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Collinson FX: July 9 - Trade war fears settle

by Collinson FX 9 Jul 2018 06:17 PDT 3 July 2018
50fters get off the start line in Bay of Islands Sailing Week, 2018 © Richard Gladwell

Collinson FX: July 9 - Trade war fears settle

Markets closed the week on a positive note, supported by better than expected employment numbers and despite trade sanctions. The US implemented $34 Billion in tariffs on China, who retaliated, but Trump has threatened a further $500 Billion!? The trade war ratchets up but markets shrugged this off. Non-Farm Payrolls came in stronger than expected, although the Unemployment rate edged up to 4%, due mainly to a rising participation rate. This all floated the markets boat.

German Industrial Production jumped 2.6% and a risk off market environment allowed the EUR to recover to 1.1750, while the GBP approaches 1.3300. ‘Brexit’ pressures are a rising crescendo, with Tory Cabinet Ministers meeting to decide the way forward. The AUD broke back above 0.7400, while the NZD blew through 0.6800, as trade fears settled. Commodity and Trade exposed nations, such as Australia and NZ, remain heavily exposed to a global trade war and the associated currencies will reflect this.

Collinson FX: July 6 - ANZACs vulnerable in trade war

Markets remained quiet in post 4th of July holiday trade. The Fed released their minutes, which included very bullish language, promoting the strong economic position the US is in. The Fed pointed to a ‘very strong economy’ and concluded the downside risk was the economy running too hot! The Bank of England were out overnight, talking up the UK’s economic performance, which lead to further speculation of rate rises in the near future. The GBP rallied to 1.3220, while the EUR jumped to 1.1660, supported by stronger than expected German Durable Goods Orders.

US Employment data was slightly softer than expected, with both the Challenger and ADP Jobs reports disappointing, although last month’s unemployment numbers were reviewed north. The US is scheduled to impose 25% tariffs on $34 Billion of Chinese goods tonight. This may be the genesis for a tit-for-tat trade war. This remains the dominant economic narrative. The AUD stabilised just below 0.7400, while the NZD recovered to 0.6780, but both remain vulnerable to rising trade sanctions.

Collinson FX: July 5 - Quiet trading

The US Independence Day holiday ensured a quiet trading day on global markets. The ‘trade wars’ continued to dominate headlines, with no new narrative emerging, as yet? The EUR managed to hold 1.1650, while the GBP pushed above 1.3200, with the winds of Brexit oscillating. The AUD was steady on 0.7380, while the NZD held 0.6750, with trade exposed currencies treading water. The commodity currencies have been under a great deal of pressure recently, with major technical supports taken out, so we now look to new trading ranges.

The focus will turn to Jobs data, coming out of a post-4th of July market, while trade concerns remain central.

Collinson FX: July 4 - Independence Day looms

US equity markets closed early and lower for the Independence Day Holiday. The looming global trade war remains the overwhelming negative influence on markets. Merkel still fights for her political existence, with the immigration crises threatening Germany and European solidarity, while trade pressures mount. The EUR traded 1.1650, while the GBP jumped back to 1.3200, whiplashed by contradictory ‘Brexit’ news.

The RBA left rates unchanged at 1.5%, without any prospect of rises for some time, while observing caveats. The Governor highlighted strong global economic growth, but emphasised the threat from looming trade wars, but refrained from the language used by the RBNZ the previous week. The RBA also warned of domestic challenges in the form of weak consumer growth. Wage growth has been constrained for a long period, while household indebtedness is high and growing. The housing market is soft and this also adds to consumer woes. The AUD was steady after the announcement, trading around 0.7320, but later rose to 0.7380 after some PB of China support for the Yuan. The NZD had a similar experience, trading down below 0.6700, in local trade, while recovering later to 0.6750.

Trade remains the dominant global market driver and expect very quiet trade over the 4th of July holiday.

Collinson FX: July 3 - Trade wars prospect triggers ANZAC drop

Political uncertainty in Europe dominated overnight markets. German Chancellor Merkel, is fighting for survival, over the issue that has defined her leadership. Merkel met with EU leaders to resolve the immigration crises and came up with an intermediary agreement, that has been rejected by her key domestic ally, the CDU. Adding to the political turmoil is the pressure over trade. The US has threatened sanctions over European cars, in an effort to address the massive trade imbalance, working towards adopting reciprocal and fair trade agreements. The pressure is mounting and the uncertainty is sending shudders through markets.

European Unemployment improved to 8.4%, but remains dangerously high, while Manufacturing PMI was soft. The EUR slipped back to 1.1600, while the GBP drifted to 1.3120, mired in ‘brexit’ complications. The ‘global trade wars’ have continued to impact trade exposed currencies, with the AUD crashing to 0.7320, while the NZD fell below 0.6700. The RBA meets today and are unlikely to move rates. They will be careful in their associated commentary after the RBNZ dovish rhetoric last week. The trade threat will likely be mentioned and the illumination of the fallout, may frighten markets. The RBA statement is likely to have an impact, although the currency has fallen a long way recently, but support levels are few and far between?

Trade remains the singular issue driving global markets, but the Central Bank action, will influence local currencies.

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