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A game of two halves…?…the US government shutdown has ended after a record 35 days, but we may see a redux come the 15th February!
President Trump succumbed to pressure over the weekend, ending the shutdown with no concession for “Wall” funding but instead provides time for Congressional negotiations over the next 3 weeks with a decision made before the current funding extension expires again on the 15th February, this result has seen a rise in risk markets. However, President Trump has said that if he can’t get a fair deal, he will either use his emergency powers or government will shut down again, look for more fireworks on this front over the next few weeks.
After a solid start to the year, investors are looking for more direction from a corporate earnings season that has so far been indecisive. Chinese Vice Premier Liu He has arrived in the US for what the White House is describing as “very, very important” trade talks this week. Amidst the backdrop of U.S.-China stress and geopolitical tensions in Venezuela, traders/investors also need to navigate the Federal Reserve rate decision, developments in the U.K.’s Brexit process and a potential slew of American economic data that was delayed by the government shutdown.
Brexit continues to dominate the Eurozone with the UK Parliament overnight voting not to delay the Brexit date of 29th March thus giving PM May an opportunity to send a unified message to Brussels to rip open the Brexit agreement or watch chaos unfold as the U.K. splits away from the bloc without a deal. The GBP has come under pressure as the chances of a no-deal Brexit are now perceived to have risen.
Also, on the agenda this week are further US/China trade talks, now complicated by the new indictments by the US Justice Dept against Chinese technology giant Huawei, along with the FOMC meeting and statement on Wednesday night.
Hopes for a solution to the US government shutdown and progress in the US-China trade negotiations helped US equities power to the highest levels since mid-December at the close of the week on Friday.
Generally, Financial Markets ended last week on a more upbeat note as reports suggested that the US was looking to lift some tariffs on Chinese goods to create some goodwill with China in order for bigger concessions in the trade talks. It was also reported that China was looking to cut-back its trade surplus with the US by increasing US imports by around US$1 trillion. However come Monday the news was more sobering, that the two sides are making little progress on the key issue of intellectual property protection.
Trading was subdued to start the week owing to the US Martin Luther King holiday on Monday.
Other data yesterday confirmed China’s economy expanded at the slowest pace since the global financial crisis, in line with many expectations, though December figures for industrial production and retail sales were buoyant. Reinforcing the more downbeat market mood was news that the IMF was cutting its global growth forecast to the weakest in three years — in part because of softening demand in Europe.
The World Economic Forum kicks off in Davos, Switzerland tonight so expect some headlines from this event over the next few days, however with no US attendance (President Trump and his senior advisors are staying away due to the shutdown), and both French and UK leaders also absent due to problems at home, we expect most of the headlines will lack the usual punch.
Brexit developments were high on the agenda overnight. Following the profound defeat in last week’s “meaningful vote”, UK Prime Minister Theresa May delivered to the House of Commons her amended vision for a way forward for Brexit which looked pretty similar to the old vision…. little of substance again could be gleaned from the UK House of Commons,with the spectacle displaying the same partisanship, gridlock and frustration exhibited last week.
There are rate decisions for the Bank of Japan (Wednesday), and the European Central Bank (Thursday). Read more
Westpac Consumer Sentiment released at -4.7% evaporating any positive mood carried through 2018. Confidence in the Australian economy has deteriorated recently based on a number of key issues such as falling house prices, disappointing economic growth and uncertainty around the global trade war. This is particularly relevant and has the ability to derail a number of key factors around Australian exports given the weighting over how China and the US continue to negotiate tariff issues. Chinese economic data is expected to get worse in 2019 as the full impact is seen. Chinese authorities have admitted to underestimating the full impact of how the trade war will have on economic stimulus and how it will affect growth. Total exports fell 221 Billion for December down 4.4% from December 2017 numbers. This could have the effect of underpinning the Australian mineral exports to China. No local data to print this week until next week’s employment figures Thursday.
The New Zealand Dollar lost its positive form midweek after fears of OCR cuts and the domestic outlook for 2019 devalued the kiwi, making it the worse performer. REINZ data showed what economists and analysts feared with sales of property taking a hit. Sales for December across the country are down 12.9% with Auckland at -24% after 429 fewer houses sold. Excluding Auckland the number decreased by 8.2%with 358 fewer houses selling compared to 2017 figures. REINZ reported that while December is usually a quiet month these figures are the lowest for December in 7 years. As we expected the Global Dairy Auction reported its fourth straight positive index figure with an increase in price of 4.2% after the increase of 2.8% on the 2nd of January. This should impact positively on the future milk solid price and highlights a good start to 2019. Offshore drivers such as Brexit and the US shutdown could impact the kiwi leading into the close with no further local data to print. Read more
Markets entered the week with a more “risk-off” tone, as weaker Chinese trade data added to concerns over slowing global growth and the US partial government shutdown entered its fourth week, both weighing on sentiment. Equity markets were lower across the board in both Europe and the US with the S&P 500 down for a second session in below average volume, led by technology companies after China’s slumping export figures fuelled worries about the growing impact of the U.S.-China trade war on worldwide growth. In Europe, tech stocks dragged the Stoxx Europe 600 Index lower, reversing four days of gains. Currency markets saw the US dollar lower reflecting the equity weakness but the EUR remained steady after data showed that industrial production slowed over the November period. A better gauge for EUR direction will come later tonight as the EU will release November Trade Balance, while ECB’s head Draghi will testify before the European Parliament, in Strasbourg, on the central bank Annual Report. The UK Pound edged higher overnight, as the Brexit shambles reaches a head tonight as the exit deal drafted by UK PM May goes to a vote in the UK Parliament. Market perception is that May’s plan is unlikely to get approved, but what’s keeping the GBP elevated is speculation that the rejection of the plan would end in a no-Brexit or maybe in a delay of the Article 50 exit, however the government has said multiple times that it will leave on March 29 with or without a deal. Hang on tight it, could be wild ride for the GBP over the next 24 hrs..! Little in the way of major releases for the Australian & New Zealand market this week, leaving both the AUD & NZD continue to be buffeted by offshore winds. Read more
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
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.
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
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
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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.
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
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
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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.
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