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Collinson FX:October 14, 2019 - US markets surge

by Collinson FX 14 Oct 2019 13:07 BST 2 October 2019
Mayhem - RNZYS Club Marine Evening Series, October 2019 © Richard Gladwell

Collinson FX: October 14, 2019 - US markets surge

US equity markets surged to close the week. The US and China finally agreed to sign a trade deal. This was ‘Stage One’ of a comprehensive deal, which will be tabulated and signed in the coming weeks. President Trump hailed the agreement as a huge success, but it is not the ‘comprehensive’ deal he had previously insisted upon. This is substantial and covers Agriculture, Financial Services and Intellectual Property. This provides $40 to 50 Billion in US agricultural exports and allows US Financial Institutions more access to Chinese markets. The announcement came after markets close but the deal was celebrated by US markets.

European markets surged after serious progress on both Brexit and the US/China trade war. Brexit negotiators were positive over a last minute Brexit deal, when the UK and Ireland look to have achieved a solution to the Irish border conundrum. EU negotiator, Michael Barnier, described Brexit talks as ‘constructive’ and British negotiator Stephan Barclay outlined a ‘pathway to a possible deal’. The GBP surged to 1.2650, while the EUR traded 1.1040, as the deadline fast approaches.

Oil spiked on the close, to $54.75/barrel, after reports of a possible Saudi attack on an Iranian oil tanker. Meanwhile commodity currencies booked some gains resulting from the developments over US/China trade negotiations. The AUD looks to regain 0.6800, while the NZD pushed up to 0.6330, still awaiting the final details of the trade agreement. This should be great news for the trade exposed, commodity currencies but the devil is in the detail. The huge increase in US agricultural exports may be to the detriment of these countries?

Collinson FX: October 11, 2019 - EUR rallies on trade deal and Brexit

Markets await the outcome of the US/China negotiations, which resumed overnight and expectations are rising. President Trump announced that the Chinese were ready to deal and that he would meet the leader of the Chinese trade delegation, Vice Premier Liu on Friday. The hopes are for an interim agreement, which will halt the growing momentum of the trade war and allow sanctions to dissipate. Incremental staged agreement may now be on the way forward, as the President’s bargaining position has deteriorated, due to the Washington politics. The prospect of a partial deal, has excited equity markets and bond yields are on the rise, reflecting the impact on the Fed’s response.

The EUR rallied above 1.1000, boosted by the progress on the US/China trade front and the positive mood over a possible Brexit deal. Boris Johnson looks to have negotiated a solution to the Irish border question, with the Irish leader, which has been a massive obstruction to a Brexit deal. The GBP spiked back to 1.2435, as the key Brexit deadline fast approaches, 31st of October. It appears that Johnson has learnt a lesson on negotiating, from his best buddy President Trump, Brinksmanship! The progress in both Europe and the US has lifted spirits in the commodity exposed currencies. The AUD jumped back above 0.6750, while the NZD has regained 0.6300. Local NZ Manufacturing and Credit Card spending may impact the currency, at the margin, but the big picture is fluid.

Collinson FX: October 10, 2019 - Equity markets rebound

Equity markets rebounded overnight, in both Europe and the USA, fuelled by growing confidence in the US/China trade war. Rumours swirled around markets that the Chinese were keen to do an interim or partial trade deal. This may appeal to the US, who have insisted up until now on a comprehensive deal, but political circumstances may suggest an interim compromise.

President Trump has had his negotiating position undermined by his domestic political enemies and he may wish to agree to an interim deal with China, in order to concentrate on the Democrats and fighting the coming Presidential election. The Fed released the minutes from their last meeting, which warned of threats to the US economy from the ongoing trade wars, but felt market expectations for further monetary assistance was too high. The Fed's dovish attitude did little to impact interest rates or currencies.

The EUR traded 1.0970, while the GBP held above 1.2200, more focused on the fast approaching Brexit deadline. The train is fast approaching the crash site, with no deal in sight. The positive speculation over the US/China trade negotiations supported the trade exposed commodity currencies, but it is hard to see any substantial upside, until the two sides sit down tonight. The AUD traded 0.6725, while the NZD attempts to regain 0.6300, with some stronger domestic economic data expected to provide some upside.

The US/China trade talks resume tonight and that will be where markets are focused.

Collinson FX: October 9, 2019 - Surplus doesn't save Kiwi

US/China trade talks are scheduled to resume Thursday and the brinksmanship has begun. China has called on the US to remove punishing sanctions and have tried to limit the scope of negotiations. The US has hinted at severe repercussions, if the Chinese are not earnest in their negotiations. The latest US threats revolve around capital investment, with restrictions on US investment in Chinese companies and restricting Chinese access to US capital markets. The optics are not good!

The Political war between President Trump and the Democrats have emboldened the Chinese and weakened the Presidents hand. The NFIB Small Business Optimism reported gains as the economic conditions in the US remain strong, while the Chinese economy struggles. The EUR fell back to 1.0925, while the GBP crashed back to 1.2200, as a Brexit deal becomes less likely, while the No-Deal Brexit increases in likelihood.

The US/China trade war has not helped the trade exposed, commodity currencies. The speculation has been overwhelmingly negative and any gains in local currencies, were soon eliminated. The AUD retreated to 0.6725, while the NZD fell below 0.6300 again, despite an unexpected strong fiscal surplus announcement. The NZ Government's fiscal position continues to improve, due to rising tax revenues, but this is not being used in stimulative infrastructure spending, probably to keep the powder dry for an election in 2020!?

Collinson FX: October 7, 2019 - High expectations from US/China trade talks

Stocks rallied to close the week, after some adequate Jobs numbers out of the USA and growing sentiment surrounding the US/China trade talks recommencing next week. Non-Farm Payrolls met expectations and headline Unemployment numbers continued lower. Unemployment in the US fell back to 3.5% reassuring markets, after weak manufacturing data, during the week. The US and China sit down next week to continue trade negotiations with the prospects positive. The EUR traded back towards 1.1000, while the Yen rallied to 106.80, as the Dollar continued to reflect the market expectations of the Fed.

Commodity currencies are dependent on the US/China trade talks and this week will determine the direction of these trade exposed currencies. Expectations are high of a favourable outcome and this would drive strong support for these currencies. Failure would be a disaster and would be reflected in the currencies. The NZD has recovered to trade above 0.6300, while the AUD pushed up to 0.6770, but the trade negotiations between the US and China are key

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