Collinson FX: April 19: Reality of Socialism looms

by Collinson FX 19 Apr 2018 05:09 PDT 20 April 2018

Day 2, Bay of Islands Sailing Week, January 25, 2018 © Richard Gladwell

Collinson FX: April 19: Reality of Socialism looms

The Fed released the 'Biege Book' overnight and markets were flat. The 'Biege Book' had the usual observations and strong economic projections but did have a caveat regarding tariffs. The major threat to strong economic growth was the looming global trade wars. The US yield curve has flattened out, which is a canary in the coal-mine, putting the 'frighteners' on markets. An inverse yield curve is a precursor to recession.

The GBP fell back to 1.4200, while the EUR traded 1.2370, reflecting disparate economic cycles. The British CPI number was lower than expected, coming in at 2.3%, while the EUR inflation indicator was 1.3%. The growth/inflation data reveals the stages of the economic cycle both economies operate in, endorsing the 'Brexit' decision.

Commodity demand remains bid and has allowed the associated currencies to flourish The NZD has managed to escape fiscal and political realities and benefit. The KIWI trades above 0.7300, while the AUD regained 0.7777, reflecting commodity demand. The NZ budget will dictate fiscal reality and signal deficit spending and debt accumulation. Markets will recognise the reality of socialism and the currency will reflect this.

Trade-war rhetoric and Geo-Political events have assumed the back-seat, allowing economic data and earnings to drive markets. The disparate economic environments, that global markets operate in, will be accurately reflected when economic data is the measure.

Day 2, Bay of Islands Sailing Week, January 25, 2018 - photo © Richard Gladwell

Collinson FX: April 17: US leads Global growth

A strong open to equity market trade, confirmed an endorsement of the US Allies military strike on Syria and strong US Corporate earnings. The US military strike was described by the Administration as a 'justified, legitimate and proportionate response'! The general consensus appears to confirm that this is within tolerance limits.

US Retail Sales moved back in to positive territory, rising 0.6%, while NAHB Housing was steady. The Empire State Manufacturing Index fell back to 15.8, but could be a temporary setback, as housing has been strong. Economic data continues to impress, in the US, while earnings are reflecting the massive corporate tax cuts.

The big issues driving markets are the Geo-Political issues, lead by Global Trade wars and military threats and actions. The Trump administration has shown control on the Geo-Political front, while displaying successful negotiation techniques on the Global Trade front. The success has lead to free-flow of currencies, with the EUR trading 1.2380, while the GBP has hit 1.4320.

Commodity currencies are dependent on demand and have received a recent boost from the global trade rhetoric and results. The NZD trades above 0.7350, while the AUD trades 0.7777, reflecting the strong benefits of global demand and trade.

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