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Collinson FX: February 4, 2019 - Big lift in US data

by Collinson FX 3 Feb 14:10 PST 4 February 2019

Collinson FX: February 4, 2019 - Big lift in US data

Markets concluded a very strong week of gains, boosted by the Fed’s ‘pause’ on raising rates and ongoing trade negotiations between China and the US. The Chinese Trade mission to the US, ended with ‘important progress’, which will be followed by a trade delegation from the US to China. Moves are afoot to have a US/China trade summit between President Trump and Xi, to conclude an agreement, by the deadline of March 1st. This has been a strong process and reassured markets. The Fed reassured markets with a pause in their rate raising strategy, promising to act ‘in the light of economic and financial developments’. This turnaround was forced upon the Fed, by the 2018 4th Quarter collapse in equities and massive pressure from the Trump administration.

US Non Farm Payrolls were extremely bullish for employment, blasting past expectations, adding 304,000 jobs! This was a hugely strong number, despite the US shutdown and rising participation, allowing the headline Unemployment rate to rise to 4.0%. Earnings are very strong, with over 68% of companies reporting, beating expectations. US/China trade negotiations made ‘important progress’, with the President involving himself directly in negotiations with the Chinese Vice Premier. The Feds inaction allowed the Dollar to remain soft, with the EUR rising to 1.1460, while the GBP trade 1.3080. This is despite the chaos enveloping the EU and UK over Brexit. Massive disruption continues to threaten the EU and the EURO, while the GBP has suffered the ‘worst case scenario’ and may have already been built in to the currency? The ‘No Deal’ result looks increasingly more likely, with unknowns give rise to uncertainty, but the need for a clean break far outweighs these problems.

The softer reserve has allowed the commodity currencies to benefit, with the AUD closing the week at 0.7250, while the NZD hold 0.6900. The strong US/China trade negotiation process has settled the market uncertainty, with the reassuring process. The heavily trade exposed nations remain extremely exposed to this progress. Any negatives will flow directly into the associated currencies, while an agreement may unleash a rally. The problem remains the flow-on consequences of a possible agreement. Massive increases in US exports may hurt Australian and NZ exports?

Collinson FX: February 1, 2019 - No Deal Brexit likely

The FOMC meeting ended with the Fed backing off their aggressive monetary policy stance. The Fed have been charging towards a normalised monetary policy but collapse in US equities in the final quarter of 2018 and pressure from the Trump administration, has forced a retreat from Chairman Powell. The Fed talked of ‘patience’ and balance sheet normalisation, ‘in the light of economic and financial developments’. This softening of policy, spurred the share market to massive gains, while the 10 year bond yield plunged to 2.63. The Dollar support also fell heavily across the board, with the EUR leaping towards 1.1500, while the Yen fell below 109.00.

The Chinese are in the US participating in the trade negotiations with Washington. The process is going well and provides some certainty for markets. The talk was of a summit between President Trump and Xi by the deadline on March 1. Trump held an informal press conference saying he could do a deal with the Chinese now, massively increasing US exports to China, including Agriculture, Manufacturing and Financial products. He insisted he would only sign a comprehensive deal, a ‘real deal’, or tariffs would increase from 10% to 25% on the 1st of March.

The EU rejected any changes to the ‘leave agreement’ and left the ball firmly in PM May’s court. It is up to May to offer a resolution, but the intransigence from EU officials suggest a ‘no deal’ Brexit. This will be a good thing, as small problems can be resolved, but the divorce must happen and soon. The GBP rallied back to 1.3120, supported by a weaker Dollar while the EUR gave up some ground, after initially rallying on the Fed news.

The plunge in the reserve enabled the commodity currencies to surge, with the AUD charging towards 0.7300, while the NZD broke back above 0.6900. The strong moves from the KIWI was aided by an upgrade in the outlook from ratings agency S&P. The US/China Trade negotiations remain key to moves by these heavily trade exposed currencies. Look for local Consumer Confidence data in NZ to tweak currency moves.

Collinson FX: January 31, 2019 - US Share markets boom

US Share markets boomed again overnight, sparked by stronger than expected results from Apple and Boeing, allaying fears of weaker global growth. The US/China Trade impasse has caused many to forecast lower global growth, but the Chinese are in the US negotiating and the actual process seems to reassure markets. The other big event impacting markets is the FOMC meeting. The Fed are expected to leave interest rates unchanged and announce further contraction of the bloated balance sheet. The turnaround in the Fed’s tightening strategy, came after the massive hit to US equity markets in the final quarter of 2018 and pressure from the Trump administration. US Equities lost 20% in the final quarter, entering a bear market, but have regained 13% of those losses!

Brexit continues to dominate European markets. The UK Parliament empowered British PM May to go back and renegotiate the ‘leave agreement’, although the EU leaders reject the possibility, leaving the PM between a rock and a hard place. This will allow the Government to renegotiate, with increasing pressure on the EU. The closer they get to March 29th (Brexit), the greater the pressure and brinksmanship becomes the order of the day. ‘No Deal’ Brexit becomes increasingly more likely. The GBP retreated back to 1.3060, while the EUR holds above 1.1400, both remaining extremely vulnerable.

Australian CPI data was inline with expectations, but still remained soft, at 1.8%. Inflation appears to be relatively benign, although positive, which allowed the currency to push back towards 0.7200. The NZD held above 0.6800, awaiting significant local economic data releases, while US/China trade talks remain the impetus. The Fed’s neutral strategy should ensure stability, although any surprises, will impact.

Collinson FX: January 30, 2019 - Aussie business confidence drifts lower

US equity markets were mixed overnight, with fears over Apple reporting, after the revenue warnings from Caterpillar surrounding Chinese growth prospects. There is no doubt that the trade impasse is hurting Chinese economic growth and the companies exposed to it. Chinese Vice Premier Liu He arrives in the US for further trade negotiations with the US Government officials, so speculation and rhetoric will drive markets. Key economic adviser, Larry Kudlow, revealed moderate optimism held by President Trump. The deadline is March 1st and brinkmanship will rise leading up to that date.

The ‘Brexit’ chaos continues, with the UK Parliament set to take key votes to avoid crashing out of the EU with a ‘No Deal’. The vote comes today and will determine the way forward, at least for now. Every one is thoroughly sick of the gross incompetence surrounding the Brexit deal and having a deadline forces action. Parliamentarians don’t agree with the peoples vote to leave and this is the conflict that really causes the ‘slow motion train wreck. The GBP remained firm, trading 1.3150, while the EUR retained 1.1400.

Australian Business confidence drifted lower, while NZ Trade data was better than expected, with a rise in both Exports and Imports. The AUD drifted back to 0.7150, while the NZD holds above 0.6800. The US/China trade talks remain the key driver of these trade exposed currencies. There will be no deal, until the deadline is met, but it will be the rhetoric that drives markets.

Collinson FX: January 29, 2019 - US hits reverse gear

US equity markets hit reverse overnight. The giant machine manufacturer, Caterpillar, warned of the Chinese slowdown impacting global sales. This is confirmation of the actual slowdown in China, which has been confirmed by most US companies exposed to the Chinese market, with growth numbers falling to 30 year lows. The US/China trade negotiations and the speculation surrounding them, will continue to drive equities, currencies and bonds. The trade exposed currencies suffered accordingly, with the AUD falling to 0.7150, while the NZD dropped to 0.6825. NZ Trade data will likely influence the currency this morning.

European markets remain consumed with the ‘Brexit’ fiasco. Their is no solution in sight and now the realisation that this will impact the EU dramatically has dawned, while the UK has already suffered the doomsday prophecies. UK PM May has fought for the UK to ‘remain’ under the guise of Brexit. Britain will leave and the people will have their way, following their say. Extensions are ploy to remain but the whole world is sick of the manoeuvring and will only accept a departure. The lack of democracy is being discovered in Venezuela today.

Collinson FX: January 28, 2019 - Trade negs positive for US

The USD crunched into reverse overnight. There is speculation that the Federal Reserve may end the balance sheet reduction process and reverse the tightening of monetary policy. This comes ahead of the FOMC meeting and rate decision next week. The Dollar had a sharp reversal in recent gains, with the EUR jumping to 1.1400, while the GBP spiked to 1.3160. This allowed equity markets to progress, with the prospect of a looser monetary policy.

Treasury Secretary Steve Mnuchin was much more optimistic than Commerce Secretary Wilbur Ross, commenting that trade negotiations were ‘making a lot of progress’. This enabled the trade exposed currencies to accentuate gains made by the flagging reserve. The AUD jumped to 0.7170, while the NZD pushed back to 0.6630.

The coming week is a huge one for economic events, lead by the FOMC meeting and US and EU Employment data. US GDP growth data will also be a measuring stick while US, Chinese and EU PMI data will also become available. Trade will remain a key issue and drive markets.

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