Market Overview:
A stronger fiscal position was the key point from the New Zealand Budget last week read by the NZ finance Minister Grant Robertson. Health was the main winner receiving 360M in additional funding over the next 4 years. 100M was put aside for District Health Boards to call on for extra infrastructure including rebuilding aged hospitals. The New Zealand Dollar was stable throughout the reading but drifted lower towards the end the week against the greenback back to 0.6900. The US Dollar (USD) has continued its run pushing higher against all its rivals as the strongest performer now over the last two to three weeks. The US Dollar index naturally has climbed higher to 93.83 inching closer to the 101.00 of April 2017. Risk markets should do well for at least the first half of this week as the trade talks between the world’s two biggest countries China and the US have been halted. US Treasury Secretary Steven Mnuchin said the US trade war with China is “on hold”. While they work on a larger picture trade deal they have agreed on a truce. This should fundamentally change the mood in the markets starting with the Asian equities as they are directly correlated. Steel and aluminum tariffs earlier this year developed into a complete shambles. The 10 year treasury yields are likely to fall from the seven year high of 3.13% achieved on Friday. Oil prices have been come down slightly from the high of around 72.40 (3.5 year high) last week, supported by falling Venezuelan production and solid growth demand and tensions coming from an unsettled Middle East. President Trump has ordered a fresh investigation as to any FBI/DOJ infiltration that was done during the presidential campaign for political purposes. This includes the Obama administration. This is a side-line to the ongoing investigation as to whether Russia interfered with the 2016 campaign and if the President was seen to unlawfully obstruct the enquiry. The Royal wedding between Prince Harry and Meghan Markle went off without a hitch, the reception was a “hell of a bash”, James Corden was MC with Elton John banging out the classics. All and all it seemed extremely well organised showcasing what the Poms are capable of.
Australia
The National Bank of Australia have postponed their forecast for a rate hike in 2018 saying it’s more likely a hike in rates won’t happen until mid-2019. The Australian Dollar (AUD) has been stronger against all of its rivals except the greenback (USD). NAB could be right as we have not seen the expected economic releases as strong as forecast. Wage growth is still under pressure with unemployment around 5.5%. Once these factors are back on schedule we will see a boost to overall inflation back to the RBA target of 2.5%. With sentiment stronger towards Chinese trade tariff issues after President Trump put the “trade wars” on hold with China, we should see the commodity based currency stronger this week. The RBA governor Lowe speaks Wednesday about the Chinese economy, other than this the week holds very little local economic news releases of note with the Aussie Dollar to be driven by offshore activity.
New Zealand
The kiwi received a boost early Monday spiking across the board on news that the US China trade talks have been temporarily halted. US Secretary Mnuchin said the tariffs, trade war “on hold” nothing as yet has been tweeted by the US president to say otherwise. NZ Retail sales has published well down on the expectation of 1.0% to 0.1% for the March quarter with the largest fall being clothing, footwear and accessories down 5%. Budget surpluses are in store over the next 3 odd years with growth expected to be above current estimates – 2019 revised to 3.8% from 3.4% and 2020 revised to 3.00% from 2.9%. Health was the biggest winner receiving 3.2B in total funding with an additional 850M in capital spending over the next four years. As the New Zealand Dollar continues to fall kiwi exporters excitement grows. The kiwi has dropped over 7% since late April which will stimulate export earnings, Fonterra NZ largest exporter will benefit from a lower kiwi Dollar boosting milk prices. Prices around 7.00 are not out of the question if the kiwi continues to drop as this will make milk solid prices more attractive.
United States
Risk returned to the currency markets Monday after the US Secretary Munchin said the trade was with China is on hold after both countries agreed to stop the mud slinging while they work on a big picture style trade agreement. The S & P along with the Dow is trading higher as risk currencies, such as the New Zealand Dollar (NZD) and the Australian Dollar (AUD), benefit. Cannabis stocks are due to push higher with President Trump giving the industry the green light last month. The US Cannabis Index- yes there is such a thing- (MIUS) is trading currently at 94.36 up significantly from the April 4th low of 73.33. For those that are interested Medreleaf Corp rose 10.13%. Friday as has an approximate share value of 3.2B CAD. The calendar looks fairly chocka towards the end of the week for the greenback from Crude Oil inventories though to University of Michigan consumer sentiment Saturday morning.
Europe
The EURO (EUR) has opened the week on the back foot at 1.1760 against the greenback. It has been one of the worst performing currencies across the board as it looks to extend earlier losses. This week we see the European Central Bank (ECB) Monetary Policy Meeting Thursday, along with a number of French and German manufacturing data. Italy has a new government after the “Five Star Movement” and “far right League” have formed. They have called for a stop to increased tax cuts and government measures to reduce spending. They have vowed to increase public spending and renegotiate the countries debt. The second largest next to Greece in the EU. The new party plans to deport around 500,000 illegal immigrants. The new government ends months of uncertainty after the country general election in March. Support lies at 1.1550 against the US Dollar. The pair is locked in a bearish trend from 1.2550 after weeks of US Dollar dominance.
United Kingdom
British monarchy folk around the world stopped to watch the Royal wedding of Prince Harry and Meghan Markle over the weekend. I caught glimpses of the majestic spectacle, I must admit I was fairly impressed. The British Pound ground to a halt late last week with GBP traders and investors somewhat pre-occupied closing the week against the US Dollar (USD) at 1.3470. Sellers of cable (GBP) came back to the markets early Monday sending the Pound (GBP) to fresh lows to 1. 3430 as Boris Johnson spoke in Argentina saying “we must give Theresa May time and space to negotiate her Brexit vision”. This week the Pound should see some excitement as we have a number of economic indicators to release such as retail sales and CPI. 1.3300 is showing good support against the greenback, data this week will be key to avoiding a retest here.
Japan
The Japanese Yen (JPY) continues to underperform across the board. Declining further against the US Dollar (USD) it closed the week under pressure and remained offered as the USDJPY climbed to 111.40 during the Monday US session. Trade Balance figures printed up on expectation with the value of exports rising 7.8% for April from the year earlier. Imports rose 5.9% with the trade balance at 626B Yen surplus. Despite the ongoing friction with Japan’s two largest trading partners China and the US these numbers are seen to be extremely positive. The Yen (JPY) made up ground retracing losses back to 111.00. Manufacturing figures as well as Core CPI are released later in the week.
Canada
The Canadian Dollar continues to track alongside the US Dollar as the currency of choice. Crude oil remains bid around 72.50 breaking new highs day after day. Iran is expecting a disruption to their oil industry with the reintroduction of US sanction which would make it tough to stick to its current production goals. Iran would rely on its two biggest buyers China and India to increase its production in line with targets. This would increase the value of the Canadian Dollar (CAD) which is currently trading at 1.2780 against the US Dollar. The pair looks to be a little rangy at the moment but we would expect to see prices back to around 1.2550 soon. This week Canada have no data releases on the calendar.
Major Announcements last week:
- US and China halt trade tariff talks
- UK Unemployment rate prints 4.2%
- US Retail Sales is down from 0.4% to 0.3%
- Crude Oil goes higher to 72.60
- Aussie Unemployment rate increased to 5.5%
- NZ Annual Budget seen as positive
- NZ Retail Sales down to 0.1% from 1.0%