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Collinson FX: February 14, 2019 - US/China trade deal imminent

by Collinson FX 13 Feb 15:00 PST 14 February 2019

Collinson FX: February 14, 2019 - US/China trade deal imminent

Equity markets continued to reflect the optimism in markets, booking more gains, as trade prospects continue to improve. The US negotiating team is in Beijing, lead by Chief Negotiator Lighthizer and Treasury Secretary Steve Mnuchin. The negotiations were being lead by Vice Premier Liu, but it appears President Xi will meet with negotiators. This may be a sign that they are increasingly serious about an agreement. President Trump has also said he would be open to a delay in the March 1st deadline. US CPI was flat, holding 1.6% p.a., while the UK CPI contracted but still holds at 1.8%. The UK economy remains remarkably resilient, considering the Brexit chaos, while the EU looks headed towards recession. The EUR slipped back to 1.1275, after EU Industrial Production contracted 4.2% annually, while the GBP held 1.2850.

The RBNZ surprised markets, with the Governor holding a neutral bias until mid-2021, when hikes may resume. Markets had expected a more dovish statement, following the lead of the Fed and the RBA, but Orr stuck to his guns. The NZD spiked to 0.6850, although it eased back to 0.6800 in overnight trade, while the AUD regained 0.7100 despite political turmoil. The Australian Government lost a vote on the floor of Parliament, for the first time in 90 years, over Border/Immigration policy. This ‘loss of control of the parliament’ is more than symbolic and may lead to an early election. The Government will attempt to hold on until they can deliver their budget, forecast to be a surplus to be the first time in 12 years, to give a solid lead in to the election.

The US/China trade negotiations remain the key to market direction although Central Bank action and rhetoric impacts local interest rates and currencies.

Collinson FX: February 13, 2019 - OPEC cuts production, Oil climbs

US Equity markets surged overnight, after a provisional deal to avoid a US Government shutdown was agreed and US/China trade negotiations progress. The committee set up to nut out an agreement has reached a compromise to avoid a shut down. Trump will likely agree to this, assuming there is some funds for a border wall, to avoid further disruption. Trump can utilize funds from other departments, currently unallocated, to continue to build his wall. Chinese/US Trade negotiations continue in Beijing this week, with Chinese Vice Premiere and US negotiator Robert Lighthizer and Treasury Secretary Steve Mnuchin, set to join later in the week. The two parties are making progress but the deadline moves closer. Fed Chair Powell appeared publicly again reassuring markets the US was growing at a ‘solid pace’.

OPEC agreed to cut production, by 800,000 barrel,s which allowed Oil to climb back to $53.40. Treasury bond yields were steady and the Dollar drifted slightly, as the markets regain confidence. The EUR regained 1.1300, while the Yen settled around 110.50. The Brexit chaos rolls on and the GBP flounders below 1.2900. Australian business confidence crept higher but political turmoil dominates local activity. The Government is battling for there political lives in the lead up to their April Budget and the ensuing election. The AUD attempted to regain 0.7100, as the reserve softened, while the NZD trades around 0.6725. NZ House Prices fell back, but still remain positive, although pressure on the local economy remains.

Collinson FX: February 12, 2019 - A trade deal at Mar-a-Lago?

Markets continued to speculate about the US/China trade negotiations. There is now talk of a summit, between President Trump and Xi, at the Mar-a-Lago. Trump’s estate in Florida would be a venue for the signing of a trade agreement between the two largest global economies. The deadline remains the beginning of March and sources said the focus is now on intellectual property. The markets were relatively benign to begin the week although the Dollar rallied, with the EUR falling to 1.1250, while the Yen trade 110.50. Brexit continues to dominate European markets and impact growth. UK GDP fell back to 1.3%, while Industrial and Manufacturing Production both contracted, pushing the GBP back to 1.2840.

The rising reserve pushed the commodity currencies lower, with the AUD slipping to 0.7060, while the NZD drifted back towards 0.6700. The RBNZ will announce the latest review of monetary policy later in the week. It is expected that the RBNZ will be more dovish in tone, similar to the Fed and RBA. This will not assist the local currency. Rhetoric surrounding the US/China trade negotiations will continue to dominate the trade exposed currencies.

Collinson FX: February 11, 2019 - Brexit ruckus spurs EU recession?

The huge recovery global equity markets are experiencing in the 2019 year is suffering an interruption. There has been media reports that the US/China Trade negotiations are not going to meet the deadline. Key Trump advisor, Larry Kudlow has stated that there is a ‘sizable way to go’. Trump remains confident of an agreement but there is no scheduled summit between himself and President Xi. The failure to reach agreement is a direct threat to global growth and is therefore impacting markets. The Fed has come to the party, but the threat to global growth remains a subject of speculation.

Brexit chaos continues to threaten the UK and Europe and all the latest economic data points to a slowdown, if not recession, in Germany and the EU. The Brexit chaos has been built in to the dramatically underperforming GBP, although the economic statistics continue to contradict the anti-Brexit Bank of England Governor Carney? The EU fall into recession would be confirmed by a ‘No Deal’ Brexit, while ripping a massive hole in their budget. This scenario is a ‘black swan’ event for the EU and they are starting to panic. They may need to appease the UK and compromise the agreement, or suffer severe consequences. The new week sees a plethora of UK economic data, including GDP, Trade and Industrial/Manufacturing production. The data has been strong despite the Brexit chaos and Governor Carney has avoided ‘QT’ under the ruse of Brexit. The GBP will open the weeks trade around 1.2950, while the vulnerable EUR will test the downside of 1.1300.

Trade exposed currencies have been hit hard by the negative speculation surrounding the US/China trade negotiations. The AUD has crashed back under 0.7100, assisted by dovish statements from the RBA Governor, while the NZD trades in the low 0.6700’s. The RBNZ will release the latest OCR this coming week. This is likely to adopt the dovish stance of the Fed and the RBA, releasing pressure on interest rates and the KIWI. The China/US trade scenario will continue to drive these commodity currency until a final solution is reached.

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