest rates. Rising rates attract investment, providing alternatives to equity markets and tempering inflation.
The return to the 'normal course of business' is a refreshingly strong foundation to build economic growth. The post-GFC economy had relied on monetary policy to boost the economy, which lead to weak data further expanding liquidity, triggering massive asset bubbles. Equities were major beneficiaries of this monetary stimulus. The narrative has changed as economic data and consumer confidence are driving the economic boom. This has been triggered by US tax cuts and deregulation. These solid foundations are building corporate earnings and equity markets.
The rise in interest rates are a natural progression but have encouraged capital flows away from equities. The US 10 Year Bond Yield rose to 2.85%! This supported a rebound in the Dollar, with the EUR slipping back to 1.2480, while the Yen traded above 110.
The resurgent reserve hit the buoyant commodity currencies, as the AUD plunged to 0.7950, while the NZD tests 0.7300 on the downside. The coming week, heralds an avalanche of economic data, headlined by Trade and PMI numbers. Markets will be heavily influenced by Central Bank rate decisions and associated rhetoric. Expect a huge week!
Collinson FX Commentary: Feb 2- NZD/AUD Cross rebounds
The FOMC meeting concluded with a strong bullish sentiment. The Fed confirmed the health of the US economy and confirmed interest rate rises, in the current year, to combat anticipated inflationary pressures. The tightening monetary policy is ahead of the yield curve and Central Banks are following the market. US Bond yields have been steadily moving north and the Fed is following the lead. The rising rates should bolster the Dollar and provide alternative investment opportunities, thus impacting equity markets?!
January suffered a major correction, in the share market, but still came out at record levels. Markets are rallying on earnings and fundaments! Shock Horror! We have experienced a full cycle of operating in an alternative universe, due to extremely generous monetary policy, fuelling asset bubbles. 'Bad news was good news' !?
European PMI data was steady, supporting the notion of a return to normal monetary policy with the zone, which has been strongly rumoured. The EUR pushed towards 1.2500, while the GBP moved up to 1.4240, despite weaker PMI data. The UK continues to defy 'Brexit' fallout and dire warnings of economic disaster. The GBP has been a reflection of economic and political realities.
The NZD rebounded strongly, pushing back to 0.7400, while the AUD fell back to 0.8030. There was a massive correction in Australian Building Applications, contracting 20%, shaking market confidence. This has allowed the NZD/AUD cross to rebound back to 0.9200 in quick, smart time. Todays NZ Consumer Confidence data may reveal frailties in perceptions, while Building Permits will consider the state of the important housing sector, although global economic data will drive the macro-narrative.
Collinson FX Commentary: Jan 31 - First selloff for 2018
The Dow suffered the first major selloff for 2018. Bond yields are spiking, reflecting the growth function, operating boisterously in a booming economy.
The FOMC meeting begins and expectations are high for at least two interest rate hikes this year. Growth will be manifested in the CPI, inflation data, thus driving tighter monetary policy. US 10 year yields continued to drive north, exposing attractive investment opportunities, dragging on equities.
The EUR rebounded to 1.2400, amidst stronger GDP growth numbers, while the Yen traded 108.80. Commodities are conflicted between booming demand and a recovering reserve, with the AUD trading 0.8080, while the NZD regains 0.7325. The focus remains on economic data, Central Banks and the resulting impact on interest rates.
Collinson FX Commentary: Jan 30 - Boom times in US
Inflation became the hot topic of conversation, in the bullish US economy, to open the new weeks trade. The booming US economy brings with it inflation. The extent of that inflation is the key question to be answered and managed.
For the first time in a generation, inflation has been welcomed, even sought.
Central Banks have employed extremely loose monetary policy, to stimulate growth and investment, which would be reflected in growth and inflation. US bond yields popped overnight to reflect just this scenario. This temporarily halted the crashing Dollar.
The EUR slipped back to 1.2340, while the Yen traded 109.10, reflecting the resurgent reserve. This directly impacted commodity prices and the associated currencies. The AUD fell below 0.8100, while the NZD tested 0.7300, on the downside. Bond yields remain the focus, to see if the Dollar moves are a flash in the pan, or a trend reversal?
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