Collinson FX: August 30, 2019 - Kiwi crashes on appalling Business Confidence number

by Collinson FX 30 Aug 2019 21:58 AEST 30 August 2019

Team Hollywood dives into a big one - IRC Division 2 - Hamilton Island Race Week - August 2019 © Richard Gladwell

Collinson FX: August 30, 2019 - Kiwi crashes on low Confidence

US equity markets surged again overnight, after US/China trade developments turned positive. It was announced that US/China trade negotiations were scheduled to recommence and China was far more receptive to an agreement. China announced that they were not going to retaliate to the latest round of sanctions and that 'they wanted to resolve the protracted trade dispute'. Share markets boomed, in response and oil prices surged, while the VIX plunged.

The GBP slipped back to 1.2175, after PM Boris Johnson announced the Queen had agreed to a possible suspension of Parliament, to prevent them halting a 'No Deal Brexit'. The EUR also lost some ground too, dropping to 1.1050, reacting to weak economic confidence data that was released overnight. US GDP was reviewed lower, from 2.1% to 2.0%, but this was in line with market expectations and was completely overshadowed by the US/China trade developments.

This did little to help the trade exposed currencies, as the stronger Dollar pushed the AUD back to 0.6720, while the NZD plunged to 0.6300! The collapse of the NZD was triggered by the appalling Business Confidence number, released yesterday. Business Confidence hit a new low, falling to minus 52.3, which has been a rapid and continuous decline since the Labour led coalition Government was elected. The Business Confidence number has been extremely instructive, in evaluating the progress of the NZ economy and has become the focus of markets. Business confidence feeds capital investment and productivity. It is at the heart of wage growth and the health of the consumer. It is for this reason that it has become an economic bell-weather domestically.

Not a Diamond - IRC 2 - Day 4 - Hamilton Island Race Week - August 22, - photo © Richard Gladwell

Collinson FX: August 28, 2019 - NZD slides back

Markets faced a return to normalcy, after the explosion of news over the G7 and Jackson Hole. The focus reverted back to the bond market and the inverted yield curve. This is particular favourite of market tech's but the public's 'eyes glaze over'. It has been an indicator of coming recessions, but so have many things and is more a product of Central Bank activity in the longer dated bond yields. The Fed minutes were released and showed a significant split in participating members, showing the majority advocated for a 25 point cut. The S&P Case Shiller House Price index was positive, while German GDP contracted, highlighting the contrast between the US and EU. The EUR trades below 1.1100, while the GBP approaches 1.2300, fuelled by positive news about Brexit negotiations.

The US/China trade war and the on-again-off-again negotiations have done the trade-exposed, commodity currencies no favours. The AUD fell back to 0.6750, while the NZD slipped to 0.6365, with little positive economic data to reverse the slide. These currencies remain extremely vulnerable and reliable on the progression of the trade talks. This war may continue until long after the US Presidential election, due November 2020!

Carrera S - Day 4 - IRC Div 2 - Hamilton Island Race Week - August 22, - photo © Richard Gladwell

Collinson FX: August 27, 2019 - Markets rally after G7

Global markets rallied strongly, after the good news flowed out of the G7. The rapid escalation of the US/China trade war, began the day before the G7 opened, when China increased current tariffs on US imports. President Trump reaction was swift and aggressive. He added 5% to existing tariffs and ordered US companies operating in China to leave! The furious reaction overshadowed the Federal Reserves Jackson Hole Symposium of Central Banks and the open to the G7.

Jackson Hole was all but forgotten, with Chairman Powell referred to as 'a bigger enemy than Chinese Chairman XI' in a Trump tweet. Powell extolled the virtues of the robust US economy and cited trade as a threat to global growth. He reiterated that the Fed stood ready to cut rates further, if necessary. The G7 was a success, with Trump dominating ceremonies, brandishing his personal relationships with President Macrjackson hole updateon and new UK PM BOJO.

The fears over the escalation in the US/China trade war were calmed overnight, with Trump confirming talks would resume, after a phone call from the Chinese leadership. He also said China 'severely wants a deal' and 'he was not sure they had much choice!'. The GBP rallied above 1.2200, while the EUR slipped back below 1.1100, after the Dollar fluctuations.

Day 4 - Hamilton Island Race Week - August 22, - photo © Richard Gladwell

Collinson FX: August 26, 2019 - NZ Business confidence significant

The US/China trade talks resuming are a positive for the trade exposed AUD, which managed to push back to 0.6780, while the NZD failed to regain 0.6400. US/China trade talk speculation, will dominate the weeks trade, as will President Trump!

Local data could impact at the margins, with the important NZ Business Confidence data number, fast becoming an important indicator.

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