Collinson FX: Aug 7 - The world needs Trump to succeed

by Collinson FX 6 Aug 2019 11:07 PDT 7 August 2019

Collinson FX: August 7, 2019 - The world needs Trump to succeed

Markets rebounded strongly, after the savaging on the previous day's trade. The US/China trade war is the genesis of the market upheaval, but the cold calm evaluation of the situation, would reveal a hint of desperation from the Chinese. The Chinese have exploited their position in global trade since their much vaunted inclusion in the WTO many years ago, making every post a winner. The exploitation of preferential trade terms and the constant and enormous industrial level IP theft, have enabled the Chinese to become the second biggest economy in the world. Donald Trump is determined to halt the international criminal activity and balance the trade book. The Chinese are resisting but many are beginning to realise the necessity of Trump's actions. The world needs Trump to succeed.

US Equities roared back, after the Chinese central Bank allowed the Yuan to regain some strength. The word was that China had banned US agricultural imports, but that reeks of desperation, in the US/China trade war. The Chinese have exhausted trade means and have resorted to banning US imports. This only highlights the powerful position the US is in, in these trade negotiations. They have a deficit of $500 Billion and can extend and increase tariff levels, at any time, only adding to the immense pressure the Chinese are under. Any attempt to ban US agriculture exports is desperation. They may be at the end of their tether and close to surrender?

The EUR rallied back to 1.1200, while the Yen slipped back to 106.50. The Dollar has become popular again, despite the continued fall in the US bond yields. The 10 year Bond Yield has collapsed to 1.72%. The RBNZ is expected to cut rates today and offer a dovish bias to monetary policy. The NZ Employment data, released yesterday, was extremely positive and allowed the NZD to weather the international market storm. Reality is setting in and the NZD has returned to trade just above 0.6500, while the AUD has settled around 0.6750. These trade exposed currencies remain extremely vulnerable to the US/China trade wars.

Georgia Racing- RNZYS Winter Race - July 27, 2019 - photo © Richard Gladwell

Collinson FX: August 5, 2019 -

Global equities continued to lose ground, to close a week of serious losses, triggered by the ramping up of the US/China ‘Trade War’. The US announced the imposition of a further 10% in tariffs, on the balance of $300 Billion of Chinese exports, to the USA. This has triggered a major hit to equities, bonds and currencies. The flow-on effect of the trade war, is the fear of the impact on global growth, explaining the hit to Oil prices and Bond Yields. President Trump announced some positive trade news, that counter some of the losses in US agriculture, with a trade deal over US Beef exports to the EU. He pranked the press corps that the EU had agreed to a 25% tariff on Mercedes and BMW, which brought laughter after he outed to the joke.

The trade news hit commodity currencies hard, with NZ and Australia heavily exposed to the Chinese markets. The AUD has now hit a 10 year low, slipping below 0.6800, while the NZD fell to 0.6535. The ramping up of the trade war, directly impacts the supply chain and the announcement of a US/EU deal on US beef does not assist the Australian Beef exports to Europe. Non Farm Payrolls in the US confirmed the strong domestic economy and reassures markets that the US has the power and resilience to weather the trade war.

This coming week will continue to be dominated by global trade wars and economic growth prospects. The RBA and RBNZ are meeting this coming week and are expected to confirm stimulative monetary policy, in an attempt to boost their respective economies. The Chinese continue to fight the US trade war with monetary stimulus, domestically. The ‘long game’ being employed by the patient Chinese administration, may prove to be extremely painful, so to have an authoritarian Government helps with the political fallout.

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