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Trump fails to cut a deal with Kim Jong Un

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Australia

Weekend news following the Trump/China trade talks was positive with Trump formally taking the 1 March increase to 200 million of Chinese worth of products off the table. Investors bought risk currencies with the Aussie gaping higher to 0.7100 from 0.7075 on the weekly open. It’s a big week of data for the Australian currency starting with building approvals and Company operating profits printing Monday. Building approvals has come in at 2.5% from the expected 1.5% which is clearly better than the past two months of data which were down 9.85% and 8.4% but its the year on year figure which has us concerned down 28.9% from January 2018. Company operating profits were also a miss with 0.8% q/q after 3.0% was expected, significantly down on the December quarter showing worried strain to Australian businesses. The AUD fell across the board on the combined news back to 0.7080 versus the big dollar. The RBA will announce their benchmark cash rate today at 4.30 NZT with no expected change to the 1.5%. Comments by Lowe will be keenly analysed after recent banks have forecast at least one rate cut later this year. I suspect that if the property market devalues much lower we could see an intervention sooner by the RBA.

New Zealand

ANZ Business confidence Friday came in worse than expected with a net 30.9 % of businesses expecting the economy to perform poorly over the remainder of 2019. The New Zealand Dollar was slightly weaker on the news trading down to 0.6800 against the US Dollar after the news. Earlier Trade Balance printed at -914 million which showed the weakest January number since records began. Dairy Farmers received mixed news when Fonterra increased the milk solid price to a range of $6.30- $6.60 per kg from $6.00 – $6.30 but dropped the earnings forecast. As all dairy farmers who shop through Fonterra have a share in Fonterra the lower share earning of 15c to 25c from 25 to 35c is a real kick in the teeth for farmers. Hurrell the chief executive said – the business is not where it needs to be. We have a light economic calendar this week so offshore factors will drive the kiwi.

United States

It was take two for Kim Jun Un and President Trump at the Vietnam summit when they met again over the prior weekend. President Trump’s hopes were at normal optimistic levels to get a deal done and silence his critics but by late last week it was apparent things were not going quite to plan. A rescheduled press conference confirmed what we expected – the talks had fallen short. Trump saying “sometimes you have to walk, and this was one of those times”. Talk of “easing sanctions” in North Korea was Trump’s objective but somehow this got lost in translation as Un and North Korea were asking for ALL sanctions to be lifted. Walking away from the summit was better than making a terrible deal. The trade tariff truce was formally extended with tariffs on Chinese imports to be increased to 25% from 10% on 1 March. Trump has demanded all tariffs on US agricultural products be removed as the Chinese offered to purchase an additional 1.2 trillion in US products. As part of a long term deal China have offered to lower tariffs on US farm, chemical, auto and other products. US data Friday pegged back some of the positive trade discussions with manufacturing data falling from 54.2 to 56.6 in January and UoM consumer confidence also below the expected 95.8 to 93.8. This week we have the all important (NFP) Non-Farm Payroll release and unemployment.

Europe

The Euro traded higher last week against all the major pairs except the surging Pound. Making up 1.5% against the Canadian Dollar. This week we have seen a different story with the Euro dropping out of favour down 0.60% against the kiwi. European equity markets have also booked losses in the early stages of the week, leading the way was the FTSE closing down 0.36%. The benchmark 10 year treasury notes yields of all the major European countries are also lower on the day adding to EUR stresses. The main news this week is the ECB- European Central Bank’s Cash rate which will remain at 0.0% again based on the deceleration of growth and benign inflation numbers. Investors will also be watching for economic forecasts and long term insights from Mario Draghi.

United Kingdom

The English Pound had a positive week pushing higher from 1.3000 levels to 1.3350 against the greenback before easing back. The last time we saw price at 1.3350 was October 2018. Despite poor data, optimism around news that PM Theresa May has enough support to win the next parliament vote supported the currency. The 29th March exit date from the EU looks in jeopardy if parliament rejects Prime Minister May’s vote late this month. May has said she will bring back a revised deal to parliament by the 12th of March. If he deal is rejected parliament will be given a new opportunity to vote to either leave the EU or extend the Article 50 negotiating period. Bank of England (BoE) governor Carney speaks tomorrow, apart from this its a quiet week on the docket for the Pound.

Japan

The US Dollar /Japanese Yen rate is sitting at a 10 week high the as the Japanese Yen remains bearish.  The US Dollar was supported with GDP growing by an annual 2.6% for the fourth quarter – exceeding forecasts by 2.3%. Japanese Retail Sales y/y came in poor at 0.6% based on predictions of 1.4% as well as Housing starts at 1.1% after 10.4% was expected, the numbers showing a significant downturn in property. Japan’s unemployment rate jumped to 2.5% in December from 2.4% while the availability of jobs remained steady.  Birhanu Legese of Ethiopia has won the Tokyo marathon on Sunday in a time of 2:04 it was his first marathon win. Japanese quarterly GDP prints this week and is expected to come in at 0.4%.

Canada

This week sees the Bank of Canada (BoC) rate decision on Thursday 7th. Predictions are increasing for the central bank to start shifting their over positive stance on monetary policy to a more dovish position. Recently the bank has been stubborn to speak around not so flash recent negative economic data. Perhaps this week we could see a surprise drop to the current 1.75% but chances are small. Last week’s CPI came in soft at 0.1% instead of the 0.2% expected while the Current Account was also down on expectation at -15.5B based on predictions of -13.4B. Fridays’ monthly CPI printed light at -0.1% after 0.0% was predicted. The terrible data sent the CAD well lower on bearish sentiment, against the Dollar it was off 150 points to 1.3300 over 1.0%. The only thing saving the Canadian Dollar at the moment is the bullish Crude Oil but how OPEC can’t push up prices forever. Price which Besides the BoC overnight rate announcement we will also be watching employment data later in the week.

Major Announcements last week:

  • Trump and Un depart without a deal on sactions in N Korea
  • Chinese trade tariffs suspended by the US
  • ANZ Business confidence prints at -30.9
  • US Manufacturing releases down at 54.2 from 55.6
  • Australian Business approvals prints benign
  • Australian Current Account prints at -7.2B from -9.3B expected

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