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US Govt Shudown heads into 19th day

Market Overview:

Happy New Year to all. Markets kicked off the 2019 year with a bang as news on the 3rd of January sent currencies into a frenzy. Currencies usually operate in thin/low volume conditions around the Christmas and New Year part of the year with this year being no exception. Apple revenue profit warnings hit the airwaves on the 3rd of January bolstering fears of a global slowdown with markets reacting negatively with currency moves around 2-3% unexpected in just a few minutes. The Japanese Yen making the biggest gains as markets turned heavily to a risk off theme. The Australian Dollar fell the largest dropping from 0.7000 to 0.6730 against the greenback, before quickly recovering. The wild ride continued into Friday with US jobs data coming in a lot stronger than expected at 312,000 for December easily beating the forecasted 184,000. Average earnings also rose 3.2% and the participation rate to 0.2% to 63.1%. The unemployment rate increased from 3.7% to 3.9% but was seen as positive since participation figures increased. Equities recovered off 3rd lows- the DOW up 3.3% from a drop of 2.8% the previous day and risk sentiment improved with it. Fed chair Powell made comments that the Federal Reserve is now unlikely to raise interest rates in 2019- clearly reflecting slowing market conditions. He said they would react if needed to any economic developments which eventuate over the coming months. The kiwi dollar has recovered off its slide to 0.6560 against the big dollar up 2 cents to the 0.6760 level. President Trump speaks today around 3pm on matters concerning the current government shutdown as his government and the Democrats remain divided on building a wall at the Mexico border. Looking ahead we have limited data to print – The Bank of Canada is expected to raise the interest rate from 1.75% to 2.00% with further Fed speak later in the week from Carney, Powell, Bullard, Evans and Clarida. Aussie Retail Sales for December should release well. Read more

FX Update

Australia

Following the December 4th monetary statement was the minutes of this meeting releasing Tuesday. Comments from most members noted global conditions had remained positive but cautious. Labour markets had continued to tighten but growth in a collection of economies had slowed over the year. Softer global demands stemming from the global import tariffs between China and the US had created uncertainty and the main driver of the slowdown. Conditions in the housing market had continued to ease with Sydney now 9% down on where prices were back in July 2017. The Australian Unemployment rate jumped slightly to 5.1% from 5.0% after the release Thursday with a further 37,000 people added to the Australian labour force in November. This was made up of -6,400 full time employment and 43,400 full time workers which seems to be the reverse of last month’s figures. The Australian Dollar was uninterested in the data not moving far from the low 0.7100 levels versus the big dollar.       

New Zealand

The New Zealand dollar has underperformed over the week in the wake of deteriorating risk sentiment and local data releases. The Federal Reserve have raised their benchmark cash rate to 2.50% from 2.25% suggesting they will keep with the projected path with two further hikes next year. The release sank the kiwi Dollar lower across the board with it dropping to 0.6770 against the greenback. The NZD received a double blow soon after when quarterly GDP and the Current Account came in light. GDP printed down at 0.3% from the 0.6% markets were expecting, the figures dragged lower with weak construction and manufacturing. The GDP report suggests it’s the lowest quarter reading in nearly five years and well down on the 1% in the June 2018 quarter. The Trade Balance was benign.     Read more

Equity markets trade to new lows

Market Overview:

Markets closed in the red Friday in a risk off mood. Equities fall over 2% with European stocks down also over 0.5%. US Equities have traded back to April 2018 levels after global data continues to disappoint. Chinese Industrial output and Retail Sales came in light sending risk associated currencies lower late Friday followed by weak Manufacturing data out of France and Germany. The NZD momentarily recovered towards 0.6800 but failed to make any headway past 0.6890 at the close. The NZD the weakest traded currency over the past few days along with the British Pound, the kiwi down 1% against the greenback and the Pound around 1.10%. It’s not surprising we have seen investors selling risk currencies and equities as global trade tensions heighten. China has already purchased 500,000 tons of US Soybeans as part of the ongoing 90 days truce agreement and will start to buy American corn soon. China has confirmed they will also remove the tariff it has on vehicle imports the US. North Korea have expressed their disbelief at the recent US sanctions accusing the US state department of taking last year’s progress back to a hostile situation. The US said they would seize the assets of Mr Kim’s main man Choe Ryong-hae, Jong Khong-thaek and Pak Kwang-ho for abusing human rights in North Korea which included, killings, torture, rape and sexual violence. The North Korean statement included: “maximum pressure” would be the United States “greatest miscalculation”. The question now is – did President Trump really achieve anything in the June meeting? This week’s Fed meeting the main focus of the week has the potential to be exciting with several market analysts suggesting they will not raise rates to 2.5% but do it next year instead. This week we will see much assessment of what path the Fed will follow over the next year and beyond. This week key local mover will be quarterly GDP with numbers expecting to print around the 0.6% area in line with recent growth. Read more

FX Update

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Australia

The Australian Dollar has flatlined this week with no local data releasing. Starting the week around 0.7200 against the greenback it is currently trading around the 0.7220 level. Second tier Consumer Sentiment printed at optimistic levels suggesting a prosperous long term Australian economy but with falling house prices weighing on sentiment perhaps not.  Tightening credit on lending could be detrimental with the banks suggesting smaller businesses could suffer getting the required funding as this has a large flow on effect to overall growth and business confidence. House Price Index figures printed bang on expectation at -1.5% with most of the result already factored into current price action. Next week on the docket we have Aussie unemployment and job numbers.      

New Zealand

The kiwi is lower this week, down slightly against the US Dollar and remaining fairly confined to ranges against the crosses. A better tone in currency sentiment has eventuated over the week after poor US data Friday dragged risk currencies south along with equity markets. This week we have a slow calendar with nothing of note. The RBNZ is formally as of today part of the (NGFS) Network of Central Banks and Supervisors for Greening the Financial System. Are they serious? Next week on the economic docket we have quarterly GDP, Trade Balance and ANZ Business Confidence to look forward to.   Read more

Markets Await Tomorrow’s Brexit Vote

Market Overview:

Equity markets continue to be on a wild ride of late with realities of ongoing trade tariffs and the Fed backing down from its recent staunch angle on its tightening bias. With a fair amount of uncertainty still in the air US stocks have been volatile. The S&P was down 62 points Friday -2.3% to 2633, the Nasdaq fell 219 points over 3.0% to 6969 while the DOW closed down 558 points- 2.25% to 24,284. The S&P has been noted as registering declines of over 2% more than 16 times in 2018 compared to nil in the 2017 year. With equities continuing to fall investors are becoming increasingly anxious of prospects of a recession in the developed countries. The current pattern of such an event happening does not quit fit with times gone by of economic trends to suggest this. In the group of the 7 biggest economies Germany, Italy and Japan have all experienced slower economic indicators over the last three months signalling weaker global demand. Crude oil prices have fallen sharply showing a weaker global overall demand and oversupply problem. The International Monetary Fund’s (IMF) chief economist Maurice Obstfeld is retiring at the end of the year, offering up comments prior to his departure warning that global growth is slowing and the US economy won’t escape the downdraft. He described global growth as “steady or plateauing”. China growth has slowed for November as the effects of the tariff war take hold with the effects oi shipping front-loading. Total exports grew by only 5.4% from the previous year coming off a 15.6% increase for October with the result expected to be somewhere around 10.0% China’s total trade surplus has grown to 44.7B from 34B in October. The addition of 155,000 jobs to the US employment market was significantly down on the 200,000 expectations Friday adding further doubts that the Fed will stick to its three rates hikes in 2019. Unemployment remained the same at 3.7%. The result dragged associated risk currencies lower, the kiwi back in the low 0.68’s but holding tough compared to other currencies- the Australian Dollar losing 1.4% against the big dollar. Read more

FX Update

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Australia

Initial reactions to the Trump meeting with Xi Jinping were viewed as a positive step to a possible truce and potential tariff deal which could be negotiated between the US and China. This quickly became undone after trump has again taken a hard line against China taking advantage of US wealth. The Australian Dollar came off its high of 0.7400 against the greenback Monday in a market which fast became risk averse – retracing back to 0.7265 in safe play move. Australian GDP slowed in the September quarter driven by a slowdown in household spending. The economy only grew by a paltry 0.3% after missing forecast for an increase of 0.6%. This was seen as an unusually large miss with the weakest quarterly expansion since 2016. Year on year figures have slowed to just 2.8% well below the 3.3% speed predicted. This will now cast doubts over any such increases in the official cash rates over 2019. The official Cash rate was announced unchanged at 1.50% extending the period of no change since August 2016 saying rates will remain unchanged for some time. Retail Sales printed and was unchanged from the 0.3% expected.         

New Zealand

The New Zealand Dollar retreated off its weekly high of 0.6965 against the greenback Monday after risk sentiment took a hit. With suspicions now that a trade truce between China and the US could well have been just a temporary fob off by Trump, markets have reacted unfavorably sending risk currencies lower. The kiwi stalled off all highs in the crosses devaluing into Wednesday’s global dairy auction. Prices were predicted to be higher by roughly 2% which is what exactly how it happened with the official change in the GDT price index representing a lift to prices by 2.2%, with whole milk powder coming in at 2.5%. This is the first increase in overall prices since May with prices lifting off two year lows. Yesterday Fonterra adjusted its forecast farmgate milk solid price to $6.00 to $6.30 with most banks saying  the figure could be as low as $6.00 to $6.10/kgms. NZ has no data of significance for the remained of the week locally, US employment figures Saturday morning NZT will be a pivotal driver of price early next week.    Read more

Trump halts tough talk on tariffs

Market Overview:

Good news emerged from the G20 weekend meeting, with U.S. President Trump and his Chinese counterpart Xi Jinping agreeing to hit the pause button on the introduction of new tariffs and intensify their trade talks. This saw US equity markets jump higher with the S&P 500 up over 1%, while the Aussie, New Zealand dollar and the currencies of South Africa, Turkey and Mexico all rose. Shares from Sydney to Seoul gained and the 10-year Treasury yield jumped back above 3%. The greenback traded lower against most of its large developed-market counterparts. Trump and Xi have now agreed to halt any new tariffs for 90 days as the countries continue negotiations. The U.S. had been scheduled to push ahead on Jan. 1 with increased tariffs on $200 billion worth of Chinese goods. Although far from resolved, the easing in tensions between the leaders of the world’s largest economies goes some way to assuage sentiment that’s been weighed down by concerns that the trade war is having a damaging effect on global economic growth. Also adding to a more positive tone were last week’s dovish comments from the Federal Reserve around interest rates approaching more neutral levels which helped propel a revival in risk taking. We expect this more “risk-on” approach to be the prevalent theme over the coming week for both equity and currency markets. Market focus will also be on US data released throughout the week, culminating in the Non-farm payroll data on Friday, the last for the year. Read more

FX Update

Australia

Seasonally adjusted construction figures disappointed Wednesday after numbers showed a declining sector. The total construction for September fall 2.8% for the quarter based on predictions of 0.9% growth. With Melbourne and Sydney house prices dropping recently this follows a trend which could follow through well into 2019. Comments from last week’s RBA minutes concentrated on the importance of the Australian Dollar playing a part in setting future monetary policy. Its business as usual for the RBA unless a sudden market shock event was to surprise. In the event of a strengthening global economy, the effect on the Australian economy and the outcome on the exchange rate of the AUD would be pivotal. Fed chairman Powell spoke Wednesday night making dovish comments towards further tightening bias which turned markets to risk on with the Aussie Dollar pushing north versus the big dollar. Private Capital Expenditure released at little light at -0.5% based on predictions of 1.1% but had no real effect on price.   

New Zealand

The New Zealand Dollar, surprisingly, after running the numbers has been the strongest currency of the main basket since August 2 2019 outperforming everything with the greenback a close second. On August 2 we were trading around the 0.6780 area compared to today’s price of 0.6860 level. Clearly this is no huge shift in price action but with a short spell to 0.6420 it shows how resilient the NZD has been compared to its rivals which have all devalued in comparison. Adrian Orr delivered his Financial Stability report Wednesday saying the NZ financial system is sound and while offshore trade risks still are a little unsettling, economic risks have abated. LVR lending ratios were lowered in favour of the investor and home owner suggesting credit banking credit risks are in a good spot currently. ANZ Business confidence printed bang on expectations with no surprises. Interests now lies with G20 tomorrow.     Read more

EU Approves Brexit Withdrawal

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Market Overview:

The New Zealand Dollar was first out of the blocks Monday morning with Retail Sales printing much worse than markets predicted. The total value of retail sales increased 0.0% from the previous quarter with growth in the Waikato region up 2.2%. The real tale though was that markets were expecting figures to be much better around the 1.0% mark so 0.0% was disappointing. The New Zealand Dollar falling away sharply continuing its momentum to the downside from last week’s risk off close continuing as the week’s worst performer against the main basket. In a week of low volume trading we saw super thin conditions with US Thanksgiving and Japanese Holiday holidays. Late Friday it was good to see most currencies show a bit of movement albeit to the downside from the rather stagnant week we had. Risk off themes we think will continue this week with Brexit leading the way. The EU has officially endorsed Theresa May’s terms of the UK’s withdrawal agreement bringing an end to negotiations which have gone on now for 20 months. The tough part begins this week when Theresa May will now entice the UK Parliament to agree on the terms of the agreement, she will spend the next fortnight travelling the country selling the deal before a parliamentary vote which will take place in early December. China will front at this week’s G20 summit in Argentina showing the world that they are cutting their reliance of exports in an effort to derail Trump’s government of allies in the ongoing trade war. Last week US trade representative Lighthizer said that China has not changed its tactics or practices and that this has dampened hopes for an agreement at the upcoming summit. China reacted by saying this was totally unacceptable and that the US government has broken its commitments to world trade organisation members. Beijing current account is nearly neutral after peaking in 2008 at 421 Billion surplus. Even with China’s weak equity market and slowing economy China are still unwilling to budge, China exports continue to grow based on recent data despite the tariffs. Markets are unsure how this will eventually be resolved but with further uncertainty and perhaps negativity this week we expect the recent risk averse theme to continue. Crude Oil was the biggest mover Friday when it was devalued by over 6.5% to 50.70 narrowly escaping price action in the 49’s after traders liquidated the asset after Trump’s earlier calls for lower oil prices and the global growth outlook weighed heavy. This week should see reasonable excitement with Fed members speaking and RBNZ, Adrian Orr Wednesday around financial stability. Read more

FX Update

Australia

Tuesday’s RBA November meeting minutes came and went without the Australian Dollar giving a jot. Comments from the RBA concentrated on the importance of the Australian Dollar playing a part in setting future monetary policy. Its business as usual for the RBA unless a sudden market shock event was to surprise. In the event of a strengthening global economy, the effect on the Australian economy and the outcome on the exchange rate of the AUD would be pivotal. The RBA went on to say- if global economic growth was to slow next year the RBA will need the Australian Dollar to weaken to combat the need to cut the cash rate. With markets turning risk averse and the US markets taking a breather with Thanks giving the Aussie could ease back across the board towards the weekly close.

New Zealand

Global uncertainty and a lack of risk appetite continue to be the theme in currency markets at the moment with plenty of risk averse news creating nervous conditions. The kiwi came off last week’s high against the greenback of 0.6870 falling to 0.6780 in thin markets. A wait and see approach with Brexit headlines looming seems to halted any market movement. Liquidity is set to diminish from today with US Thanksgiving holiday closing US equity markets. New Zealand’s population figures for the year to October shows a net gain of 61,700 people, this is the lowest it’s been since September 2015. The biggest drop was the number of people arriving permanently from China down -10.8%. In the past migration figures have been a driver of growth in NZ. No significant local data to publish until next week’s quarterly Retail Sales. Read more