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Collinson FX: December 7, 2018 - Island NZ doing OK

by Collinson FX 6 Dec 2018 21:07 PST 28 November 2018

Collinson FX: December 7, 2018 - Island NZ doing OK

US Markets re-opened after the Funeral of President G H W Bush and a national day of mourning. The negative sentiment appears to be on the verge of panic selling, following the 800 point losses suffered by the Dow on the previous trading day. The selling is a direct result of the concerns over trade and the impact on economic growth. The arrest of Huawei CFO in Canada, for extradition to the USA, does not assist in US/China relations. The problem with the US/China G20 ‘Non-Agreement’ is there is no compulsion for the Chinese to ‘fix’ the trade imbalance.

The US 10 year bond yields plunged, to 2.84%, reflecting the lack of confidence and demand. The Fed is under huge pressure to reverse their aggressive monetary policy to address the mismatch with key trading partners, who have very dovish, stimulative monetary policies. The EUR held 1.1350, supported by improving rhetoric surrounding the Italian debt crises, but Brexit remains a huge threat. The existential threat of the Brexit crises continues to dog the GBP, trading 1.2770, with this space being in a state of flux. The Yen reflected the move to safety, moving to 112.40, as markets go to liquid assets. Markets will continue to focus on trade and growth, although tonight’s Non-Farm Payrolls and Sentiment, could impact with any divergence from expectations.

The NZD held up reasonably well considering, softening to 0.6870, while the AUD fell to 0.7200. The AUD has been adversely effected by the recent downgraded growth data and the health of the consumer. The housing market slide and the debt driven consumer sentiment has been adverse. The US Dollar remains the greatest determinant, but the deteriorating global trading markets, hurt this heavily trade exposed country and currency . NZ is an island state but is not an island when it comes to trade and global markets.

Collinson FX: December 6, 2018 - Oil prices collapse

US markets were closed overnight for a national day of mourning for the funeral of President GHW Bush, allowing a breather after the previous day’s rout on equity markets. The risk-on moves from the previous day allowed the ‘safety-play movement of markets, with flows back to the US Dollar and a rebound in bond yields. Growing fears of slowing global growth, due to concerns over US/China trade wars, have shaken market confidence.

Asian and European markets followed the US lower, although some slivers of light appeared. The Italian budget crises looks to be making positive progress reflected in falling bond yields. Brexit continue to plague the EU and the U.K., as the Pound fell to June 2016 lows, 1.2659. From the ashes of PM May’s failure may rise a solution and the GBP regained 1.2750.

OPEC and Non-OPEC meet tonight in Vienna in to address the collapse in Oil prices. It may well impose some supply restrictions to encourage a recovery in price. Trump is encouraging the status quo. Australian GDP numbers missed expectations, shaking local markets, which is a surprise turnaround from sterling recent performances. The AUD crashed 0.7265, on the news, while the NZD tested 0.6900 on the downside.

Markets now look towards the Non Farm payrolls and the delayed the Fed’s Beige Book. These may drive markets, although there is movement from the Chinese to act on commitments to significantly increase US imports, which may support some improved confidence and improve the narrative.

Collinson FX: December 5, 2018 - Resignation weakens OPEC

Equity markets reversed some of the gains, post-G20, as the trade no-deal was put into perspective. The US/China agreement to extend the negotiation period by 90 days, delaying tariff increases and supposedly increasing Chinese imports of US products, allowed confidence to return to the market. Uncertainty remains, and the risks of global trade upheaval was merely deferred. Key Trump economic advisor, Larry Kudlow, expressed his confidence in the process, citing the positive chemistry between leaders Xi and Trump.

OPEC meet with non-OPEC members in Vienna tomorrow at a crucial time. Qatar has resigned from the OPEC cartel, which now leaves a weakened Organisation dominated by Saudi Foreign Policy. The meeting with key Non-OPEC nations, such as Russia and Venezuela, will address the collapse in oil prices and perhaps consider this through supply controls. Oil has bounced back to above $50/barrel but has suffered enormous recent losses.

The Fed remains key to markets, with a key shift in monetary policy expected, reflected in interest rates which continue to fall. The Feds actions are a combination of lower growth prospects, thus diluted inflationary pressures and massive political pressure. The Dollar has lost upward momentum, which was reflected in the AUD (0.7350) and the NZD (0.6925). The RBA left rates unchanged, as expected, citing strong global growth while warning of trade risks. Watch for a strong Australian GDP number out today to support this narrative.

US Job numbers become the focus in US markets while local data may impact at the margins.

Collinson FX: December 4, 2018 - Commodity currencies up

The G20 meeting resulted in a standoff over the US/China trade war. Trump and Xi agree to a ceasefire for ninety days, where China agrees to buy more US goods, while the US postpones increases in tariffs on Chinese imports. This calmed markets and allowed a modicum of confidence to return. Global equities posted gains and the Dollar remained soft. The EUR traded 1.1350, while the GBP drifted to 1.2725, amidst the Brexit chaos.

Commodity currencies regained momentum, with the AUD trading 0.7360, while the NZD broke above 0.6900. Australian Building Permits contracted, reflected the weakened state of housing market, awaiting important GDP growth and trade data. The trade agreement is more a pause, thus allowing trade to thrive, as the US/China trade deficit reached record levels.

Market will now focus on the Fed and whether they confirm their realignment to a dovish direction on monetary policy. The economic settings remain strong for the trade exposed currencies, but this will only take us through to the first quarter of 2019. The postponement is probably assisting the Chinese, who appear to be gaining momentum, while this latitude will allow further consolidation.

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