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Collinson FX: November 2, 2018 - Markets rally on several fronts

by Collinson FX 1 Nov 2018 21:25 PDT 2 November 2018
A Windfoiler is one of the new classes/equipment being promoted for the 2024 Olympic Regatta in place of the RS:X Windsurfer © Richard Gladwell

Collinson FX: November 2, 2018 - Markets rally on several fronts

Market confidence rallied, along with equities, as the risk-off sentiment allowed the Dollar to settle. Trump tweeted that China-US Trade talks ‘went well’ with President XI. The Chinese have introduced monetary and fiscal stimulus to combat the negative impact of the trade war. This has had limited success, as seen with the collapse in Chinese equities, while the economy has suffered enormously. The only solution is a trade deal, with the US and this looks more likely today.

A resolution to the Chinese-US trade war would be a massive boost to the trade dependent, commodity currencies. The very prospect was enough to spike the associated currencies, with the AUD jumping above 0.7200, while the NZD rallied to trade 0.6650. The AUD was aided by a record trade number out in Australia, with both imports and exports improving strongly, reaping the benefits of many trade deals negotiated by the current Government. NZ House Prices were firm and Job Ads increased, although close attention will be paid to local sentiment reports.

The Bank of England left rates unchanged, but warned that a ‘smooth Brexit’, could quicken it’s rate hiking cycle. It was reported in the press that the UK have reached a ‘Brexit’ agreement, with the EU, on Financial Services and these events boosted the GBP back above 1.3000. An overall Brexit agreement would see a massive improvement in the GBP. The Dollar drifted lower with market sentiment, allowing the EUR to regain 1.1400, while the Yen traded 112.50.

Collinson FX: November 1, 2018 - NZ and AUS exposed to Trade Wars

The Bank of Japan left interest rates unchanged, as expected, but recognised the global risks that have recently buffeted markets. The China/US trade war continues on, sending a wrecking ball through the Chinese economy and share market, which directly impacts the suppliers of China. Australia and NZ remain trade exposed and cannot survive the expanding trade war. The Chinese have played a dangerous game, putting all their chips on a loss to the Trump administration in the Congressional mid-term elections, which may lead to an early compromise!?

The US ADP Jobs report was positive and equities continued to recover October losses. Chinese Manufacturing and Non Manufacturing PMI was soft, affirming the uncertainty prevailing. The Chinese are ready to deal and it is just how many poison pills they are ready to swallow. It all comes down to leverage and the Chinese hope for some after the US elections. The G20 is coming at the end of the month and this looks to be a timely occasion for settlement.

The EUR fell to 1.1300, breaking key technical support levels, reflecting the parlous state of the single market. The failure to reach a ‘Brexit’ deal has hit both the EUR and the GBP, which has fallen to 1.2700. The pressures of the Italian budget crises has added to European woes, while the leadership of German Chancellor Merkel, has finally ended. Merkel has become a symbol of failure in the German republic and residually, she has been destroying her political party. The resignation will help, but her failure to leave, will ensure further political degradation.

The rising reserve has hit the commodity currencies, with the AUD drifting to 0.7070, while the NZD tests 0.6500. The China/US trade war continues to dominate these trade exposed currencies.

Collinson FX: October 31, 2018 - NZD swims against the rising tide

The tumultuous month of October is coming to an end and has wreaked considerable damage to equity markets. October is a magnet for share market corrections and collapses and this has been yet another. US equity markets have corrected, although still remains ‘outside technical’ correction territory. The Australian market is has corrected and China is down 25% for the year. This was initially triggered by rising US interest rates and all of the implications rising rates have.

US interest rates are a response to a very strong economic environment and the latest US Consumer Confidence number confirmed that. The Case Shiller Home Price Index confirmed the strong housing market, which is a leading index, indicating the bull market has more legs? The Dollar continues to rise, pushing Oil back to $66 and Gold to $1,220. The EUR fell back to 1.1350, looking in dangerous technical territory, while the GBP fell to 1.2700! The ‘Brexit’ crises continues to undermine these currencies and the Italian budget crises rolls on.

The AUD fell below 0.7100, reacting to the rising reserve, while the NZD swam against the tide rising to 0.6550. The NZD is being supported by rising inflation, driven by cost of living pressures, ironically due to that weakness in the currency!?

Sino/US trade wars remains an extreme drag on these trade exposed countries and their associated currencies. Trump has indicated a trade agreement is close, ‘but the Chinese are not ready yet’, heaping further pressure on their failing economy. The G20 may be the target for a compromise? The US mid term elections may also have an impact. If the Trump administration hold on to Congressional power the Chinese will capitulate quickly.

Collinson FX: October 30, 2018 - NZD hangs on against all odds

The German Chancellor Merkel has finally indicated the end of her reign. Merkel took another thrashing in State elections, with both her party and her coalition, suffering massive losses in Hesse. The writing is on the wall and she has finally read it. The immigration crisis have finally taken its toll. She is not only Germany’s leader but the nominal leader of a united Europe. She intends to ride out her final term but the political damage this may cause, may ensure an earlier departure. This does not add to the stability of the European Union, and the currency fell below 1.1400, into very dangerous technical levels.

The GBP has been mortally wounded by the inability for the UK to seal a deal with the EU over a divorce agreement. The GBP fell to 1.2800, despite the UK Government announcing an ‘end to austerity’. Europe and the UK need to come to an agreement. The G20 may be an opportunity to show solidarity? It may also provide a platform for China and the US to seek a compromise in their trade war. The fallout has hit the Chinese economy and share market hard and they have suffered immense pressure to deal. US mid-term election may allow a delay from the Chinese, in the hope Trump may lose some political power, thus leverage.

The AUD fell to 0.7060, suffering political instability and a rising household debt crises. Australian household debt has come into the spotlight, as house prices fall, reducing equity and thus hitting the consumer. The NZD continued to grimly hold above 0.6500, despite the Sino/US trade war, but remains under pressure.

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