Collinson FX: June 28 - Trade wars rumble

Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC © Richard Gladwell

Collinson FX: June 28 - Trade wars rumble

June 28: Trade war fears subsided, ever so slightly, as the US Committee on Foreign Investment was charged with administering sensitive investments. This was a relief to many, as the Trump administration has threatened severe action over Chinese investment in US Tech, deciding a much more structured and sensible way forward. On the economic front, US Durable Goods Orders declined 0.6%, while Pending Home Sales contracted 0.5%. The data was largely ignored, overwhelmed by the trade narrative, enveloping global markets.

The Dollar regained upward momentum, with the EUR falling to 1.1550, while the GBP dropped to 1.3125. The GBP was hit by the rising reserve, but remains mired in ‘Brexit’ fluctuations, which is likely to continue until a resolution is decided. The AUD traded 0.7350, but it was the KIWI that suffered, plunging below 0.6800. The rising reserve added to the downward momentum, which had been triggered by yet another disastrous Business Confidence number, following in a long line of adverse data. NZ Business Confidence has been melancholy and is largely a reflection in policy direction of the left-leaning coalition Government, rather than specific fiscal, or economic reasons. The RBNZ is unlikely to move the OCR, but the Governor may surprise with the associated rhetoric, which may impact an extremely vulnerable currency. The NZD losses overnight have left the currency in an exposed technical position.

Trade and Dollar moves have dominated markets, on a macro level, but the RBNZ has the ability to disrupt the local currency.

Nacra 17, Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC - photo © Richard Gladwell

27 June: Trade wars remain front and centre of global markets overnight, with equity markets stabilising, while the Dollar regained ground. The US are looking to impose new sanctions, to protect IP and technology theft, which was aimed at China but will include all nations. The are reports that the Chinese may not have the stomach for an extended trade war, fighting from a defensive position, with their massive trade surplus threatened. Trump reacted strongly to Harley Davidsons' moves to offshore production to avoid tariffs, threatened a world of tax pain, after providing unprecedented support for the company throughout his Presidency.

The Dollar regained ground, with the EUR slipping back to 1.1650, while the Yen moved to 110.10. The S&P Home Price index was steady, while the Richmond Fed Manufacturing Index jumped strongly, in line with recent strong performances. Commodity currencies also suffered a rising reserve, with the AUD trading below 0.7400, while the NZD fell back to 0.6850. The NZ market awaits Trade data, out this morning, with positive expectations.

Trade wars remains the focus of the weeks market moves, while NZ Central Bank rhetoric is undermining the currency, in the face of a stronger reserve.

Oceanbridge NZL Sailing Regatta, Day 3, February 5, 2018, Murrays Bay SC - photo © Richard Gladwell

26 June: Escalating 'trade wars' hit global equity markets overnight. The tit-for-tat is now spreading across Europe, China and North America. Europe appears to be the primary target, as pressure mounts on Merkel, meaning the EU 'team leader' is especially vulnerable. Merkel has been given an ultimatum, by her domestic coalition partners, to come up with a solution to the immigration crises. She met with a selected group of EU leaders and they failed to find a solution and she has resorted to negotiations with individual members. This issue could bring down the German leader and signal a change of the old guard elites, that have brought Europe to this point. The pressure on Europe is immense and the Trump administration has used this opportunity to open a trade war. The Art of the Deal!

Turkeys President Erdogan was re-elected and reinforces his position, which provides stability, but drags the nation towards the dreaded Islamic theocracy. The UK has been hit by a series of corporate threats, with Airbus and BMW indicating closures, in a post-Brexit Britain. This puts further pressure on the British but these global corporates need to be careful. This could damage their brand and market and there are opponents who will gladly step in to the void. The EUR regained 1.1700, despite the turmoil, while the GBP settled around 1.3280.

The trade exposed countries remain extremely vulnerable to the escalating global trade wars, although the softer reserve allowed the commodity currencies to settle. The AUD teeters around 0.7400, while the NZD slipped back below 0.6900, as local NZ market looks to the Central Bank for direction.

Blooming global trade wars remain the greatest destabilising threat to markets.

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