Collinson FX: June 16 - First salvos fired in Trade War
by Collinson FX 16 Jun 2018 15:25 PDT
17 June 2018
Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC © Richard Gladwell
Collinson FX: June 16 - First salvos fired in Trade War
June 16: Trade dominated markets to close the week. The US announced 25% tariffs on $50 Billion of Chinese exports. These tariffs are targeted towards 'Industrially Significant Technologies', in an attempt to address the massive theft of IP and Technology, which is estimated at between $250-$500 Billion p.a.. The Chinese signalled an intention to retaliate, but have been warned by the White House, that this would result in further tariffs. The Trade War is underway.
The Bank of Japan left rates unchanged and significant QE in place. The 'dovish' statement emphasized the disappointing inflation numbers, ergo growth. The BoJ remains locked in the heavily expansive monetary cycle, in stark contrast to the Fed, who are returning to a normalised monetary policy. The ECB are committing to winding down QE, but have signalled no rate rises until at least the end of 2019, so the Japanese are bringing up the rear in terms of global economic performance.
The coming week will begin mired in the latest 'trade tensions' between China and the US. The volcanic state of Geo-Politics ensures that this will probably remain the headline for only a short period of time. European trade will become a focus as external and internal political pressures rise. Immigration is tearing the Eurozone apart, with the Italians joining the 'Eastern Bloc' with anti-refugee policies. Meanwhile Merkel is under huge internal pressure from her key political partner, the Christian Social Union, who may take down her Government.
The Dollar remains well supported though Central Bank action, while the ECB has dithered, allowing the EUR to fall to 1.1600. Commodity currencies have suffered the rising reserve, with the AUD falling to 0.7440, while the NZD trades below 0.6950. The rising reserve and threats to international trade, pose significant threats to trade exposed, commodity currencies.
Collinson FX: June 14 - Kiwi slides on eve of Trade War
June 14: The Fed raised rates 25 basis points, as expected, with positive economic rhetoric. The Fed is optimistic about US economic growth, citing 'solid growth in economic activity' and tightening employment prospects. The Fed also pointed to further rate rises in the coming year. The strong report was expected, and markets now await an anticipated hawkish statement from the ECB. The EUR trade 1.1750, while the GBP holds 1.3350, under pressure from a UK Parliamentary vote on 'Brexit'.
Equity markets drifted off, in the face of stronger rates of return on interest rates, despite the 'media' experiencing strong M&A activity. The Courts approved a takeover bid from AT&T on Time Warner and a lot of big media names are targets for M&A, including CNN, Fox, HBO. The flurry of activity consolidates the industry and allows the likes of Rupert Murdoch to pocket a vast fortune.
Markets remain nervous about the prospect of the increased likelihood of trade wars spreading. Trump is likely to launch another raft of tariffs, increasing pressure on China to renegotiate the bilateral trade relationship, opening new fronts in the Global Trade War. Economic conditions remain strong in the US, while Geo-Political developments calm markets, so trade becomes the focus of markets.
The heavily trade exposed nations, including NZ and Australia, are vulnerable to spreading trade wars. The AUD slipped back to 0.7540, while the NZD fell below the important 0.7000 mark, looking vulnerable to trade tests and interest rate differentials.
Collinson FX: June 13 - Singapore Summit Success
13 June: The 'Singapore Summit' was a raging success, as North Korea agrees to Denuclearise the Korea Peninsula, while the US holds sanctions in place until irreversible progress is made. Chairman Kim and President Trump seemed to get on well, as Trump does with most leaders, allowing for the relationship to build. This comes hot on the tail of a last minute crash in the G7.
Trade remains a major global challenge and the trade beneficiaries continue to squeal loudly. The strength of the US position ensures a positive outcome. Global Trade is essential to the trade dependent, commodity countries (including Australia and NZ), who will be directly impacted by any adverse outcome. The AUD fell back to 0.7570, while the NZD tests 0.7000, on the downside.
Attention immediately shifts to the important Central Bank meetings. The FOMC meets tomorrow and the ECB tomorrow night. The Bank of Japan, also has its say, Friday. The ECB is said to be considering and end to the excessive QE, while the latest CPI numbers in the States, may ensure a further rate rise from the Fed. The BoJ is likely to be unmoved, although all the associated rhetoric, should be more hawkish. The EUR drifted back to 1.1750, while the GBP trades 1.3370, amidst the Parliamentary 'Brexit' vote.
Global conditions are improving and particularly strong in the USA. Geo-Political events are a 'green light' and so attention returns to global economic data and Central Bank behaviour.
Collinson FX: June 12 - G7 Implodes
12 June: The G7 hit the rocks after Trump's departure. There was much castigation, among participating nations, but they did manage to agree to sign a final communique. The post-G7 closure speech, by Canadian PM Trudeau, blew up the meeting. Trudeau criticised Trump and invoked the victim card. Trump reacted strongly, calling him cowardly and backstabbing, reversing an earlier decision to co-operate with the other six members. All attention has moved now to the 'Singapore Summit' between North Korea and the USA.
Geo-Politics will dominate global attention, early in the week, but focus will then turn to Central Bank activity. The FOMC, ECB and Bank of Japan all meet this week to decide on monetary policy. Expectations are that the ECB will begin to unwind there massive QE, which has lead to a recent rally in the EUR, trading towards 1.1800. The Fed may actually raise rates, reflecting the strong state of the US economy, while the Bank of Japan is likely to continue to sit of their hands. The Yen again moved back above 110.00, reflecting just that. Trade is the lifeblood of the heavily dependent commodity currencies and the 'trade wars' will have a negative impact. The AUD trades around 0.7600, but remains vulnerable, while the NZD clings to 0.7000.
There is so much happening on the Geo-Political front and with trade and monetary policy, that it is hard not to be consumed. Exciting times!
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