Collinson FX: May 26 - Geopolitics drive world markets
by Collinson FX 26 May 2018 23:21 NZST
26 May 2018
Nick Heiner (NED) Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC © Richard Gladwell
Collinson FX: May 26 - Korea to the fore
Geo-Political issues remain in the forefront of markets, with North Korea being the prominent issue this week. This is directly linked to the China trade negotiations and progress is being made. On the economic front, the Fed minutes revealed a certain latitude with inflation, allowing the 2% limit to be temporarily breeched. This encouraged markets, with 10 year bond yields falling to 2.93%, releasing pressure.
The Dollar lost ground against the Yen, trading 109.40, while commodity currencies stabilised. The EUR slipped back to 1.1650, bucking the trend, as Italian populist parties look to assume control of the nation. The anti-euro parties are likely to blow fiscal restraints, wipe away debt and have consequently attracted rating agencies to threaten downgrades.
The coming week will be highlighted by US GDP numbers, Employment reports and a host of other economic releases. Geo-Politics is likely to remain on centre stage, with NOKO, China, Iran and Italy rising threats to stability.
Collinson FX: May 25 - Trump deregulates banks
President Trump cancelled the North Korean 'peace summit', scheduled for June 12th, citing the NOKO leaders 'tremendous anger and hostility'. He stated the US military was ready if necessary! This may be part of the negotiating process.
Meanwhile President Trump signed a banking deregulation bill into law. This repealed much of the regulation post-GFC, in the form of the 'Dodd-Frank' bill, but for only small to medium sized institutions. The deregulation has been a major driver in the US economic recovery. The Dollar drifted, with the EUR pushing back above 1.1700, while the Yen traded 109.30.
German trade contracted, with falls in both Exports and Imports, while GDP was static on 2.3%. US Home Sales were mixed, with an increase in House Prices, while Existing Home Sales contracted. The Kansas City Fed Manufacturing Activity reported solid gains.
Commodity currencies gains from the softer reserve, with the AUD trading up to 0.7570, while the NZD consolidated above 0.6900.
Collinson FX: May 24 - Italy's newbies a threat to EU
The Fed released the minutes of their latest meeting and revealed they were prepared to accept inflation breeches above the 2% target level, as the economy continues to recover. This released the pressure on bond yields and the Dollar, as the Yen bounced, to trade 110.00. European markets would have reflected this except they have their own problems. The incoming Italian Government is a threat to the EU, as they represent an alliance of the left and right under a populist, nationalist banner. They seek to concentrate on Italy, address the immigration crises and ignore EU financial imperatives. They advocate increased fiscal expenditure, ignoring debt/GDP limits, while seeking a debt amnesty. The EUR fell to 1.1690, while the GBP dropped to 1.3340, as softer CPI numbers reduced the prospect of a rate rise from the Bank of England.
The Sino-US Trade negotiations came under renewed pressure from President Trump. He questioned the verification of the current product and speculated 'it may be too hard to get done'!? The negotiations are moving in the right direction and this has assisted the commodity currencies. The AUD has regained 0.7550, while the NZD holds 0.6900, ahead of the release of local trade data.
Collinson FX: May 23 - Spreading the Love
230518: Geo-Political and trade issues continued to dominate market forces. The North Korean Nuclear Peace talks prospects have been dampened. Trump meets with the President of South Korea at the White House today to evaluate the viability of the forthcoming summit on June 12th in Singapore. This could be NOKO President using the play-book from the 'Art of the Deal', or it could be more serious!? We shall see. Iran sanctions are also in the headlines with the Secretary of State taking point.
The Sino-US trade agreement has resulted in the suspension of tariffs, but still remains far from consummated. The Chinese have announced big cuts to trade sanctions on Autos and Auto-parts. This closely follows the promise to address the massive trade deficit, by agreeing to substantial increases in Agriculture and Energy imports from the US. Negotiations are progressing in the right direction. The Dollar remains strong, with the EUR trading 1.1770, while the Yen holds around 111.00. The Bank of England is much more bullish, in their latest rhetoric, although their failure to act at the last meeting disappointed many.
The positive Sino-US Trade negotiations has 'spread the love' around trading nations. The AUD has managed to break above 0.7550, while the NZD has consolidated above 0.6900. Trade-dependent nations are major beneficiaries of successful trade negotiations, as suppliers of key commodities, to the Chinese. Trade is now interconnected with Geo-Political Peace negotiations in the new world.
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