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Collinson FX: September 13, 2019 - Trump delays tariff to Oct 15

by Collinson FX 12 Sep 14:01 PDT 13 September 2019
Mad Max - Day 6 - Start - Hamilton Island Race Week, August 24, 2019 © Richard Gladwell

Collinson FX: September 13, 2019 - Trump delays China Tariffs imposition

European markets rallied strongly, after the ECB acted to cut rates and add further QE, in line with expectations. The ECB cut already negative deposit rates, by 10 basis points to 90.5) and offered EUR$20 Billion/month, indefinitely. This was in line with expectations and the market reacted accordingly, although the EUR jumped to 1.1065, while the GBP pushed up to 1.2340. The added QE is expected to stimulate the European economy, that has been falling into recession, but does has negative side effects. The already weak European Banks, find it hard to operate in the 'negative interest rate environment', so the ECB has attempted to carve out exemptions. The is turning into a regulatory nightmare and extended monetary conditions will impact the Banks and asset prices.

Trump delayed the imposition of $250 Billion in tariffs on Chinese products, from 1st of October to the 15th of October, as an act of goodwill. This boosted US equities and they are now headed to new record highs. Trade negotiations are set to reopen again, in early October and the Chinese look far more interested in a deal. This allowed the trade exposed commodity currencies to hold on to recent gains, with the AUD trading 0.6865, while the NZD attempts to retain 0.6400.

Markets will now look to the US University of Michigan Sentiment report and Retail Sales to gauge the health of the all important US Consumer. Speculation around US/China trade talks and the Fed speculation will continue to drive the Macro economic sentiment.

Collinson FX: September 12, 2019 - China makes conciliatory move

Equity markets rallied ahead of the crucial ECB meeting, where they are expected to cut rates and add further QE. This has hit interest rates and the currency, with the EUR falling back to 1.1000. The much anticipated stimulus from the ECB, is a boon for equities and the economy, but does have serious adverse side effects. The Banks are complaining, as the zero/negative interest rates, seriously impacts the ability of banks to make money in that environment. The European Banks are extremely challenged and lower rates only add pressure, which will not assist the financial markets and their ability to service a tough economic environment. The GBP rallied to 1.2330, as the markets interpret Brexit as a negative and seem to rally on every blow suffered by the PM and Brexit supporters. Short term pain for long term gain?

China have acted to exempt some US products from retaliatory tariffs and look to increase US agricultural imports. The positives, heading into the October negotiations, are giving the markets some confidence and boosting global growth prospects. Trump has been increasing the pressure on the Fed, calling for zero interest rates and the opportunity to refinance the massive US debt at these levels! Bond yields rallied instead, with the 10 year jumping to 1.737%, boosting the Dollar. This levies pressure on the commodity currencies, with the AUD slipping to 0.6860, while the NZD retreats towards 0.6400. Australian Consumer Confidence contracted and follows a series of weak economic data releases.

Markets await the ECB decision tonight and US/China trade developments.

Collinson FX: September 11, 2019 - Rate cuts likely for EU

European markets were sitting on their hands, awaiting the outcome of the ECB rate decision, later in the week. The ECB is expected to offer rate cuts and further monetary stimulus, to aid the EU economy, which is clearly under pressure. The EU is clearly falling in to recession,lead by the former powerhouse, Germany. All the economic data coming out of Germany has pointed to a recession and monetary stimulus is needed. The EU has also been buffeted by the Brexit chaos and the outcome becomes crucial to the future of the European experiment. The EUR traded 1.1040, while the GBP drifted to 1.2350, mired in the Brexit mayhem. PM Johnson has refused to request an extension from the 31st October deadline, as legislated by Parliament and called for a snap election, a second time.

The AUD held 0.6860, despite some weaker Business Confidence data released yesterday, while the NZD drifted to trade just above 0.6400. These trade dependent commodity currencies have been boosted recently by the positive developments surrounding US/China trade talks, but remain under extreme economic pressure from their flagging domestic economies.

Markets are currently focused on Central bank action, more particularly, Thursday's ECB meeting. Speculation will continue to drive the narrative unless there are new developments on the US/China trade front.

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