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Collinson FX: Oct 17, 2018 - NZ CPI lifts KIWI

by Collinson FX 16 Oct 2018 14:09 PDT 17 October 2018
Supermaxis warm up - Hamilton Island Race Week - Day 4 © Richard Gladwell

Collinson FX: Oct 17, 2018 - NZ CPI lifts KIWI

US equity markets surged higher overnight, supported by strong earnings from leading US banks and major corporate. Goldman Sachs and Morgan Stanley both took full advantage on the economic conditions and posted better than expected gains. The banks love the low interest rate environment, with a tightening bias, the perfect storm. This caused a major rebound in US share markets as confidence recovers from last weeks hit. The NAHB small business optimism remained strong, while industrial production ticked up. Risk-on!

The EUR drifted back to 1.1560, hit by a severe contraction in the important ZEW sentiment report, while the GBP pushed back towards 1.3200. Brexit remains the single most important influence on the UK currency and the negotiations appear to be progressing well. It will come down to ‘how bad a deal May gets’ and whether she can convince the Parliament to accept the poison pill?

NZ CPI blew passed expectations, rising 0.9% for the quarter, nearly doubling the annual inflation indicator. Analysis of the contributors to this spike, reveals strong rises in imported goods, lead by fuel. This has been exasperated by the collapse in the currency and blamed on domestic taxes. The rise in inflation was accepted as a reflection of growth by markets, as the currency jumped towards 0.6600, but delve in to the numbers and get the bad growth story. The huge rise in fuel and other consumables have driven the cost of living through the roof, punishing the consumer, which means there will be a political and economic price to pay. The fall in the currency will assist export returns, in the short term, but has massive repercussions down the road. The AUD push north to 0.7140, assisted by the wave of risk-on sentiment and the softer reserve. The lack of pressures from the Sino/US trade negotiations has allowed some recovery in these trade exposed currencies, but they remain vulnerable, to any negative news on the trade front.

Collinson FX: Oct 16, 2018 - US Markets flat - thankfully

US markets were flat, to begin the week, after the stormy volatility of the previous week. US equities were flat and a disappointing Retail Sales number (0.1%) did little to inspire confidence. The fear from last week has subsided, more evidence of a technical market correction, while bond yields settled. The risk-off sentiment translated into a softer Dollar, as the EUR pushed towards 1.1600, while the GBP traded 1.3150. Brexit negotiations continue to dominate the GBP, while the Italian budget concerns impact the EUR.

The weaker reserve allowed the commodity currencies some upward momentum, with the NZD jumping up to 0.6540, while the AUD consolidated above 0.7100. The important NZ CPI number will be released today and is expected to be strong. This measure of inflation has been considered a reflection of growth in recent times, but cost of living pressures in NZ should heavily influence the number. Rising fuel prices have been exasperated by the falling currency and not helped by increasing government taxes. The falling Dollar has been hitting an import-dominated economy hard. Sino/US trade remains the major threat to these trade exposed currencies.

Collinson FX: Oct 15, 2018 - Rebound but KIWI vulnerable

US Equity markets rebounded, to close out a tumultuous week of trading. Panic selling on Wednesday and Thursday appear to be a technical correction in the ‘bull market’ rather than a turn, although Europe and Asia really suffered some serious pain. Chinese markets were mangled and this will continue until they negotiate a new trade agreement with the US.

The currencies remained above the equity fray, with little fallout from the share market correction, despite the heightened risk sentiment. The spike in US interest rates was a major contributor to the equity correction, but yields stabilised as the sell-off gained momentum. The Fed were on target to raise rates again in December, but may reconsider, considering the market correction and extreme rhetorical pressure from the White House?

Economic data will continue to reinforce the global growth narrative but any chink in the armour may be exploited and have market consequences. Sino/US Trade negotiations will remain the centre of attention. The continued trade war is holding back Asian markets, commodities and trade exposed currencies. The AUD closed around 0.7100, while the NZD has regained 0.6500, but remain extremely vulnerable to the trade situation.

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