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Collinson FX: May 17, 2019 - One trade war at a time for Trump

by Collinson FX 16 May 19:51 PDT 17 May 2019

Collinson FX: May 17, 2019 - One trade war at a time for Trump

Global equity markets continued to recover recently lost ground, as expectations for a trade deal between the US and China, grew. The target date is now the G20 in late June. It appears Trump does not want to fight trade wars, on many fronts, as he acted to delay European auto tariffs. Trump has also declared a national emergency surrounding threats to US technology, which is a lightly veiled accusation pointing to Chinese technology theft. US Housing Starts and Building Permits were both strong, reaffirming the strength of this leading industry. US economic data reinforces the strong performance of the economy, allowing them to fight trade wars from a position of strength, while the Dollar travels well despite lower bond yields. The EUR slipped to 1.1170, while the GBP crashed below 1.2800, as Brexit chaos continues.

The headline Australian Unemployment rate rose from 5.0%, to 5.2%, but this was overshadowed by the death of former PM Hawke. The much loved former leader died only a couple of days before the Federal election, which may assist the favoured Labor party. This prospect does not fill markets with confidence, reflected in the currency unwinding in the lead up to Election Day, which has plunged below 0.6900. The trade wars are not helping these trade exposed, commodity currencies, with the NZD trading down below 0.6550.

Global trade wars remain a threat, as do Geo-political events threatening in the Middle East, but all eyes will be on the Australian Federal election on Saturday.

Collinson FX: May 16, 2019 - AUD expected to take Post-Election hit

Global equity markets were boosted by a deferment of European Auto tariffs by the Trump administration. The telegraphed increase of tariffs, on European auto’s for six months, gave confidence to markets. It seems that President Trump does not want to extend the US/China trade war to Europe, yet. Chinese Industrial Production and Retail numbers both disappointed, confirming the impact of the trade war. US Retail Sales contracted, but both Empire State Manufacturing and NAHB Housing data was more positive. The US bond yield curve is flattening out and this can be a signal of a looming recession. The Dollar gained ground, with the EUR testing 1.1200, while the GBP fell to 1.2850.

The rising reserve pushed the AUD back to 0.6920, while the NZD traded 0.6550. The European news was good for markets, although the upset to the current supply chain, remains the major threat to these commodity countries. The technical support levels for these currencies have now become ‘tops’ and targets become record lows. The Australian election is a big threat to confidence in markets, as commentators warn of the damage to the economy of a high-taxing Socialist Government and the bookies continue to predict a Labor victory. The currency will reflect the result.

Collinson FX: May 15, 2019 - AUS election looms over markets

Equity markets rebounded overnight after the huge sell off, sparked by the failure of China and the US to reach a trade agreement. China have retaliated and raised tariffs on US goods and the threat to global growth and the current supply chain is now more apparent. The EUR slipped back to 1.1200, while the Yen traded 109,00. UK employment data was strong and wages continue to rise, but the Brexit chaos continues to disrupt the currency. The GBP slipped back to 1.2900.

Commodity currencies are being held hostage by the US/China trade war. The AUD is teetering around 0.6940, while the NZD trades 0.6570, both extremely vulnerable. The Australian Federal election looms over markets, which may cause some speculation, in the lead up to Saturday’s poll.

Collinson FX: May 14, 2019 - Chinese respond to US Tarriffs

Equity markets continued to haemorrhage overnight, as the Chinese responded with higher tariffs, on US goods. The trade wars are escalating and we don’t know where the peak is? The G20 in Japan, at the end of June, now becomes the default target date. President Trump and President Xi will both be present, so it would not be a surprise for them to meet and perhaps sign an agreement. President Trump tweeted, that they had almost reached a comprehensive trade agreement, but the Chinese ‘backed out’.

The Chinese retaliation was expected, but they are limited in their capacity to respond, due to the massive trade imbalance. The US economy is booming and they can weather the storm, unlike the Chinese, who suffer massive disruption to the supply chain. Alternative supply from other Asian countries, Mexico etc, to US markets will be the real concern for China. The US 10 year bond yields fell, while the Dollar was steady, with the EUR trading 1.1230. Oil prices fell back to $61/barrel and the Yen traded 109.20.

The escalating trade wars hurt the commodity supply countries like Australia and NZ. The AUD has broken below key long-term support levels around 0.7000, trading down to 0.6950. This is an extremely vulnerable position to be in, especially considering the uncertainty of the Federal Election, this coming weekend. The Labor party are favoured to win, but it is extremely tight, although the high taxing socialists pose a significant threat to the currency. The NZD also lost ground, falling to 0.6570, hurt by the same commodity supply issues. Trade continues to dominate global markets, destroying confidence, with rising uncertainty.

Collinson FX: May 13, 2019 - Candid and contructive negotations

US markets reversed the days market losses, despite the failure to reach an agreement at the high powered meeting between China and the US, in Washington. The US increased tariff rates, from 10% to 25% on $200 Billion of Chinese goods, in an effort to increase the pressure on the Chinese to conclude the long-negotiated trade agreement. The Chinese have been reticent to agree to the comprehensive package, while Trump has raised the pressure on them, with tariff rises and further tariffs to come. Trump tweeted that negotiations were ‘candid and constructive’ and that they will continue. This triggered a rally in equities, after early losses, both today and over the last few days.

UK GDP was steady, around 1.8% growth, while Industrial and Manufacturing Production was positive. The economic data continues to perform, despite the chaos surrounding the Brexit impasse, confounding pundits. The GBP trades around 1.3000, while the EUR held above 1.1225, with currencies avoiding the volatility experienced in equity markets. Commodity currencies are dependent on a positive outcome on global trade and growth. The AUD holds around the critical support level of 0.7000, while the NZD regained 0.6600, recovering after the RBNZ rate cut.

The coming week will be focused on global economic data releases, but developments in global trade wars, have the capacity to interrupt markets.

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