Collinson FX: Aug 21, 2019 - Boris on tour of Europe

by Collinson FX 20 Aug 14:20 PDT 21 August 2019

Collinson FX: August 21, 2019 - Boris on tour

Global equity markets were lower overnight, after big rebounds the previous trading day, with Geo-Politics dominating the narrative.

The Italian PM resigned, but the EUR held steady at 1.1095, as this had been telegraphed and the machinations will rumble through the process. Brexit developments dominated European markets, with the British PM Boris Johnson about to embark of a tour of Germany and France, in the lead in to the G7.

Boris Johnson has sent a detailed letter ruling out the 'Irish backstop'. European President Tusk has rejected this, out of hand, but the German Chancellor was much more conciliatory, which allowed the GBP to rebound to 1.2165.

PM Boris Johnson will embark on a huge week of negotiations, with key allies Merkel and Macron and he seems to have much brighter prospects than the previous hapless Prime Minister. Trump has supported the new PM.

The RBA released the minutes of their last meeting and the outlook for growth was 'firmer', although their were downside risks. Members would consider further easing of monetary policy if economic conditions deteriorated further. The AUD was enthused by the news, rallying to 0.6775, while the NZD drifted to 0.6415. Analysts are now predicting up to 5 rate cuts by the Fed and the bond market has reflected this. US/China trade developments have been positive but remains a constant drag on commodity based currencies.

Beau Geste heads upwind - Day 3 - Hamilton Island Race Week, August 20, - photo © Richard Gladwell

Collinson FX: August 20, 2019 - Recession fears dismissed

Global equities rallied strongly, to open the week, after trade war fears and growth prospects were allayed. President Trump has dismissed fears of a looming recession and his key economic adviser, Larry Kudlow, reinforced this. The US consumer is spending and the economy continues to grow strongly.

The German Finance Minister, Olaf Sholz, announced Germany had a EUR$50 'fighting fund' to boost fiscal stimulus. This calmed fears about a recession in the European engine room. EU CPI contracted last month and the annual headline number has fallen to 1%. European growth is seriously challenged and the ECB is running out of monetary options, so fiscal stimulus will be needed. The EUR slipped below 1.1100, while the GBP has rallied to 1.2135, as Brexit approaches fast.

The trade exposed commodity currencies continued to cede ground, with the AUD drifting to 0.6760, while the NZD looks to test 0.6400 on the downside. The US/China trade war and the Chinese supply chain are key to these currencies. The G7 coming up in France may be a grand stage to announce any progress on the trade front? Central Bank leaders gather in Jackson Hole for the latest edition of their annual conference. This will be addressed by the Fed Chairman Powell on Friday.

Chinese Whisper - Day 3 - Hamilton Island Race Week, August 20, - photo © Richard Gladwell

Collinson FX: August 19, 2019 - Respite after a testing week

Markets rallied to close out an extremely testing week of volatility. Equity markets collapsed after the US Bond Yield curve inverted, signalling a forthcoming recession, triggered by fears over global growth as a result of the US/China trade war. Bond Yields bounced on Friday, along with the equity markets, as confidence starts to recover.

The US economy remains strong, supported by the continued strong activity in the consumer sector, allaying global growth fears. Trump has deferred the implementation of the next tranche of tariffs, until December and announced US/China trade negotiations will resume next month.

The AUD remained steady despite the volatility, trading 0.6775, while the NZD drifted back to 0.6420. These trade exposed currencies remain extremely vulnerable to developments on the US/China trade war. The GBP continued to regain ground, jumping to 1.2145, as Brexit activity heats up. This coming week will focus on growth and Central Bank speculation over monetary policy. The Federal Reserve holds the annual Jackson Hole Symposium later in the week and this will be headlined by Federal Reserve Chairman Powell on Friday.

Markets will be looking for a breather with less volatility to calm investors anxiety.

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