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Collinson FX: May 29: Market on bull-run ignoring Chinese moves in HK

by Collinson FX 29 May 2020 17:13 PDT 30 May 2020
Ida - the latest addition to the Auckland Classic yacht fleet - May 26, 2020 © Richard Gladwell / Sail-World.com

Collinson FX: May 29, 2020 - Markets on Bull Run

Markets have largely ignored the growing global threat, that is China, who have been aggressive across the world. China has been expanding their sovereignty across the South China Sea and now Hong Kong. They have passed laws overriding the Hong Kong legislatures autonomy, in an effort to force the City/State into the Communist regime, many years before they had committed to. The Chinese have also been fighting border skirmishes with India, which seems to indicate a more aggressive Chinese foreign policy. This will not go unanswered, but China clearly has calculated, they will prevail.

Markets have been on a massive bull run, ignoring the Chinese threat to global trade, reinforcing the prospect of a ‘V’ shaped recovery. Global economic data has been so historically bad, it can only get better, supporting market moves. The sliding Dollar reflects the growing confidence, with the EUR trading 1.1070, while the GBP rose to 1.2320. The trade exposed commodity currencies have shrugged off the growing threats to global trade, with the NZD regaining 0.6200, while the AUD charged up towards 0.6650! Trade risks remain and these currencies are extremely vulnerable to any shift in Geo-Political balances.

China is key to market progress.

Collinson FX: May 28, 2020 - Europe announces "common debt"

The European Union announced an enormous EUR $750 Billion recovery plan. The European Commission announced this program as a ‘common debt’, which makes the debt the collective responsibility of all member nations, breaking from previously independent fiscal responsibility. This is significant break from the EU and ECB rules and makes fiscally strong nations (Germany, Holland, Austria) responsible for the hugely indebted nations such as Italy, Greece and Spain. It could open ‘Pandora’s Box’? The EUR attempts to regain 1.1000, while the GBP settled around 1.2250.

Markets rallied on the European news, despite events in Hong Kong, which could threaten global trade. US Secretary of State, Mike Pompeo, declared that Hong Kong was no longer autonomous, under new Chinese legislation. Sanctions have been promised, while trade could be further disrupted, following the fallout from the coronavirus. The Federal Reserve released the latest ‘Beige Book’ which recognised big falls in economic activity in all districts, although there were many mentions of re-opening of the economy, as a silver lining. The threat to global trade did not assist the trade exposed commodity currencies, with the AUD drifting back to 0.6600, while the NZD fell back to 0.6170.

Global economies re-opening and the threat to global trade remain the big issues of the week.

Collinson FX: May 27, 2020 - V-shaped recovery likely in Europe at least

US Markets surged with confidence after the Memorial Day long weekend. Markets were awash with further positive news over progress on a vaccine, for the coronavirus. There are many companies now testing a vaccine for the coronavirus and the latest launching human testing was Novavax, while Merck announced progress and others joined the race. There is growing confidence surrounding the re-opening of European and US economies and with it a ‘snap-back’, V-shaped recovery! The safe haven Dollar continued to cede ground, with the GBP charging up to 1.2325, while the EUR approaches 1.0980. Economic data is now stabilising and looks to have bottomed out. US Consumer Confidence reflected this and US New Home Sales turned positive, adding 623,000 new home sales.

European markets are also re-opening successfully, with the virus contained and under control, allowing markets to surge. European countries are now re-opening the tourism industry, with border restrictions being relaxed. Commodity currencies took full advantage of the weaker reserve, with the AUD approaching 0.6650, while the NZD hit 0.6200! NZ Trade data was a reflection of recent times, with a collapse in imports, while exports continued, improving the balance but not for the best reasons. The real threat is to global trade is China and the interaction with other nations. The political moves to oppress Hong Kong political freedoms, may have serious consequences, as the US administration threaten further sanctions if the Chinese proceed with legislation.

Optimism is abounding in global markets but the China trade threat remains a dark cloud.

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