Collinson FX Commentary: Feb 10 - AUS and NZ play loose
by Collinson FX 11 Feb 2018 02:41 PST
9 February 2018
Day 2, Bay of Islands Sailing Week, January 25, 2018 © Richard Gladwell
Collinson FX Commentary: Feb 10 - AUS and NZ play loose
How do you sum up a week of pandemonium in markets? The trigger was a strong jobs reports in the US which raised fears of inflation and spiked US Bond yields. This lead to a big sell-off in equities to close last week. The new week continued the massive volatility with massive sell-offs and rebounds on the share markets.
The Bank of England was bullish on monetary policy, which translated to another This has turned in to a technical correction (10%) in a healthy economic environment. The extreme volatility has been exaggerated by the electronic and algorithm trading triggering stop losses and massive short positions.
The technology and nature of the markets would need some adjustment to prevent these massive events. The Dollar has regained some ground, supported by the rise in bond yields, translating in to lower commodity prices. The EUR fell to 1.2230, while the Yen trades 108.50, reflecting the reserve rally. Commodity currencies suffered directly from the associated slide in prices but were impacted by Central Bank rhetoric.
The RBA and RBNZ have both committed to extremely loose monetary policy for the foreseeable future, undermining the currencies, in a different space to the US and UK. The AUD fell below 0.7800, while the NZD drifts lower, towards 0.7200. This coming week has a plethora of global economic data and strong numbers may continue to challenge bond yields, thus equity markets and currencies.
Collinson FX Commentary: Feb 9 - US Roller Coaster continues
The roller-coaster in US equities continued overnight, as they operate in conjunction with US Bond Yield moves. US Bond Yields spiked, again overnight, which triggered another sell-off in equities. This correction is occurring in a healthy economic environment. Corporate earnings are strong and likely to build, with pending tax cuts imminent, while economic growth in raising inflationary pressures and driving the spike in interest rates. The share-market correction is happening 'for all the right reasons', if you want to have an optimistic view.
The Dollar continues to rally strongly, on the back of rising interest rates and Central Bank rhetoric. The EUR fell back to 1.2250, while the Yen traded 108.80, bowing to the resurgent reserve currency. The Bank of England was much more hawkish than expected, confirming interest rates would rise 'earlier and by a much greater extent', than previously indicated.
The GBP surged back to 1.3940, with the revelation that the UK is on a tightening bias, way ahead of most and inline the US Fed. The RBNZ confirmed that the NZ economy is still in the old economic cycle, indicating extended loose monetary policy is likely to continue through to 2020!
This hit the currency, which now trades just above 0.7200, while the AUD tests 0.7800. RBA Governor Lowe also joined the fray. He observed economic conditions continued to demand QE, to support a fragile economic recovery and undermined the currency. Economic conditions in Europe and Australasia continue to require monetary assistance, while the UK and US are surging ahead, pushing a quantum move in to a new tightening cycle.
Collinson FX Commentary: Feb 8 - Vix recovers post spike
US equity markets continued to recover, overnight, after a massive shock sell-off around the last weekend.
The normal resumption of trade has been reflected in the volatility index (Vix). The Vix spiked to 50 and has now recovered to around 25. The calm trade replaces very nervous times and markets must look at the technical limitations to prevent catastrophic events.
US Bond Yields recovered some recent lost ground and allowed for capital flows to support a stronger Dollar. The EUR fell back to 1.2250, while the GBP plunged to 1.3850, reflecting the safety moves to the reserve.
Commodity currencies finally relented, with the NZD falling to 0.7240, while the AUD looks to test 0.7800. The RBNZ monetary policy statement today will do little on the interest rate front, but will be influential on the rhetoric, although bearish sentiment is likely to prevail.
Collinson FX Commentary: Feb 7 - Electronic panic
US equity markets went apoplectic yesterday. The DOW lost nearly 1,600 points, in the panic, at one point!
Markets were shocked by the sheer magnitude of the sell-off, but due to the electronic nature of markets and stop-loss orders etc., markets can fall much faster than the rises.
This was a major surprise to markets, hardly the 'Black Swan' event of a Brexit or the Trump election?! This is more an electronic panic event, with no back-up plan, to prevent equities falling out of bed.
Technically, equities briefly went in to correction mode (down 10%), which may have been due. Perhaps the sudden and extreme nature should be looked at? The VIX index, which measures volatility, spiked to over 50. This has been in full retreat mode, after initial volatility, in the first hour of US trade. The initial trigger for the market correction, last week, was the spike in US bond yields and a strong US employment number.
Ironically bond yields came crashing down during yesterdays Armageddon, after equities were flushed out, capital poured in to US bonds.
The Dollar jumped, with the EUR falling below 1.2400, while the GBP dropped under 1.4000.
The NZD was remarkably resilient, rising back above 0.7300, while the AUD slipped under 0.7900. The RBA flew under the radar yesterday, leaving rates unchanged, citing stronger employment and growth. A return to some form of normalcy is returning to markets but technology trading systems must radically and immediately corrected, to avoid the likes of yesterdays mayhem.
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!
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