Collinson FX: March 18, 2019 - Volatile week driven by Brexit
by Collinson FX 18 Mar 2019 15:21 NZDT
18 March 2019
Collinson FX: March 18, 2019 - Volatile week driven by Brexit
Markets closed positively, after a volatile week, dominated by the Brexit chaos enveloping Europe and the ongoing trade negotiations between the US and China. The Brexit chaos has been reverberating through Europe for more than 2 ½ years and looks set to continue for at least another 3 months. The UK Parliament has rejected PM May's deal and now rejected the ‘No Deal’, insuring that their will be no easy out and removed the key bargaining chip May held in negotiations with Europe. The UK is in a disastrous predicament with no easy way out. The disconnect between the people (who voted to Leave) and the ruling class (who majority want to Remain) will end in tears. The GBP regained ground, moving towards 1.3300, while the EUR has also managed to push back above 1.1300. Chaos and disruption will continue for at least another three months across Europe.
The US/China Trade negotiations roll on and outcome speculation continues to drive markets. Steve Mnuchin (Treasury Secretary) announced that the conclusion and signing summit would not be held in March, as anticipated, after President Trump extended the deadline from March 1. Reports that the Chinese Vice Premier held a conference call with Treasury Secretary Mnuchin and Chief negotiator Lighthizer and progress was said to have been made. Markets rallied on the news to close the week. US Bond yields were softer, as was the Dollar, allowing the commodity currencies to hold. The AUD held 0.7080, while the NZD traded 0.6840, although NZ preoccupied and shocked by a massive terror attack Friday.
The Bank of Japan held interest rates and maintained QE, tempering positive sentiment towards global growth prospects. This coming week will concentrate on an avalanche of economic data and Central Bank activity. The Fed and the Bank of England will be out in the market, both dovish due to Geo-Political circumstances, while the RBA release the latest minutes.
Collinson FX: March 14, 2019 - NZD awaits US/China trade deal
US Markets are getting a whiff of some action, finally, on the US/China trade negotiations. Rumours are swirling that something is about to happen and that was enough to improve market sentiment. A better than expected Durable Goods Orders number and stronger construction spending allowed markets to gather confidence. US equities posted gains, while the turmoil in Europe continued.
The UK Parliament are voting to take a ‘No Deal Brexit’ off the table, thereby extending the chaotic impasse. The next action will be to extend the ‘Article 50’ and then they will need to get permission from the EU to extend the Brexit date past March 29th. An extension will have little impact as they have achieved nothing in the nearly three years since the referendum. The problem is that the people voted to leave the EU but the Parliament do not agree. The clear disconnect between the people and their elected leaders is at the heart of the problem. The Parliament will probably look to gather support for another referendum and keep trying until they get the desired result. The public backlash may surprise the Politicians. The GBP regained 1.3200, while the EUR hit 1.1300, as this chaos seems to somehow be interpreted as a positive.
The softer Dollar has allowed the AUD to push up to 0.7080, while the NZD drifted below 0.6850, both keenly awaiting US/China trade developments.
Collinson FX: March 12, 2019 - US markets rebound
US markets rebounded, in a fresh start to the week, after a bleak close to the last week. The ECB reversed the scheduled ‘QT’ monetary policy, due to deteriorating economic conditions within the EU. Brexit remains a major threat to the European economy, while global growth is being severely challenged by ongoing trade wars. The UK PM May headed back to Europe for a meeting with the EU, in a last ditch attempt to secure an agreement, prior to tomorrows important Parliamentary vote. The GBP regained some upward momentum, pushing back to 1.3140, while the EUR trades 1.1240.
Fed Chair Powell appeared on 60 minutes, emphasizing the strength of the US economy and observing that despite global economic challenges, he saw ‘no reason it cannot continue to expand’. US equities rallied despite initial downward pressures on the open, after Boeing was hit hard by the latest plane crash. The surprisingly weak Non Farm Payroll number, released Friday, ended the week on a depressing note. Headline employment remains strong and the Labour market continues to flourish. US Retail Sales returned to the positive, after a previously worrying contraction, giving solace to markets. The Dollar was static and allowed the AUD to improve to 0.7050, while the NZD consolidated above 0.6800.
Brexit will continue to dominate European markets overnight, while economic data releases will heavily influence the US markets. US/China trade speculation remains the elephant in the room.
Collinson FX: March 11, 2019 - Brexit may push EU into recession
The warnings of global growth challenges across Europe and Asia and now impacting US economic data. The Non Farm Payroll numbers were a surprise to many, with only 20,000 jobs added for the month, well below the expected 187,000. This comes hot on the heels, following the latest pessimistic evaluation of economic conditions within the EU, by the ECB. The ECB abruptly halted the intended ‘Quantitative Tightening’ and added monetary stimulus, in an attempt to rescue the flagging economy. ECB President Draghi cited the slowdown in China and Emerging markets, that is impacting global demand, including the EU. He warned of the threats from Geo-Politics and protectionism. This is a reference to the US/China trade wars and growing political disruptions. The EU, as an economic zone, is protected by tariffs and this is somewhat hypocritical. The EU’s biggest and most pressing problem is Brexit. They are intent on punishing the UK for daring to leave the Socialist Utopia, as a deterrent and may pay a steep economic price. The ‘Brexit’ may push the EU in to recession. The EUR has floundered since the ECB announcement, trading 1.1220, while the GBP has plunged back to 1.3000.
The Brexit crises is facing important parliamentary votes in the coming week, with some clarity to be revealed, so more volatility is to be expected. Expected US/China Trade negotiations should be coming to a conclusion, with a summit and signing ceremony, anticipated by the end of March. This should allay global growth fears. There is a plethora of key economic data coming out of China, Europe and the US, in the coming week. This will more than likely be weaker, until global trade is restored, by the US/China Trade agreement. This should not be considered an elixir, as President Trump is likely to launch trade negotiations/wars with Europe and Japan, to address further trade imbalances.
Commodity currencies have been major casualty, of the extended global trade wars with China, as they are heavily dependent on Chinese demand for their goods. A resolution will be a boost, short term, but the US will be massively increasing exports in direct competition to current suppliers. The currencies have been severely impacted by these disruptions, with the AUD testing 0.7000, while the NZD trades around 0.6800.
Geo-political events, lead by Brexit and US/China Trade negotiations, will dominate a week heavily exposed to global economic data releases.
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