Collinson FX: Oct 5, 2018 - KIWI crashes
by Collinson FX 5 Oct 2018 06:25 PDT
6 October 2018
Olivia Price - the tactician says there is nothing else to do - Hamilton Island Race Week - Day 4 © Richard Gladwell
Collinson FX: Oct 5, 2018 - KIWI crashes
US equities tumbled overnight ahead of the important Non-Farm Payrolls tonight. The strong ADP Jobs report and ISM Manufacturing data, out of the US, had triggered a rally in US Bond Yields and equities. The Bull run in US equities was tempered overnight, with a serious correction, as markets digest the implications of the rise in interest rates. The rise in yields is a sign of strong demand and offers improving, alternative investment opportunities. It also drives the cost of money for US business and consumers higher. The Challenger Jobs report signalled an increase in US job cuts, which may temper tonight’s Non-Farm Payroll expectations, although the Labour market remains tight. US 10 year yields have busted 2011 highs.
Global yields were higher but the rise in the mighty Dollar was mitigated, taking a breather, but may signal further rises supported by economic data and monetary policy. The EUR traded around 1.1500, while the Yen slipped below 114.00, more a reflection of risk adjustment. The GBP regained 1.3000, buffeted by Brexit speculation, amidst the UK Conservative conference. The US Vice-President Pence accused the Chinese of Political interference, in the coming Mid-Term elections and industrial espionage, as tensions rise in the US/Chinese Trade negotiations. This has driven the trade exposed NZD and AUD lower. The AUD plunged to 0.7060, while the NZD crashed to 0.6460, reflecting their trade vulnerabilities and technical support.
All eyes turn to the Non-Farm Payroll number released Friday, US time, which will influence bonds, currencies and equities.
Collinson FX: Oct 4, 2018 - Bull run on USD
US economic data continued to surprise on the upside, with the ISM Manufacturing number reaching record highs, while the ADP Jobs number was much better than expected. The ADP report is a fore-runner to the important Non-Farm Payrolls out tomorrow night, which confirmed strong private sector jobs growth, in line with labour market statistics. The strong economic data sent equities and bond yields surging, showing the positive functioning of a bull market, in complete contrast to the Obama led economy. Any rise in interest rates previously triggered a sell-off in equities and the bond yields were triggered by poor economic data! This US market is firing on all 8 cylinders. Strong data drives interest rates and equities higher. The 10 year Bond Yield has hit 3.14, which the highest since 2011, in line with Fed target territory.
The strong interest rates are driving a bull run on the US Dollar. The EUR slipped to 1.1500, while the Yen traded 114.40, also enhanced by recent trade achievements. Commodity currencies have been hit hard by the rising reserve, with the AUD falling to just above 0.7100, while the NZD may test 0.6500. These currency moves reflect the stronger Dollar and also the vulnerability of the trade exposed nations to continued China/US trade wars. The NZD was not assisted by a contraction in commodity prices, while Australian Building consents fell 9.4%, which only support the weak housing sector narrative.
Trade remains the key global narrative, although the Non-Farm Payroll number out in the US Friday, may determine currencies to close out for the week.
Collinson FX: Oct 2, 2018 - Last minute NAFTA deal
Markets surged overnight after a last minute deal over NAFTA was completed right on the 30th September deadline. Canada has agreed to the deal that the US and Mexico had previously settled. There has been agreement over Canadian dairy tariffs and Automobiles. The new agreement will be called United States Mexico Canada Agreement (USMCA Agreement). Trade has been the major risk to international markets and this is a major step forward. India and Japan are also negotiation bi-lateral trade agreements, so China remains the only major hold out. The Canadian Dollar recovered, along with the Mexican Peso, despite the resurgent Dollar.
European markets also gained ground with the risk-on news. The turmoil surrounding ‘Brexit’ continues with no agreement in sight. The Conservative party conference has thrown up more controversy over the structure of ‘Brexit’. The GBP retreated back to 1.3040, while the EUR slipped below 1.1600. Manufacturing data from Europe was flat, while the US data was steady, as the Dollar shows support from US monetary policy.
The AUD held above 0.7200, while the NZD struggled to hold above 0.6600, despite the resurgent reserve. Trade exposed currencies remain vulnerable to the US/Chinese lack of agreement, but is seems only a matter of time before the Chinese come to the party.
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