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Collinson FX: March 8, 2019 - EU on a banana skin

by Collinson FX 8 Mar 13:29 NZDT 7 March 2019

Collinson FX: March 8, 2019 - EU on a banana skin

The ECB slammed monetary policy into reverse gear overnight, while sharply reviewing inflation and growth forecasts lower, citing growing uncertainties and risks. The ECB President, Mario Draghi, revised GDP growth back to 1.1% and CPI back to 1.2%. He blamed the sharp economic downturn on Geo-Political risks and protectionism. The Italian economy has slipped in to recession and Germany is looking like it will follow, while the UK Brexit could be tip the whole EC in to an extended economic downturn. The telegraphed halt in QE by the ECB and a return to normalised monetary policy has hit the wall, with interest rates on hold and further liquidity being injected in to the financial system. The EUR crashed back to 1.1220, while the GBP drifted to 1.3120, despite a flat reserve.

The Challenger Jobs report in the US, showed a sharp spike in job cuts, combined with the negative news from Europe driving US equities lower. The China/US trade negotiations continue and look set to climax at the end of the month, injecting confidence and certainty into global markets. This is being baked in to market calculations, as expectations are high. The impact on the supply chain has hardly been considered and the composition of suppliers into the Chinese market will completely change the growth demand geographically. The AUD remains vulnerable, trading just above the Big, Big figure of 0.7000, while the NZD holds 0.6750.

Non-Farm Payrolls comes out tonight and the increasingly strong labour market which has supported the economic narrative in the US, may be challenged. The global slowdown may start to impact the US and this increases the pressure and importance of a US/China trade deal.

Collinson FX: March 7, 2019 - Aussies miss GDP target

Global markets are drifting into increasing uncertainty, as global growth prospects darken. The latest Central Bank, Bank of Canada, poured cold water on domestic and global growth expectations. The BoC left interest rates at 1.75% and had a more dovish approach to monetary policy, as global demand started to impact the local commodity dependent economy. The ECB is up to the plate tonight and they are likely to defer any projected actions to end QE and the expansive monetary policy. There are many predicting that the EU may fall into recession in the coming year, with trade pressures from the UK and the US, while domestic demand stutters. The EUR drifted back to 1.1300, while the GBP held 1.3150, as last minute re-negotiations for the Brexit deal continue.

Australian GDP missed expectations, coming in at just 0.2% for the final quarter of 2018, bringing the annualised GDP growth back to 2.3% from 2.7%. The blame was clearly laid at the door of global demand and growth, which depends heavily on the US/China trade talks, which look to come to a conclusion later this month. Speculation on the US/China trade talks continue to drive fluctuations in markets. The AUD fell back to 0.7020, after the weak GDP growth data, while the NZD drifted back to 0.6770. Markets will focus on the ECB and their associated commentary, while the elephant in the room remains the US/China trade talks.

Collinson FX: March 6, 2019 - Mar-a-Lago anyone?

The RBA left rates unchanged in its latest review of monetary policy. The Governor remained optimistic over the state of the economy, despite an economic slowdown and Chinese warnings. The latest Chinese review of GDP growth was lower than expected, but this was balanced by a 3 point cut in their VAT tax. Concerns remain about Chinese growth but this has been largely overlooked as the US and China look set to sign a trade agreement at Mar-a-Lago this month. Secretary of State, Mike Pompeo, observed that they were ‘on the cusp’ of an agreement. The USD regained some ground, supported by better than expected economic data, including Housing and the ISM. The EUR slipped back below 1.1300, while the GBP traded 1.3150, with a late effort to renegotiate with Brussels underway.

The RBA was optimistic, although there are warnings and the release of GDP data today, may highlight some of these challenges. NZ Commodity prices moved higher, up 2.2, supported by stronger dairy. The NZD drifted below 0.6800, as Chinese demand remains a question, while the AUD traded around 0.7075. The ECB will release their latest iteration on monetary policy Thursday, with no moves expected, so rhetorical speculation and associated Central Bank commentary will dominate markets. Global markets remain focused on the US/China trade agreement.

Collinson FX: March 5, 2019 - Dow plunges

The Dow plunged over 300 points to open the new week. The US/China trade deal is said to be in it’s ‘final stages’ and agreement looks set to be signed at Mar-a-Lago later this month. The sticking point is enforcement and IP theft. Expectations are high and any negatives will have a detrimental impact on daily market trading. US construction contracted 0.5%, amid a very slow economic data release day. The USD drifted lower, with the EUR pushing back to 1.1330, while the Yen traded 111.70. Brexit chaos rolls on and the GBP remains challenged, trading 1.3180.

Commodity currencies have been treading water recently. The US/China trade negotiations are all about a global growth narrative and these trade exposed currencies remain the most vulnerable. The final settlement will provide some certainty and improve the global economic environment. The question remains on how the supply chain will be changed with a massive increase in US imports going in to China. Will this impact current suppliers? The AUD was steady, holding 0.7070, while the NZD toyed with 0.6800.

Economic data is likely to impact,as negotiations between the US and China continue. Central bank action and speculation is likely to build, with both the RBA and ECB due to report this week. No action is expected, from either , although the associated commentary will be keenly watched, driving market sentiment.

Collinson FX: March 4, 2019 - Agreement expected despite no agreement

US Equity markets closed the week strongly, booking huge gains for the year, as the rebound from the last quarter of 2018 continues. The rally is a result of the strong process, in place, for the US/China negotiations. Key Trump economic advisor, Larry Kudlow, described the progress as ‘fantastic’. Treasury Secretary has also observed that the negotiating team had ‘made a lot of progress’. There are reports of a Mid-March Summit at Mar-a-Lago to sign an agreement. Markets continued to rally strongly on the news despite some weaker US economic data. The University of Michigan Sentiment retreated, while the ISM Manufacturing missed expectations, dampening enthusiasm.

Markets brushed off the failure to reach an agreement between the US and North Korea, assuming it will happen, manana. The focus has been on China. European markets stuttered, with flat PMI data, Employment and CPI. The EUR was static, trading 1.1350, while the Yen crumbled to 112.00. The GBP continued to flounder, falling back below 1.3200, amidst the continued Brexit chaos. Commodity currencies were drifting, despite the progress of the US/China trade negotiations, as realisation an agreement may impact exports to China. The NZD fell below 0.6800, while the AUD drifted to 0.7070. The trade deal will encourage global growth, although trade exposed countries must realise that as spike in US exports to China, may impact existing suppliers?

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