Collinson FX: April 28 - US interest rates rise
by Collinson FX 28 Apr 2018 05:46 PDT
29 April 2018
Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC © Richard Gladwell
Collinson FX: April 28 - US interest rates rise
Rising interest rates in the US and record corporate earnings have dominated the markets over the last week. Corporate earnings have been the best in years, fueled by the corporate tax cuts, washing through the companies bottom lines. The spike in the US 10 Year Bond rate, above 3%, sent nervous jitters through the markets. The rise raised fears over input costs and debt funding. Equities have also been challenged by higher interest rates as an alternative investment option. US GDP came in at 2.3%, for the first quarter, better than expected.
The rise in interest rates, sparked a rally in the Dollar, which settled to close out the week. The EUR regained 1.2100, while the Yen held on to 109.00, after no action from the Bank of Japan, The BoJ left rates unchanged, while removing inflation time-frames, which ensures QE will continue. No surprises and the loose monetary policy is in line with all major Central Banks, apart from the Fed! The GBP fell below 1.3800, following weak GDP and Consumer Confidence data released the pressure on the Bank of England.
The North/South Korea Summit was a surprising and welcome development, easing tensions in Asia. This will feed in to the Summit with the USA and China. Commodity currencies regained a small amount of the sizable losses, over the last week, but still flounder. The AUD bounced off 0.7550, while the NZD attempts to regain 0.7100. Support for these currencies remains thin.
A huge week of global economic data releases, headlined by growth, inflation and employment numbers. The FOMC meeting will be keenly watched, while the RBA inaction, may attract some interest from the accompanying rhetorical statement.
Collinson FX: April 27 - Strong results from US
US corporate earnings overwhelmed the interest rate narrative. Equities surged on strong results from Facebook, Chipotle and others. The flow-through of tax cuts in the USA is having a dramatic impact on corporate earnings. The spike in the 10'year bond rates has dominated trading in equity and currency markets, this week, but this scenario has assumed the back-seat to corporate earnings. The 10 year bond yields drifted below 3%, alleviated concerns over input costs, while still offering investment opportunities. It must be remembered that extra-ordinary low interest rates, post-GFC, are returning to some normalcy.
The ECB left rates unchanged and 'QE' in place. President Draghi observed 'underlying strength' in the economy, but contradicted the rhetoric with 'ample monetary stimulus remained necessary'. This undercut the EUR, falling below 1.2100, which has suffered the resurgent Dollar. The Yen hit 109.35, as the Dollar continues to rally, benefiting support from rising interest rates. Commodity currencies have suffered massive corrections in the face of the rising reserve. The AUD trades 0.7550, while the NZD holds 0.7050, lacking much in the way of technical support.
Local markets will look closely at NZ Trade data and Consumer Confidence numbers. Trade will be boosted by the recent fall in the Dollar but the data is historical and will probably reflect the previous strong rally in the KIWI. Consumer Confidence has been at record lows and this is not likely to improve with controversial green Government policy to ban energy exploration. Japanese CPI and Employment data will be a focal point in local trade before US Markets re-open.
Collinson FX: April 26 - US equities flat
Equity markets in the US were flat overnight, although NZ and Australian markets will probably suffer from the losses held over from the ANZAC day holiday. US Equities were hit, the previous day, by the moves in the US bond market. The US 10 Year bond yield has busted through 3%, for the first time in 4 years, challenging funding/input costs and offering alternative investment opportunities. The Fed has raised rates 6 times, in the current monetary cycle and are set to continue this trend, through the calendar year.US GDP growth has been strong, as has the labour market, reflected in inflation/CPI data.
The EUR has fallen to 1.2175, while the Yen is trading 109.35, reflecting the strength in the reserve. The strong interest rate environment is highlighted in 'differentials' and is being played out in the currency markets. The GBP has seen bullish behaviour over recent times, the only major currency to have moved in to a rising monetary environment, behind the USD. The recent rally in the Dollar has interrupted this rally and the GBP has been pushed back below 1.4000. Commodity currencies have been smashed in the reversal of the reserve direction. Technical supports have been broken and the associated currencies have been in a slow-motion free-fall. The AUD has plunged to 0.7550, while the NZD has crashed to 0.7050, looking like destination for a change in the BIG figure.
A slow economic data day, while markets await the monetary policy decisions, from the ECB and the Bank of Japan. They are not likely to change rates or monetary policy but will move markets with rhetoric.
Collinson FX: April 24: High US expectations met
US 10 Year Bond Yields are now testing 3%, giving pause to the equity market bull-run, while driving the Dollar upwards. The GBP fell back to 1.3940, while the Yen traded 108.50, victims of the booming reserve. Commodity currencies have experienced major reversals on recent rallies, with the NZD falling to 0.7150, while the AUD tested 0.7600. The strength in commodity prices have been overwhelmed by the rising reserve. Technical supports have been busted. The Fed has been aggressively raising rates, with intentions of more to come, driving the Dollar.
European PMI data was positive, while the US PMI was strong, across the board. US Existing Home Sales jumped 1.1%, reinforcing the data surrounding the US housing sector, after a couple of negative number releases recently. NZ Credit Card spending rose 1%, but local economic data has been buried by the US Dollar story.
US Corporate earnings are in full swing and the high expectations are being met. US Tax cuts are washing through corporate numbers but the story is being diminished by the rise in interest rates. US 10 year bond yields are testing 3% and are set to move higher, which will drive investment and increase borrowing costs. The rally in rates are high-jacking the currency market and driving the Dollar north!
Collinson FX: April 22/23: US Interest rates rising
US Equity markets closed the week lower, under threat from US Bond Yields, despite strong corporate earnings. US 10 Year Bond Yields are once again on the rise, with the Fed recognising the inflationary/growth pressures and signalling further rate rises. The rising interest rates present an attractive investment opportunity while bolstering the Dollar, which has rallied strongly into the weeks close. The EUR fell below 1.2300, while the GBP tests 1.4000, on the downside.
The rise in the reserve has bludgeoned commodity currencies, which have been rallying strongly of late. The rising US interest rates have only exaggerated the monetary cycle differences between Australia, New Zealand, Japan, EU and the USA. Inflation remains benign in these challenged economic zones, around 1%, reflecting weak economic growth and prospects. This has hit the previously high flying currencies hard, with the AUD falling to 0.7650, while the NZD tests the downside of 0.7200.
The new week will see further influence on equities and currencies, from economic data releases, unless there is a major Geo-Political event. Global Trade and North Korea appear to be the most likely risks. Global growth will come under the microscope, with GDP and CPI numbers released around the world. The US remains the stellar performer on the global stage, and there is no reason to believe this narrative will change.
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