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Market Commentary 18/05

European markets continue to re-open and infection rates remain under control, thereby boosting market sentiment. The shocking economic data releases across the globe is being digested and interpreted. German GDP contracted 2.2%, while EU GDP contracted 3.8%, in the first quarter. The European markets rallied to close the week, despite the data, as viral infection rates appears to remain contained. The EUR held above 1.0800, reflecting the virus stability, while the GBP fell to 1.2115.

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Market Update

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Day 2- Level 2 NZ lockdown.

The Reserve Bank of New Zealand Monetary Policy Committee agreed to leave the cash rate on hold at 0.25% Wednesday and agreed to expand the 33B (LSAP)- Large Scale Asset Purchase programme to 60B. The LSAP’s include NZ Govt Bonds, Local Government Funding Agency Bonds and NZ Government Inflation Indexed Bonds. The global fallout from disruption from coronavirus has led to lower economic growth and inflation with unemployment hugely affected. The RBNZ said even if New Zealand manages to contain the virus, or knocks it out completely, reduced world demand for products will mean a lower demand for NZ export products. Adrian Orr said negative Interest Rates could become an option in the future. The release took the NZDUSD off 0.6080 to just off 0.6000
The NZ Annual Budget known as the “Rebuilding Together” budget announced yesterday was one the of the weirdest on record.

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Market Commentary

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The devastating impact of the pandemic is beginning to become more clear, revealed in economic data, and Central bank responses. The Fed Chair Powell said that the immediate future was ‘highly uncertain and subject to significant downside risks’. He also commented that the stimulus should see a ‘substantial recovery once the coronavirus is under control’. This tipped equity markets into a downward spiral, which was not assisted by the probability of a trade war, with China. President Trump tweeted that the ‘plague from China’ will not be made up for by ‘100 trade deals’! The aggressive rhetoric from the US towards China suggests a looming trade war and a shifting of investment away from a Chinese dominated supply chain.

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Market Commentary 13/05

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US equity markets continued to drift lower overnight, after key medical adviser Dr Fauci, warned of the downside risks to the economy re-opening. Dr Fauci appeared remotely from self-isolation, in front of the US Senate, balancing the downside infection risks with the economy re-opening. Markets continue to watch infection rates closely, as economies open across Europe and the USA, while Asian markets manage the ‘second wave’. This is the narrative driving markets and impacting confidence, while risk is driving asset allocation. The US Budget exploded into negative territory for the month, jumping to $738 Billion, while inflation numbers contracted resulting in an annualised rate of 0.3%. Meanwhile the Fed were out in the market buying up corporate debt.

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Risk Currencies Push Higher

Day 11-  Level 3 NZ lockdown

Risk currency pairs ruled the roost for most of last week with the Australian Dollar, New Zealand Dollar and the Canadian Dollar all doing well against the major currencies, the big mover being the Aussie outperforming the Pound 3.0%. The US jobs report confirmed a terrible April for Job losses with a further 20.5M Americans filing for unemployment. The Unemployment rate has surged to WW2 high of 14.7%. The English Pound has recovered most of the March losses amid coronavirus infections, pivoting around the 1.25 area against the US Dollar. We do however see limited movement north in 2020 for the Pound as economic conditions worsen with covid-19 in the UK and Boris struggles to piece together post Brexit trade negotiations.

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Economic Releases

Monday 11/05

  • 1pm, NZD, ANZ Business Confidence
    • Previous -66.6

Wednesday 13/05

  • 1230am, USD, CPI m/m
    • Forecast -0.70%
    • Previous -0.40%
  • 2pm, NZD, Official Cash Rate 
    • Forecast 0.25%
    • Previous 0.25%
  • 2pm, NZD, RBNZ Monetary Policy Statement 
  • 2pm, NZD, RBNZ Rate Statement 
  • Tentative, NZD, RBNZ Press Conference
  • 6pm, GBP, Prelim GDP q/q
    • Forecast -2.50%
    • Previous 0.00%
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FX Update

Day 11-  Level 3 NZ lockdown. 

Comparisons between economic reviews and macro themes from the beginning of this year to today’s releases are vastly different. Times of improving conditions and economic recovery have fast eroded in the current global landscape we are now part of. Monetary policies of world leading central bank countries have backtracked from solid economic indicators such as improving employment and inflation expectations to what we see today. 

Coronavirus has indeed put up a massive roadblock up to any global momentum. Strategy of the RBNZ has been like all other central banks- bringing out all arsenal of extreme measures to combat the fallout of the virus with record fiscal stimulus and QE (quantitative easing) and much lower interest rates-  New Zealand currently has the lowest cash rate on record at 0.25%.

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Market Commentary 07/05

Markets continue to monitor the outcomes, as Europe and the USA re-open after the lockdown and the impact on infection/death rates from the coronavirus. EU PMI Services and Composite PMI data collapsed to historical lows, to the low teens, shocking but not surprising. EU Business Activity has collapsed, due to the shut down, so now markets will focus on the impact on economies as they re-open. The EUR continues to lose ground, trading 1.0805, while the GBP slipped to 1.2350.

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Market Commentary

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European markets rallied strongly higher, with corporate earnings beating expectations, as European economies begin to re-open. The sentiment spread to US markets which also staged a rally in equities and Oil prices. Economic data reflects the heart of the viral storm, but as markets re-open these numbers will start to feed through, boosting confidence. US ISM Services and Composite were at record lows, but way off the terribly shocking PMI data from Europe and around the world. US Markets will be looking at the employment numbers, lead by ADP and Challenger Jobs reports, culminating in the all important Non Farm Payrolls and headline employment.

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