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Collinson FX: January 17, 2019 - Confidence returns

by Collinson FX 17 Jan 2019 01:43 PST 17 January 2019

Collinson FX: January 17, 2019 - Confidence returns

Equity markets continued to book gains as confidence in 2019 returns. The fears of a global trade war have been allayed, with a process for negotiation in place, which has begun in earnest. The statement from senior Senator Chuck Grassley, surrounding the recent negotiations, did not help the situation. He stated that senior trade negotiator, Robert Lighthizer, said little was achieved in last weeks trade talks in China.

Markets were consumed with the Brexit chaos enveloping Europe and the UK in particular. PM May submitted her ‘Brexit Agreement’ to Parliament and received the biggest rejection in the history of the, age old, Parliament. The opposition immediately called for a vote of ‘no confidence’, which will go before Parliament today.

The chaos is bad for the country and it is hard to see PM May survive. It is now more likely that the UK will leave the EU with ‘No Deal’. This is a complete failure of the Politicians that were never in favour of leaving the UK and have failed to represent the wishes of the people, who do. The EU will panic and attempt to put some make-up on the pig. They will fail. The GBP lost more than a big figure in a lead up to the Parliamentary vote, but recovered to trade 1.2850, post vote. The chaos continues until the leave date at the end of March.

The US/China trade negotiations continue and the rhetoric impacts the trade exposed currencies. The negative vibes filtered through to these commodity currencies, with the AUD slipping below 0.7200, while the NZD drifted below 0.6800. Focus remains on the ‘Brexit’ catastrophe and the slow motion train crash, that it is, while global economic data remains scarce.

Collinson FX: January 16, 2019 - Europeans expected to buckle

Equity markets continued to benefit renewed confidence, posting further gains in the 2019 year. Favoured tech stocks posted strong gains as the Banks commence reporting earnings. Early in US market trade there was a hiccup, when US Senator Grassley commented that US Trade Representative Lighthizer, had said little progress was made in last weeks China/US trade negotiations. Markets quickly regained confidence and added to previous gains.

German GDP was in line with expectations, 1.5%, but well below the previous 2.2%. Despite the weak growth data, strong EU trade numbers mitigated any weakness. European markets have been high-jacked by the Brexit chaos. The UK Parliament takes a key vote on PM May’s proposed trade agreement, which is widely expected to fail and miserably. This defeat is going to add to pressure and brinksmanship between the UK and the EU. Failure to reach an agreement will mean a ‘No Deal Brexit’ at the end of March. The Europeans will buckle, as they have too much to lose, with massive trade exposure and financial reparations to lose. If not, Brexit will be sudden and will work out through necessity. The GBP retreated to 1.2740, ahead of the key vote, but only returns some of the recent gains. The EUR also fell lower, drifting below 1.1400, as the reserve rallied.

Commodity currencies are extremely exposed to US/China trade talks and the revelations surrounding Lighthizer’s comments, turned the associated currencies south. The AUD slipped back below 0.7200, while the NZD tests 0.6800, on the downside. Economic data is having a minimal impact on markets, driven by macro-events, trade and Brexit. A look at Australian Consumer Confidence and NZ Credit Card spending may enlighten a few to consumer sentiment, locally?

Collinson FX: January 15, 2019 - Markets much more positive

Markets were off to an anti-climatic week, after posting solid gains in equities for the year to date. Chinese trade data exemplified the problem in the US/China trade war. Chinese Exports and Imports both contracted sharply, worrying signs that the trade war is impacting global trade and growth, while the trade surplus for 2018 was at record highs. The threat to global growth and trade, puts further pressure on China to make a deal with the US, while the surplus validates the arguments from the Trump administration. Equities moved lower across Asia and Europe. European markets are consumer by the Brexit crises and growth threats, with the latest economic data confirming a contraction in EU Industrial Production.

The underlying sentiment in the markets are much more positive than the closing quarter of 2018. Softer economic data reflects the global growth story. The Dollar remains weaker, with the EUR trading 1.1470, while the GBP squeezes higher to 1.2880. The structured negotiations process of US/China talks have imbued confidence and allowed trade exposed countries to rebound. The AUD is trading around 0.7200, while the NZD attempts to hold 0.6800, but both remain extremely vulnerable to negative rhetoric.

Not a huge week for economic data releases although there will be high interest in the Fed and the minutes release later in the week.

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