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US Equities trade lower taking risk currencies off highs

Update

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Markets are still figuring out what it all means post US elections and Fed policy announcement. Initially the reaction has been mixed but with a general US Dollar up theme and risk on markets. We are still looking at Fed policy normalisation at a time where there is heaps of downside risks including global trade. Any downside to equity markets and sentiment from here will not bode well for risk associated products and could bring back topside failures in major currency pairs. With a US Holiday Monday celebrating veterans Day markets should ease into the week. The New Zealand Dollar was the standout performer last week with unemployment dropping to a 2008 low of 3.9% from the 4.4% markets were expecting. With risk factors this week expected to drive price action we could see the kiwi ease back towards last week’s open of 0.6650 levels.  EU and UK negotiators are close to a breakthrough with both sides aiming to get political approval on the Irish border backdrop. President Trump has upset fire besieged California when he tweeted about the mismanagement of forestland and threatened to cut federal funding to the state. Fires in southern California have killed more than two dozen people and destroyed over 6,500 buildings forcing the evacuation of over 250,000 people. The fires are the worst in California history with Trump expressing no sympathy for those caught in the fires, instead using the catastrophic event to criticise the state’s environmental regulations. We have several key data releases on the economic docket but geopolitical news could influence shifts in currencies the most.

Australia

Positive economic data has supported the Australian Dollar recently, we think this should continue. Third quarter wage figures Wednesday is expected to show 0.6% growth according to markets with the employment figure on Thursday predicted to have an increase of 20,300 people added to the workforce. This week’s Italian Budget fallout could derail prospects of a risk on markets, this could have a detrimental effect on the Aussie Dollar sending it lower from the weekly open of 0.7230 versus the greenback. Global trade tariff speak between the US and China is expected to continue this week which could leave markets feeling uncomfortable and averse to risk, a double dose would see the Aussie feasibly see the Aussie below last week’s opening prices.  

New Zealand

After incredible employment figures releases last week showing the unemployment rate dropped from 4.4% to 3.9% the lowest level since 2008 and rallying the Kiwi, we feel the currency looks well over bought in the current market. The NZD was the best performing currency last week after the news but topside momentum this week looks unrealistic. An Asian summit held in Singapore this week with the 10 members of the Association of Southeast Asian Nations plus six other Asia Pacific economies gets underway Tuesday and will focus on trade differences between China and USA with Mike Pence attending with President Trump passing on the event.  The RBNZ kept rates on hold at 1.75% with Adrian Orr saying they would keep rates steady through 2019 and into 2020. It’s a quiet week of data for the kiwi with just Business Manufacturing printing Friday. Offshore influences will drive the kiwi this week.

United States

President Trump has mentioned to sources he wants to replace Commerce Secretary Wilbur Ross by the end of the year. He wants Linda McMahon as his replacement and is also considering Ray Washburne. LInda Mcmahon is the wife of the WWE CEO Vince McMahon a long time mate of the President. The rumour is that the president is unhappy with Ross in the way he has negotiated the China tariffs. Last week’s US midterm elections were not the complete whitewash markets were expecting, what we have ended up with is a split between the upper and lower houses clearly making future political decisions more difficult to get over the line. The Federal Reserve as widely expected kept their benchmark interest rate unchanged Friday morning saying they would remain on track to hike rates until signs show of a slowdown in business and investment growth. US Producer Price index jumped 0.6% for the month of October the biggest increase in six years releasing much higher than the 0.2% expected. The university of Michigan business sentiment fell to 98.3 for November compared with 98 predicted. Observance of Veterans Day holiday Tuesday will see a slow beginning to the week with volumes low through to midweek when monthly CPI releases. Retail Sales and the Fed chairman Powell speaks Friday will also offer strong interest.     

United Kingdom

The Queen’s Pound gave back gains over the second half of the week closing with a mixed bag. Suffering the fallout of the US election results and Fed policy decision the Pound relented to the demand of the US Dollar. Not that the election results screamed “buy the Dollar” it was more about relief. Brexit has shifted back towards “worry” with a Brexit deal far from being completed, but this is not really a surprise with recent developments. EU and UK negotiators are reportedly closer than we think to a breakthrough but they are still struggling with arrangements for the Irish border. This recent reality of events is fast leading to loss of confidence and disintegrating government unity along with negative public confidence in the entire Brexit policy. The UK has a welcome distraction Wednesday when yearly CPI releases. Friday we see Retail Sales. This week’s movement in the Pound will be very volatile.  

Europe

The second half of the week wasn’t kind to the Euro with it giving back gains made versus the greenback after it pushed to 1.15, closing at 1.1370 and losing 1.7% against the New Zealand Dollar. German economic sentiment and GDP prints tonight the only data of significance this week on the economic docket. The main interest will the Italian Budget saga. Rome has dismissed an ultimatum by the EU warning that unless it changes its budget proposal they could face fines of 3.4 Billion Euro. This would be an unprecedented move which has never happened before but the populist government remains defiant and has rejected demands to revise the Budget. Picchi a politician in the right wing League party said the government expects “the first positive effect” of it massive spending plan to filter into the economies results by September 2019. He has said to the EU if the budget is not working – he would make measures to change it at a later date, somehow I don’t think this will wash.     

Japan

Weaker equities have spurred on Japanese Yen buyers through the later stages of last week after US demand eased. Monday prices saw a lower Yen with the pair jumping to 114.00 but with markets turning risk averse buyers sought the Japanese Yen back as price travelled back to 113.60. Topside action through the 114.00 handle looks unlikely this week with risk factors firmly evident. A combination of key headlines, US Trade tensions, Brexit uncertainty and a standoff between Rome and the EU regarding the Italian Budget constraints have starting to dent investor appetite and could be the theme over the remainder of the week. With the absence of any decent economic data to publish this week in Japan, US related data will influence the pairs momentum.     

Canada

The Canadian Dollar was the worst performing currency last week against the major currencies – versus the NZD it lost nearly 2% in value. With weak economic data printing recently despite a hike in the Canadian cash rate together with soft Crude Oil prices the CAD has struggled. Against the greenback we have seen six straight weeks of declines to 1.3220. Saudi Arabia has hinted they will lower production of crude oil by 500,000 barrels in December based on a seasonal lack of demand. This could boost prices from the current 60.19 multi month low this week and put a floor of further depreciating prices. A Canada holiday today with remembrance day will see thin start to markets, later in the week we see monthly Manufacturing Sales for September.   

Major Announcements (Tuesday only)

  • NZ Unemployment drops from 4.4% to 3.9%
  • RBNZ keeps rates on hold at 1.75%
  • Federal Reserve rate is unchanged at 2.25% with a Dec 20 hike expected
  • Italian Budget deficit remains unsettled with the EU
  • Brexit uncertainty drops the GBP to fresh lows
  • US Holiday Tuesday- Veterans Day
  • Canada Holiday Tuesday- Remembrance Day

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