NZ: 0800 560 006 – AU: 1800 993 100 
info@directfx.co.nz

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

Get a free online quote

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

Get a free online quote

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

Get your free online quote

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

Brexit fallout continues to spook markets

Market Overview

Currency markets ended the week uneventfully after a huge week of Brexit related headlines. Currencies took a much earned breather with direction extremely tough to pick later in the week. The weakest currency of the main players the British Pound depreciated over 1.1% against the US Dollar and 3.1% against the surging kiwi Dollar. The New Zealand Dollar remains the strongest currency two weeks straight with analysts a tad baffled as to the ongoing bust through key resistance levels. A shift in Fed speak from Philadelphia Fed Reserve Harker rocked the boat when he said he wasn’t convinced a hike in December is the correct move to make citing rising uncertainty of economic outlook. Fed’s Evans also summarised by saying international trade is slower with Brexit and the US housing market all creating global uncertainties. It was his opinion though that these factors were not enough to make changes to the current monetary trajectory. This week’s RBA minutes looks to be a key headline this week when they will summarise the November meeting, with more than likely a hawkish bias based on recent positive economic data. US and China trade discussions have surfaced again over the weekend after weeks of halted communications. Both sides are working together closely to arrive at a long term solution with Donald Trump and Xi Jinping expected to meet again later in the month at the G20 summit in Argentina. Meanwhile Vice president Pence spoke with Xi Jinping at the Papua New Guinea Asia Pacific economic summit saying he was concerned China never had any intention of reaching a consensus – the Papua New Guinea prime minister saying the entire world is worried about the ongoing tensions between the two nations. They still appear a world away with negotiating a sustainable agreement. Brexit carnage will continue this week leaving the British Pound venerable again to whipsaw movement. Recent headlines are suggesting a vote of no confidence is building steam with Theresa May saying if she was ousted it wouldn’t make Brexit any easier. Last week Brexit secretary Dominic Raab and work and pensions secretary Esther Mcvey resigned in protest of May’s Brexit plan. US and Japanese Bank holiday Friday with Thanksgiving should bring an orderly end to the week. Read more

FX Update

Australia

More positive data has supported the Australian Dollar with key employment data Thursday doing the business. Wages (Wage Price Index) rose 0.6% in the quarter to September and 2.3% y/y with statistics showing improved labour market conditions and the official unemployment rate dropped from 5.1% to 5.0%. Jobs rose 32,800 in October compared to 20,000 markets were predicting led by full time jobs participation. The RBA has kept the cash rate on hold at 1.5% for over two years now, although they have recently acknowledged stronger employment and reasonably quick economic growth. The Australian pushed higher on the releases across the board reaching a five week high 0.7280 against the US Dollar. With recent falls in Crude Oil prices falling to below 60.00 the Australian Dollar has been sensitive to these downward moves as the economy is commodity based. With monetary policy minutes on Tuesday we should see further hawkish bias based on this week’s positive data.

New Zealand

The New Zealand Dollar is still riding high on last week’s strong employment figures, the best performing currency across the eight major players since the 7th of November. US Equity markets have declined in value over the week, but the kiwi has remained staunch. Better than expected Chinese data Tuesday boosted risk sentiment when Industrial Production released at 5.9% after 5.8% was forecasted. The fear though is that the with deadlines approaching on trade tariffs, manufacturers have boosted production to avoid the new levy in January skewing the figures from potentially a weaker result. The main event news this week has been with Brexit updates, affecting risk sentiment during Wednesday’s overnight sessions but able to break the kiwi into any sort of bearish mood which was highly unusual.   Read more