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Market Overview:
Currency markets closed lower Friday after investors became nervous around US/China trade talks. Over the weekend President Trump has delayed the planned increase of tariffs which were to take effect on 1 March. He said “substantial progress” had been made over the past few days with further talks planned in Mar-a-lago on the 3rd or 4th week of March to hopefully lock in a deal. Trump saying “a very good weekend for US and China”. The optimism around the meeting in Washington with the progress being made has been supportive of risk currencies, Monday morning has seen every major currency push higher including the NZD and the AUD. The kiwi received an extra boost when Retail Sales printed well up on the expected 0.5% at 1.7% for January, with decent spending on pharmaceuticals which is strange, duty free products and food. At the same time last year Retail Sales was also very good but with an increase of “grocery” sales. Australian Trade Minister Birmingham has downplayed the Friday claims of China imposing a full ban of Australian exported coal into China saying “I want to provide reassurance that we have no basis to believe that there is a ban on Australian coal exports into China or into any part of China,”. Apparently Chinese officials were just carrying out quality and safety inspections of imported coal to make sure they complied with laws and regulations to better protect Chinese importers. Checking the quality of Australian coal seems a little odd as the quality is of a much better standard than other countries provide – political retaliation perhaps. Support is building in the UK for an extension of article 50 past the 29th March deadline with EU senior officials in support of an extension by as much as 21 months past the deadline. 21 months seems an extreme amount of time with the more likely scenario being 2-6 months. Equity markets closed the week in positive territory amid fresh news coming from the Washington Trade talks with the DOW reaching 26000 for the first time since November. Interestingly after US indices had the worst December in 87 years markets bounced back gaining 7.9% in January – the best January since 1987. Historically when the equity markets start the year in the black they finish the year higher, with global uncertainty still on the horizon we will need to see economic data post significantly better than predicted over the second half of this year. The calendar this week looks reasonably exciting with most announcements to come from the US with the Fed speaking tomorrow and Friday as well as Trump who will talk on a range of topics. US GDP is Thursday along with manufacturing Friday. Key NZ data to release Wednesday is ANZ Business Confidence with Aussie Capital expenditure Thursday.
Australia
The Australian Dollar remains a volatile currency ending the week strong against the US Dollar based on improved risk sentiment but overall the weakest currency of the other main players. The FOMC minutes bought nothing new to markets Thursday morning as they highlighted ongoing global uncertainty and the possible flow on effects from a slowdown in Europe and China. After reports surfaced Friday that China had implemented a total ban of Australian imported coal, China has denied the accusations. They have delayed key shipments through northern ports as a result of increasing efforts to check the quality of incoming coal. Customs officials were apparently complying with quality and safety inspections. It was thought the hold up of incoming Australian coal was the bi-product of retaliation after Australia blocked Huawei from rolling out its 5G network. The Australian Prime Minister said “this happens from time to time, and we will just work constructively with our partners in China about those issues.” The only tier one data this week is Private capital expenditure Thursday.
New Zealand
The New Zealand Dollar closed the week in a healthy state after coming from a low of 0.6755 against the US Dollar and rising to 0.6840. Retail Sales and a general appetite for risk currencies gaped the kiwi to 0.6885 early Monday. Retail Sales came in at 1.7% up a massive 1.2% on the expected 0.5% based on much higher demand in purchases of pharmaceuticals and food products. Trade Balance and later ANZ Business confidence will be key drivers with Trade balance moving the kiwi in January after figures printed higher than predicted. Further wash up from the Trade talks with Trump and China’s president Xi could impact direction of markets this week as well with US Trade lighthizer reported saying “a few very big hurdles remained”.
United States
After meeting with Chinese officials over the past few days President Trump has delayed the planned increase to tariffs which were due to begin on March 1st. Tariffs were to be ramped up to 25% from 10% but with Trump saying both parties have made “substantial progress” and they will continue to discuss the topic in 3-4 weeks at the next scheduled meeting at Mar-a-Lago. Fed speakers Friday didn’t highlight any further variances from the current planned schedule to rates over 2019. This week’s US Consumer confidence data will be a key driver along with Manufacturing Friday.
Europe
The Euro has remained range bound last week and has not moved outside current support and resistance levels for over three weeks. Pivoting around the 1.1350 area, this seems cheap buying if we look at the yields and its weighted index. Falling to the GBP and CAD last week it strengthened slightly against its main rival the greenback. German data continued to disappoint Friday after the German Business Confidence figures showed surveyed businesses were concerned around the country’s economic outlook with the index printing at -115.4 based on 117.1. German manufacturing was also shrunk for the second straight month and CPI dropped in January for the first time this year. German operates as a barometer of the Eurozone and if further data continues to appointment we could see the EUR depreciate further. The EUR has started the week in the black as sentiment around trade talks have improved.
United Kingdom
MP’s are set to vote again on the 12th of March Theresa May has confirmed. May will hold further talks with the EU this week in Brussels. Corbyn has accused the prime minister of recklessly running down the clock. He said the pending vote was forcing MP’s to choose between her bad deal and a disastrous “no deal”. Negotiations were continuing with the Irish backdrop the controversial part of the agreement which aims to avoid a hard border returning to Ireland as other options are considered. MP’s will more than likely vote to extend the process if a deal hasn’t already been done. Senior EU officials are considering an extension to article 50 in line with a Downing St request which could in turn extend the process by two or more months. A light economic docket this week is on the cards with just the (BoE) Bank of England Inflation Report Hearing.
Japan
The Japanese Yen has been the weakest performer since Thursday as risk markets dominated trading with commodity related currencies all higher as investors sell the safe haven. Progress was made at the latest trade talks in Washington with President Trump saying a “very good chance a deal could be made”. Despite being a long way off with intellectual property issues and what the US described as theft, China has committed to buying 1.2 Trillion in US products. The Japanese Yen reached a yearly low of 111.30 Monday and continues to lose ground as further optimism in trade discussions is expected over the coming days. Yearly CPI is released tonight in Japan along with Retail Sales and Unemployment at the end of the week. Focus will also be on manufacturing data to release Friday after poor data represented a downturn in the sector recently.
Canada
In 2019 OECD crude oil levels are expected to increase through to June with projected totals expected to end at 2.96 million barrels. For 2020 stocks are projected to be 105 million more to end 2020 around 4.06 million barrels, with these numbers so high the price could be compromised and travel significantly lower. Crude oil closed the week above 57.00 per barrel taking the Canadian Dollar to 1.3130 against the greenback at the close of the week. Monday the CAD was not so lucky with price dropping away to 55.20 sinking the CAD with price moving back to 1.3200. Canada have a couple of big ticket data releases at the end of the week with monthly CPI and GDP to watch. Equity markets have moved higher as investors remain optimistic that a China/US trade deal can be agreed. A breakthrough in trade could fuel markets to rally further and boost the Canadian Dollar further.
Major Announcements last week:
- Trade tariffs delayed as US and China get closer to a deal
- Aussie employment data prints better than expected
- German Manufacturing comes in poor raising concerns in the sector
- Canadian Retail Sales prints at -0.1% based on 0.0% expected
- NZ Retail Sales comes in at 1.7% higher than the 0.5% expected
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