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Collinson FX: Aug 16, 2019 - US Markets rebound post crash

by Collinson FX 16 Aug 2019 03:03 PDT 16 August 2019

Collinson FX: August 16, 2019 - Markets rebound

US equity markets rebounded after the crash, the previous day, boosted by strong US domestic data. The US consumer is performing strongly and supporting US GDP growth, with Q3 forecast higher to 2.2%. Strong US Retail Sales, 0.7% from an expected 0.3%, was reflected in the Walmart Sales. The consumer supports strong US domestic growth. Bond Yields continued to collapse, with the US 30 Year falling below 2%, for the first time. The 10 year slipped to 1.475%, while German 10 year bund contracted to MINUS 1%! The US Philly Fed report and the Empire State Manufacturing continued to perform well, confirming a robust domestic economy. The EUR traded 1.1100, while the GBP jumped to 1.2110, with further Brexit speculation.

Australian Employment data was better than expected, adding 44,000 jobs versus an expected 14,000 increase, which boosted the currency. The AUD rallied back up to 0.6780, while the NZD languished around 0.6440, still extremely vulnerable. The Chinese released some conciliatory messages, regarding the prospects of a US/China trade deal, but remain preoccupied with the evolving Hong Kong crises. Trade remains the major issue impacting markets, but Central Bank activity and Bond Yields have hijacked the narrative.

Collinson FX: August 15, 2019 - Markets focus on deficit and debt

Equity markets plunged again overnight, triggered by an apparent inverted bond yield curve, which was pointed out in this commentary yesterday.

The inversion of the yield curve has not happened overnight but has focused markets on deficit and debt. The political pressure is for Governments to fiscally stimulate economies to combat the prospect of recession. Debt levels are much higher than pre-GFC and the prospect of expanding deficits and debt would only be tolerated in this low interest rate environment. Central Banks have been attempting to stimulate global markets by lowering interest rates, but this has failed. They have run out of options. The problem has arisen because of risk and the search, thereof. The search for return on funds has driven risk investment which have gone ‘belly up’.

German GDP growth contracted for the quarter and now sits at zero for the year! EU Industrial Production contracted and EU GDP was flat. The whole socialist experiment is failing under the weight of regulation and control. The prospect of ‘Brexit’ may be the straw that breaks the camels back!? The lack of growth in global economies and the ongoing trade war, between the US and China, has caused introspection. The Dollar is seen as a safe haven and has caused the reserve to rise. The AUD has fallen to 0.6740, despite a rise in consumer confidence, while the NZD crashed to 0.6430.

There are many pressing economic issues and global trade wars have not assisted growth prospects.

Collinson FX: August 14, 2019 - US delays China tariffs

Global equity markets surged overnight, after a partial delay in some Chinese export tariffs, was announced by the US. Trump has agreed to the partial delay and hopes the Chinese will respond with increased US agriculture imports. This was negotiated after news of phone conversations between the Chinese Vice-Premier(Chinese head negotiator) and Steve Mnuchin/Robert Lighthizer (US Negotiators). Equities rebounded strongly on the news. German economic data numbers have been extremely weak and worrying of late and the latest ZEW Economic Sentiment report was a shocker. CPI inflation was flat and Bond Yields are negative. Germany was the engine that drove the EU and they now look headed for recession. The EUR slipped back to 1.1170, while the GBP traded 1.2050, after softer employment data was released.

Global Bond Yields remain depressed and the Yield curve has flattened suggesting a recession in the offing. Markets remain focused on the US/China trade war, which have hit trade exposed, commodity currencies. The NZD is trading around 0.6450, while some positive Australian Business Confidence helped boost the AUD, which pushed back to 0.6800. These currencies remain captured by the developments in the US/China trade talks and the release of economic data is seen through this macro prism. The crises evolving in Hong Kong will have influence this global Geo-political environment.

Collinson FX: August 13, 2019 - Trump rejects deal with Chinese

Markets turned south to begin the new week, under the dark cloud of the US/China trade war and global geo-political negatives. Hong Kong protests ramped up again and forced the closure of the Hong Kong airport. The protests are a serious threat to the Chinese regime and any attempt to quell the rebellion, with the Chinese army, may be a serious escalation?

The Centre Right Argentine President Macri, took a bath in the first round of elections, suggesting he may lose the elections later in the year. Macri has been a reformer and introduced positive, market based solutions to the Argentines massive economic problems, he had inherited. The currency collapsed in response to the election result.   US/Chinese growth fears remained front and centre of market activity. Global bond yields crashed, even further, lead by the US 10 year, which fell to 1.64%. The Fed will be forced to cut rates in the raging global currency wars. President Trump has rejected a deal with the Chinese and taunted them on twitter. This has not assisted the trade exposed commodity currencies. The AUD has fallen back to 0.6750, while the NZD dropped to 0.6440, prone to further negatives.   Markets await the German ZEW Economic Sentiment report and CPI inflation data, which is not expected to set the world on fire and further developments in the Hong Kong protests. Undermining all of this is US/China trade war.

Collinson FX: August 9, 2019 - Recovery after RBNZ surprise

Global equity markets continued to roar back, eating up the big losses from earlier in the week and even bond yields began to stabilise. US 10 year bond yields bounced to 1.75%, while German 10 year bonds remain mired at minus 0.5%. The panic over the US/China war that has manifested in market panic over global growth and global currency wars. Central Banks have acted quickly to encourage monetary stimulus, in an effort to combat global growth threats. Chinese exports surprisingly jumped 3.3% and are now up 10.3% for the year, while imports have fallen to zero. The Dollar rebounded, with the EUR drifting to 1.1180, while the GBP slipped back to 1.2130.   The collapse in commodity currencies, following the surprise action of the RBNZ, has partially stabilised and began to recover. The NZD has pushed back to 0.6475, while the AUD has looked to regain 0.6800. despite the vulnerable environment they still operate in. As major Chinese suppliers, they are particularly susceptible to targeted market action and reaction. The surprise jump in Chinese exports was a boon to these challenged and trade exposed currencies.   One serious and very real danger beginning to rise in Western economies, is the new advocacy for Keynesian fiscal, infrastructure spending. The extremely cheap money, created by global Central bank monetary policy, encourages governments to borrow and invest in major infrastructure projects. This infrastructure borrowing is considered ‘good debt’!?

Global debt levels already far exceed dangerous pre-GFC levels and the massive excesses of Governments projects (not to mention the viability or validity of projects) will drown national economies in overwhelming debt.

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