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US/China Trade Talks Dominate Headlines

US/CHINA

Market Overview:

The new Reserve Banks governor Adrian Orr starts his new job today.
He becomes the 12th governor of the Reserve Bank taking over the Grant Spencer who has been relieving in the role since late last year. Adrian Orr is 54 years old and has will become one of the most influential people in New Zealand with the say over interest rate and loan decisions. He past positions include the head of economics at the RBNZ and over the past 10 years has been Chief Executive of the N Super Fund. He comes on board with a reputation of not mincing his words and will call a spade a spade but will be entertaining. His boldness may get him into trouble with financial markets if he comes across blunt, as sensitive as the markets are he could turn the NZ Dollar in a heartbeat. Finance Minister Grant Robertson and Adrian Orr signed a new (PTA) Policy Targets Agreement Thursday outlining specific targets for price stability and employment, this sets out the provisions of the Reserve Bank Act 1989 over his full 5-year term as governor. US/China trade talks have been dominating headlines with President Donald Trump seeking a to narrow the US Trade Deficit with China by one third. He is looking for a 100B reduction in the US trade deficit, the US had a 337B trade shortfall in goods and services with China last year. We have seen risk appetite return to the markets Monday with most currencies trading higher on the back of positive news with negotiations now taking a cooperative tone. Big Thursday largely became a fizzer based on a lack of movement across the board. The RBNZ kept rates on hold as was widely expected and the Federal Reserve hiked to 1.75% from 1.5% with the Fed chairman Powell highlighting that policy will need to be tightened further, gradually through 2020 as the economy goes through a growth period of inflation nearing 2.0%. Equity markets closed the week on losses with the DOW and the Nasdaq both down over 2%. The US Dollar Index is lower as well back under 90.00 to 89.48 as markets sought risk currencies. In other news Facebook has 100B wiped off the share value in the last 10 days as Cambridge Analytica answers questions on how 50 Million Facebook users got into their hands to assist Trump win his Presidential campaign. Good Friday holiday will see a shortened week in financial markets with only a few key economic announcements of note.

Australia

The Australian Dollar traded sideways between 0.7670 and 0.7770 closing the week at 0.7695 after depreciating over risk off markets. Equities fell away sending the Australian Dollar south as the markets digested the worst week of equities since January 2016. Early this week we have seen risk back on the table with China and the US slowly sorting trade differences, China saying there is no need to hyperventilate, let’s keep level headed around negotiations, which is a weird thing to say after retaliating with their own threats. The Australian Dollar has a quiet week on the economic calendar with nothing of note until New Home Sales figures for March publish on Tuesday with a speech from Governor Kent also Tuesday. Kent is speaking at the Investment Implementation Summit in Sydney where he will talk mainly on monetary policy. Tariffs threats will be the main talking point this week with ongoing negotiations regarding exemptions.

New Zealand

The New Zealand Dollar (NZD) remains in a bullish band on the Monday open. Dropping to 0.7230 Fridayafter a risk averse market it has bounced higher pushing through to 0.7270 resistance. Monday’s early spurt of data- New Zealand Trade Balance and the Reserve Bank of New Zealand (RBNZ) updated ‘Policy Target Agreement” (PTA) has boosted the kiwi. The new governor Adrian Orr takes over the NZ Central Bank today (27th March) for the next 5 years and is reputed to be a colourful character. Tariff talks remain at the peak of discussion pushing the NZD back to 0.7300 Tuesday against the US Dollar (USD) dominating the week’s currency movement with a quite economic calendar with “Good Friday”.

United States

The US Dollar has started the week immediately on the back foot- the US Dollar index falling to 89.42 showing a weakening greenback with fallout over continuing international trade wars. President Trump said he would impose tariffs on 100 Billion worth of Chinese goods. China have retaliated with their own set of rules saying, they would impose tariffs on 128 US products. China said they would retaliate further if a decision could not be reached with the Trump government and that they would also take legal actions with the World Trade Organisation. The threat of a global trade war is still on the cards, if the tariffs were to remain in place we could see a severe downturn in the Chinese economy which could lead to a global recession. Equity indices all took a bath over the news both the DOW and the Nasdaq falling over 2% the biggest falls in over 6 weeks but regained losses Monday and Tuesday when risk came back to the table after the US Government and China are set to start proper negotiations. This week is a short one with Good Friday. CB consumer confidence is Wednesday along with pending home sales Thursday to drive the markets.

Europe

The EURO (EUR) has soured off Wednesday’s low of 1.2240 to trade through resistance of 1.2400 in heavy traded markets against the US Dollar (USD) Risk came back on the table once trade negotiations between China and the US were restored. 1.2550 the mid-February high could be tested in the near term if risk continues. Angela Merkel has reported that the cost estimate of 6B- 7B EURO to Germany following the exit of Brexit in March 2019 is a blow- the original estimates were based on 3B- 3.5B EU Budget Commissioner Gunther Oettinger had set in February. The following stage will be intense for EU negotiators with time running out before the deal to be struck before March 2019. Spanish yearly CPI is expected to print positive tonight with expectation of 1.5% significantly better than February’s 1.1%. German CPI is Thursday.

United Kingdom

The hawkish Pound (GBP) has pushed aside 1.4000 again on its way to trade at a high of 1.4170. It has opened well Monday and looks to be on a trajectory for the previous early March level of 1.4350. The Bank of England (BoE) have chosen to leave the cash rate unchanged last week but have almost ensured a hike for May. The Pound should continue to strengthen leading into the May monetary release as markets price in the impact to the yield curve with the potential for another hike in November if sentiment gains momentum. The one unknown elephant in the room is Brexit, as officials work out to formalise arrangements any political and economic outcomes should have an impact on the Pound (GBP) with lots of volatility. Assuming an agreement can be reached by the March 2019 deadline we see the GBP going higher to possibly pre-Brexit levels of around 1.4800. UK Current Account publishes Thursday.

Japan

The Japanese Yen (JPY) closed the week at a 4 month low of 104.65 Friday against the US Dollar (USD) in a risk averse market after President Trump slapped tariffs on China Thursday. The USDJPY has posted early gains on Monday and has reversed most of last week’s losses already looking to break above 105.80. Another quiet week on the data front with only Japanese Retail Sales and Unemployment figures to print. With ongoing trade fears between the US and China we may continue to see further weakness in the USDJPY this week as risk appetite gets hammered.

Canada

The Canadian Dollar (CAD) continued to reverse the previous week’s gains falling to 1.2850 against the US Dollar in heavy trading. Coming off 1.2940 in the later stages of last week it has closed around 1.2880. In risk averse markets the Canadian Dollar dropped in value and has not been well supported. Core CPI and Retail Sales printed down on expectation while monthly CPI rose to 0.6% after 0.4% was widely expected. Interestingly after we have mainly reported on the sinking Canadian Dollar of late this pushes Canada’s annual rate of inflation to 2.2% which is above the banks target of 2.%. 1.2800 level offers a hard support line as we look for another break above 1.3000. Odds are that a rise in interest rates could now happen as close as April instead of July.

Major Announcements last week:

US and China Trade discussions dominates news headlines
Federal Reserve hikes from 1.5% to 1.75%
RBNZ leaves rates on hold at 1.75%
UK Retail Sales m/m improves to 0.8% based on 0.4% expectation
Australian Unemployment Rate up 0.1% to 5.6%
Bank of England leave rates on hold at 0.5% based on 2/7 vote
US Durable Good Orders m/m prints at 1.2%

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