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Collinson FX: September 4 - US Equity markets suffer "blow-out correction"

by Collinson FX 3 Sep 17:10 PDT 4 September 2020
Ariki with her overlapping jib - 2020 Mahurangi Regatta - Mahurangi Cruising Club - January 25, 2020 © Richard Gladwell / Sail-World.com

Collinson FX: September 4 - US Equity markets "blow-out"

US Equity markets experienced a 'blowout correction' overnight, lead by a crash in 'stay-at-home' tech shares. The Nasdaq and S&P have blown through historical highs, while the Dow has been surging towards pre-pandemic highs. The turmoil in share markets did not translate directly into other markets. Bond yields drifted slightly and the US Dollar continued to build on the recent upward momentum. Commodity prices also drifted in the face of a rising Dollar. This may a bit of a flash in the pan or, if extended, may become a significant market correction. Everything is political leading into the US Presidential elections.

EU Retail Sales contracted, while European Services/Composite PMI data was mixed, allowing the EUR to continue the downward correction. The UK recovery is slow and reticent, as the return to work is a mix of reluctance and inertia, which will undermine the economic recovery. The GBP fell back to 1.3270, reflecting weak Services/Composite PMI, while the EUR dropped back to 1.1850.

Commodity prices drifted and the currencies were also damaged by the rising reserve. The AUD fell back to 0.7270, while the NZD looks to test 0.6700, on the downside. Australian trade data revealed a sharp increase in imports, accentuating an imbalance, as exports fall.

Markets now keenly await the all important Non Farm Payrolls and US employment data, due out tonight. A big number is expected and any failure to add more than a million jobs may threaten market performance, while the Unemployment rate is expected to fall below 10%.

Collinson FX: September 3 - US continues to reach historical highs

US Market continued to surge, with the Nasdaq and S&P both reaching further historical record highs, while the Dow fast approaches the previous pre-pandemic record. The US economy is re-opening quickly, how ever ad-hoc, delivering record improvements in economic statistics. This is not surprising in a 'V-shaped' recovery, which appears to be the case, roaring back from the short-sharp collapse sparked by pandemic closures.

The US Dollar has rebounded strongly over recent days, pushing the EUR back to 1.1830,while the GBP slipped to 1.3325. German Retail Sales contracted 0.9%, while US Factory Orders increased 6.4% and Total Vehicle Sales jumped to 15.2 million. The big focus is on US employment data and Non-Farm Payrolls out Friday. The ADP added 428,000 private sector jobs, well below expectations, which may not bode well for NFP.

Australian GDP contracted 7% for the last quarter, worse than expected, as warned by the RBA. The Australian Dollar fell back to 0.7300, not helped by the rising reserve, while the NZD traded 0.6750. The US employment data will control the narrative to close out a strong beginning to September.

Collinson FX: September 2 -Australian economy expected to retract 6%

US Markets opened September on a positive note, with global manufacturing PMI data improving, as economies reopen. Chinese PMI data improve at levels not seen for nearly 10 years, while US ISM Manufacturing continues to expand strongly. EU Inflation was a major concern, contracting by 0.2%, reflecting major growth concerns, in a severely damaged EUrope. The EUR had traded up to 1.2000, but retreated to trade 1.1915, while the GBP toyed with 1.3400.

The RBA left rates unchanged and warned of the significant threats to Australian growth, confirming that both fiscal and monetary support, would be needed for some time to come. The RBA extended and expanded the Term Funded Facility and outlined expanded purchases of Government debt. The RBA warned that this was the worst economic situation experienced since the 1930's, but they had a plan to expand liquidity and keep interest rates at record historical lows.

The Australian Dollar briefly broke above 0.7400, but retreated to trade 0.7370 in the face of a resurgent reserve, while the NZD settled around 0.6740. Australian GDP growth data will be released today and is expected to be a contraction of around 6%. These numbers are shocking, but anticipated and is a direct result of Government policies to combat the pandemic.

US/China relations remain a threat during the US Presidential campaign, while virus threats look to be under control.

Collinson FX: September 1 - NZ Business confidence collapses again.

US equity markets closed out a very strong month of August with a mixed performance. August has seen the Nasdaq and S&P both blown through historically record highs, while the Dow is fast approaching pre-pandemic levels. A slew of data from Japan confirmed the impact of the pandemic on the economy, with Industrial Production contracting 16.1%, while Retail Sales fell 2.8%. Japanese Housing Starts contracted 11.4%, but Consumer Confidence jumped up 9.7%, after their successful PM Abe resigned due to health reasons.

The safe haven US Dollar continues to suffer the recovering markets, as the EUR jumped to 1.1940, while the GBP traded up to 1.3370. Confidence is flooding back into markets, while the virus appears to be under control. The RBA will leave rates unchanged today, but the rhetoric is likely to reveal the dire state of the economy, suffering lockdowns and border closures. The AUD has been the beneficiary of the softer reserve, looking to regain 0.7400, while the NZD traded 0.6730. New Zealand Business confidence, unsurprisingly collapsed once again, contracting to 41.8! These are disturbing numbers but the return of the virus has damaged sentiment.

September is upon us and should welcome further economic gains as global economies continue to reopen and the virus is conquered. Mortality rates have plunged as treatments become more effective and the possibility of a vaccine becomes more likely. US/China relations will remain the biggest global vulnerability.

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