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Collinson FX: May 1, 2020 - UK dodges Brexit Bullet

by Collinson FX 1 May 2020 03:41 PDT 1 May 2020
Tango - Mahurangi Regatta - Mahurangi Harbour - January 2020 © Richard Gladwell / Sail-World.com

Collinson FX: May 1, 2020 - UK dodges Brexit Bullet

The shine came off the market recovery overnight, as reality sets in. The ECB left rates unchanged and announced they were fully prepared to act ‘as long as needed’. The ECB President (Chairperson), LeGarde, called for an ‘ambitious and coordinated’ fiscal response to the pandemic. This is hardly a surprise considering her pedigree. The Germans, Austrians and Dutch are reluctant to bail out the Latino States, but instead advocate for massive loans. Shared pain is the demand from the Spanish, Italians and other Mediterranean nations. This could be a real test for the EU, as the Germans resist the shared debt, while enjoying the weaker common currency?

The trade exposed currencies have experienced a renaissance, as global economies look to reopen and demand for commodities return, giving risk appetite a boost. The AUD pushed up to 0.6520, while the NZD jumped to 0.6135, as the RBNZ relaxed lending (LVR) ratios. Economies are looking to reopen and markets always reflect the future prospects, largely ignoring the worst historical data since records were kept. Projections are for a massive ‘U’ or ‘V’ shaped recovery and this theory will be surely tested, as a economic prognosis.

The ECB said all of the correct things, but their raison d’etre remain in serious doubt, as the conservative Northern Nations resist endless bail-outs. If the Germany and Co agree to the rescue they could be signing their own death warrants. The UK have been extremely lucky to dodge that bullet.

Collinson FX: April 30, 2020 - COVID cure boosts markets

The Gilead drug ‘remdesivir’ passed Government clinical trials and gave a great boost to markets overnight. Dr Fauci, prominent among Government epidemiologists leading the fight against the Chinese ‘Wuhan virus’, was very optimistic after the result of the clinical trials were revealed. This allowed already confident markets to rally strongly. The risk appetite was reflected in commodity prices and boosted the associated currencies. The NZD spiked up to 0.6130, while the AUD pushed up to 0.6545, as the economies unfreeze.

The Australian CPI data was in line with expectation, coming in at 2.2%, reflecting price rises rather than growth. NZ Trade data showed that both imports and exports were in line with expectations and were no cause for major concern. The ‘opening of the economies’ have assisted these trade exposed commodity currencies, but any negatives could be damaging, as they both remain extremely vulnerable.

US GDP contracted 4.8%, but this was largely ignored by markets, as most shocking economic data is in these unprecedented times. The FOMC two day meeting came to an end, with no changes to monetary policy, as unscheduled actions have become more of a norm, in recent times. The Fed Chair, Jerome Powell, insisted the Bank would continue to act to the ‘limit of its powers’. The Fed announced that their purchasing program was in decline as normal market demand rose. This is a great insight into markets, that there is demand for US Government debt, despite the lack of return?

Collinson FX: April 29, 2020 - Kiwi restart difficult and slow

Markets continued to recover lost ground, as economies around the world begin to re-open. Optimism is relatively high, as business gets the cautious green-light in parts of Europe and the USA. Once economies re-open, the extent of the devastation that the economy has suffered, will start to be revealed. The impact of business closures on employment and demand will be enormous and must impact the economy in the near future. The success of Governments in supporting business is key to the return-to-work success. The real threat lies in a possible second wave of the virus, sweeping through already ruined economies, so authorities must be prepared and vigilant.

The Richmond Fed Manufacturing Index contracted, as did the Dallas Fed, but S&P Case Shiller home price index showed remarkable resilience. The economic data will continue to shock, but it does allow some low base numbers to boost sentiment, during the economic recovery. The AUD regained 0.6500 and remains a stellar performer, in the currency markets, as they are perceived to have handled the pandemic better than most. The essential services that remained open was very liberal, meaning the re-open is not so sudden and dramatic. The NZ experience was much more extreme, in terms of a complete lock-down and the re-start will be a lot more difficult and slow. This has been reflected in the currencies, with the NZD recovering more slowly than the AUD, while the cross has collapsed from almost parity!

The re-open progress will be monitored closely, while the FOMC and ECB both meet, which may impact markets through their monetary plans. Economic data remains largely ignored, unless it is a massive surprise, from either end of the perception spectrum. A look at Australian CPI data today, will be a gauge of inflationary pressures and growth, while NZ trade will reveal how adversely imports and exports have been impacted.

Collinson FX: April 28, 2020 - Markets rally as economies re-open

Global markets continued to rally strongly, to open the new week, boosted by economies reopening. European markets have been led by Germany and Austria, while States all across America are in various stages of reopening. The control and containment of the pandemic has allowed most countries to ‘flatten the curve’ and see falling numbers of infections. There will be shocking numbers in terms of corporate earnings and economic data, but much of this is built in. The Australian and NZ Governments have also started to go through the lock-down gears, boosting the commodity currencies, after what looks to be success? The AUD rallied strongly to trade 0.6450, while the NZD pushed back to 0.6040. These trade exposed currencies are beneficiaries of economies reopening, although commodity prices may negatively impact, if demand is too badly damaged. Oil prices slumped back to $13/barrel, with difficult times ahead and all major producers looking to implement massive cuts to production, to combat oversupply in a severely contracted market. Markets will have a look at the US GDP growth number, but expectations are very low, while the FOMC and ECB both meet this coming week.

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