Collinson FX: Oct 15, 2018 – Rebound but KIWI vulnerable
US Equity markets rebounded, to close out a tumultuous week of trading. Panic selling on Wednesday and Thursday appear to be a technical correction in the ‘bull market’ rather than a turn, although Europe and Asia really suffered some serious pain. Chinese markets were mangled and this will continue until they negotiate a new trade agreement with the US.
The currencies remained above the equity fray, with little fallout from the share market correction, despite the heightened risk sentiment. The spike in US interest rates was a major contributor to the equity correction, but yields stabilised as the sell-off gained momentum. The Fed were on target to raise rates again in December, but may reconsider, considering the market correction and extreme rhetorical pressure from the White House?
Economic data will continue to reinforce the global growth narrative but any chink in the armour may be exploited and have market consequences. Sino/US Trade negotiations will remain the centre of attention. The continued trade war is holding back Asian markets, commodities and trade exposed currencies. The AUD closed around 0.7100, while the NZD has regained 0.6500, but remain extremely vulnerable to the trade situation.
Collinson FX: Oct 12, 2018 – KIWI lifts on back of US woes
Global equities continued to collapse. This is a major correction in US equities after the massive fall in the previous day. Asian markets participated in the sell-off, with the Chinese Share market crashing, with many shares losing their maximum. US equities battled, throughout the US trading day, but fell out of bed in the final hour of trade. Markets watched the US CPI number for direction, as many tipped the interest rate rises as the trigger for this correction. The CPI number was soft. 0.1% against a 0.2% expectation, allowing the annualised rate to fall to 2.3%. This took the pressure of bond yields, but did not break the equity bloodbath, pointing to a more substantial reason for the correction.
The Fed have been aggressively raising rates, three times in this calendar year, so far! They have indicated that they will raise again in December and another three times in 2019. This has caused a massive reaction in equities, with the higher cost of money raising questions regarding debt servicing, investment options and input costs. Trump has attacked the Fed calling them ‘loco’ and saying ‘the Fed is out of control’. This may cause the Fed Chairman some pause, combined with the share market collapse, which may lead him to reconsider further rises this year?
The impact on the Dollar was, as expected, the soft CPI number allowing bond yields to retrace and the pressure coming off the reserve currency. The EUR rallied towards 1.1600, while the GBP surged through 1.3200, aided by rumours of a ‘Brexit’ compromise in the offing. Commodity currencies have been major beneficiaries of the flagging reserve, with the AUD regaining 0.7100, while the NZD broke back above 0.6500. The recovery in these currencies reflects USD moves rather than any fundamental change in domestic economic conditions. Equities dominate markets and the correction is now significant leading to talk of an end to the bull market? Trade has taken a back seat.
Collinson FX: Oct 11, 2018 – Deer in the headlights
Equity markets suffered renewed pressure, overnight, as interest rates became the nominal threat. US 10 Year Bond yields regained 3.24%, which is a revisiting of recent record levels and promotes fears of funding costs and debt servicing abilities. The IMF reviewed global growth forecasts lower and this sent some risk-off emotions through markets, looking for direction. The US Bond Yields continue to reflect US economic growth and now sends a paranoid market into fears over debt levels.
The EU and UK look to be close to an agreement over ‘Brexit’, which will boost the GBP, as a result of certainty rather than any benefit. The UK will regain some momentum, but any agreement must be a real split from the Socialist Union, or the UK will suffer. The EU will be mortally wounded by ‘Brexit’ and the UK will be liberated. The currencies will reflect this. The GBP regained 1.3200, while the EUR pushed above 1.1500, as the reserve takes a breather.
The Dollar is softer overnight but the NZD and AUD remain targets. The vulnerability lies in the Sino/US trade war, as both are major suppliers to China and remain prone. The AUD looks to regain 0.7100, while the NZD attempts to hold 0.6450, but both are ‘deer in the headlights’. Technical levels point to extreme vulnerabilities to the downside.
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by Collinson FX