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Collinson FX: April 7/8: Trade Wars back on stage

by Collinson FX 8 Apr 2018 19:18 PDT 9 April 2018
Day 2, Bay of Islands Sailing Week, January 25, 2018 © Richard Gladwell

Collinson FX: April 7/8: Trade Wars back on stage

Trade Wars regained centre stage as the heat rises between the US and China. Trump has suggested a response to China Trade sanctions, a further US$100 Billion in tariffs, to which China responded with threats of serious retaliation. China was allowed membership in to the World Trade organisation as an emerging nation, gaining massive trade benefits with her trading partners and this continues. China has massive trade advantages, despite being the second largest economy in the world and having enormous benefits with economies of scale. Trump has pointed out these discrepancies, which has lead to an annual deficit of more than US $500 Billion, with the US. It must be noted that none of these sanctions have actually eventuated and this is rhetorical posturing, while negotiations are in full flight.

Mexican economic ministry officials announced good progress in NAFTA negotiations, which briefly relieved panicked equity markets, but the sell-off resumed to close out the week. The numerical size of the moves have been inflated by the record levels these share markets are trading at. The percentage fluctuations are not anywhere near as dramatic.

US Non Farm Payrolls missed expectations, adding only 103,000 jobs to the economy, but was largely ignored considering the strength of the US Labour market. The Dollar slipped against the EUR, trading 1. 2280, while the GBP approached 1.4100. Commodity currencies are severely trade dependent so the currencies did not fare well amidst the rhetorical trade wars. The AUD fell back to 0.7650, while the NZD traded around 0.7250.

Trade Wars will again dominate the markets in the coming week, with global growth and inflation numbers playing a part. Global Trade has become the dominant issue driving markets and this looks set to continue. Central Banks have taken a back seat, although the Fed Minutes released this coming week, will impact.

Collinson FX: April 6: Expecting a +ve trade outcome

Equities continued to recover lost ground. Fears of a trade war continue to subside, as a realisation that negotiations are the goal of the Trump administration and the outcome should be positive. Tech regained some lost mojo, with Facebook recovering some confidence after the data crises, with Cambridge Analytical. The problem lies in reality. Facebook's commercial value is the exploitation of its database! Amazon has become a target and Jeff Bezos may regret picking this fight.

The Challenger Jobs report exposed a 39% increase job cuts, which is contrary to recent jobs data, leading in to the all important Non Farm Payrolls. The Dollar regained some lost ground, despite the average employment news, with the EUR slipping back towards 1.2200.

Commodity currencies suffered a similar fate, with the AUD falling to 0.7670, while the NZD trades around 0.7250. Focus will be on the Non-Farm Payrolls, tonight, with relatively positive expectations.

Collinson FX: April 5: Trump says it's over

The Global trade war threat escalated overnight. China announced tariffs on 106 products, which could add up to US$ 50 Billion, in response to the US tariffs. US equities plunged, once again, but this was in early trade, and the share market roared back in to positive territory. Trump announced that there was no trade war with China....it was over! China has a US$500 Billion trade surplus already, while Trump estimated the cost of intellectual property theft, was an additional US$300 B p.a.. The ADP Private sector jobs reported additional 241,000 jobs, beating expectations, while Durable Goods and Factory Orders both posted gains.

Japanese and Chinese Services and Composite PMI data was soft, while the US PMI was flat. EU Employment remains astoundingly high (8.5%), while CPI (1%) weak, all pointing to an under performing economic zone. The EUR traded 1.2280, while the GBP approaches 1.4100, reflecting a different space in the monetary cycle.

Australian Building Approval contracted 6.2%, confirming the softening property market, enunciated by the RBA. Commodity currencies managed to eke out small gains, with the AUD regaining 0.7700, while the NZD approaches 0.7300. Look out for local Job Ads and House Price data released in NZ today.

Trade and tariffs remain the macro event dominating world markets.

Collinson FX: April 4: Global Trade War fizzes out

The threat of a global trade war subsided, after China announced a response to Trump's tariffs, imposing 128 tariffs on selected US products. This hit nervous equity markets hard, in the previous session, but rebounded in overnight trade. Trump has extended his media war with Amazon, who have suffered big losses in their share price, following tech stock shocks surrounding Facebook security issues.

German Retail Sales contracted, while Manufacturing PMI in the Eurozone, was soft. The Dollar continued to post gains, with the EUR slipping to 1.2270, reflecting the respective position of Central Bank monetary policy.

The RBA left rates unchanged, at 1.5%, and signalled that this will continue through to next year. The RBA observed strengthening in the Global economy, but the wage growth remained soft and the housing markets was cooling, within Australia. The RBA holds monetary policy steady, in clear contrast to the Fed, who have raised rates six times in the current cycle. Interest rate differentials have turned around and reflect risk and drive the AUD lower. The AUD drifted to 0.7670, while the NZD traded around 0.7250, also in an easing monetary cycle.

Global trade speculation and economic data release will continue to drive the narrative in this holiday effected week.

Collinson FX: April 3: Tech shares rally

Western Markets closed for the long Easter break on a high after a challenging month and quarter. Tech shares rallied strongly to close out the quarter on a positive after Facebook announced further measures to address members data security issues. Amazon is a behemoth and has made CEO, Jeff Bezos, the wealthiest man in the US. His war against Trump, via the conduit of the Washington Post, is now facing return fire. Bezos is playing with fire.

European economic data was steady, but insipid and the threat of a trade war has temporarily subsided. EU inflation was 1.6%, while Unemployment was high, but steady. The EUR retreated back to 1.2300, while the GBP held above 1.4000. UK GDP was steady, while the current account reflected huge trade deficits, although Brexit is now less than a year away! The positives of release from the Socialist Bureaucracy, that is the European experiment, will be salvation.

Commodity prices remain bid, but the rising reserve, continues to adversely impact the associated currencies. The AUD fell back below 0.7700, while the NZD retreated to just above 0.7200. The RBA will announce inaction after the Easter break, but markets will keenly await the associated rhetoric, giving insight to the Australian economy and their interaction with the global economy.

Another short week, due to the Easter Holidays, is the beginning of a new quarter and will be greeted with an avalanche of new data. Equities have been vulnerable with many pressures from the Tech sector and US Trade policy. This coming week will see the US earnings season, post Tax cuts, which should encourage equity markets.

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