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Collinson FX: Oct 31 - US/China trade deal due to be signed

by Collinson FX 31 Oct 04:03 PDT 31 October 2019
Mayhem - PIC Coastal Classic - Start - Waitemata Harbour - October 25, 2019 © Richard Gladwell / Sail-World.com

Collinson FX: October 31, 2019 - US/China trade deal due to be signed

US economic data continues to reflect the strong domestic economy, with the consumer supporting third quarter GDP growth, while the ADP Jobs report confirmed higher than expected growth of jobs in the private sector. The EU, in contrast, continues to spiral towards recession. EU Business and Consumer confidence continues to contract, while CPI is flat, reflecting the lack of growth. The Brexit chaos has not helped confidence in the EU and the announcement of a December 12 UK election, will give some certainty. The election outcome is likely to give the Conservatives a majority in Parliament and allow them to force through a Brexit deal, far more beneficial to Britain. The Brexit will leave a massive hole in the EU budget and any trade disruption will be a mortal wound to the trading zone.

The US/China trade deal is now scheduled to be finalised and signed in Chile at the APEC conference, although speculation will remain a market mover. The Fed cut rates to the new range of 1.50% to 1.75%, in line with expectations, despite the healthy domestic economy. Globally Central banks have been massively expanding liquidity, with QE and the massive expansion of Central Bank balance sheets. The Fed must follow, as interest rate differentials and all the consequences of the disparity, fuels the currency wars. The Fed had to act and that is not to mention the enormous political pressure from President Trump, who believes interest rates should be back to zero, in line with Europe and Japan!

The Fed’s action was well and truly telegraphed and thus had little impact on markets. Commodity currencies were supported and flat, with the AUD trading 0.6870, while the NZD held around 0.6350. The progress of the US/China trade deal and the detail therein, will have far wider repercussions. NZ Business Confidence has been catastrophically bad for some time, reaching historical lows and a further reading today may provoke some action on the local currency. There is some downside risk.

Collinson FX: October 30, 2019 - GBP holds despite Brexit

Markets await the latest announcement from the FOMC and to a lesser extent, the Bank of Japan and Bank of Canada. Monetary policy will come into focus and the Fed is expected to make its third rate cut for the year. Lower rates and more liquidity will stimulate equity markets and allow them to reach for new record highs. The US/China trade deal, phase one, is now expected to be signed ahead of schedule, which will further add to global economic confidence. The US Housing market remains strong and as a leading index, is further good news. The S&P Case Shiller Home Prices Index improved by 2%, while Pending Home Sales jumped 6.3%.

The UK remains mired in the ongoing Brexit chaos although it does look as though they will finally go to the people. The election will hopefully determine the path forward for the UK, removing many of the recalcitrant MP's that have thwarted the Brexit referendum. Who knows though, as we have had many election surprised in recent years? The EUR was steady, trading just above 1.1100, while the GBP held above 1.2850.

Commodity currencies were steady, with the AUD pushing up to 0.6850, while the NZD traded 0.6340. These trade exposed currencies have received some benefit from the progress on the US/China trade deal, Phase One, but remain vulnerable to the detail. If the US gain massive advantage through agricultural exports to China, there will be some impact on the current supply chain, which will be reflected in these commodity currencies. Eyes remain on Central bank action, while the Macro picture is dominated by the US/China trade deal and Brexit in Europe.

Collinson FX: October 29, 2019 - Confidence grows on China deal

Global equity markets rallied to open the new week, boosted by the growing confidence surrounding the US/China trade deal. President Trump announced that phase one of the US/China trade deal would probably be signed earlier than expected or planned. The S&P broke through to new record highs, as global markets responded. Euphoria from the announcement of the demise of ISIS leader, Al Baghdadi, added to enthusiasm in the US.

The EU announced yet a further extension of the Brexit deadline, to the 31st of January 2020. This train crash is a nightmare scenario and is severely damaging the UK economy. The Government is in a state of flux and no-one is in control of the Parliamentary process. The UK Prime Minister, Boris Johnson, has called for an early election, which appears to be the only solution. The chaos continues and Parliament cannot even decide on whether the people should be given the right to vote.

The risk off nature of markets allowed the Dollar to settle, with the GBP pushing up to 1.2860, while the EUR regained 1.1100.

Commodity currencies stabilised with the weaker reserve, as the AUD traded 0.6840, while the NZD pushed up towards 0.6350. The FOMC meeting this week will be traded speculatively, until they announce their decision on monetary policy, later in the week. The Bank of Japan and Canada also announce their monetary policy decisions and all are likely to remain accommodative, although the rate cuts are no certainty.

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