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Collinson FX: December 17, 2019 - US China Trade Deal Phase 1 confirmed

by Collinson FX 17 Dec 2019 00:38 GMT 17 December 2019
Santi Lange (ARG) comes close to going over the side duirng a mark rounding - Medal Race, Nacra 17 - Hyundai Worlds - December 2019 © Richard Gladwell / Sail-World.com

Collinson FX: December 17, 2019 - US China Trade Deal confirmed

Markets celebrated the good news enveloping the markets. The ‘Phase One’ US/China trade deal was confirmed Friday and this was welcomed by markets, as US markets pushed further into record territory. Markets shrugged of the partisan sham ‘impeachment’ of President Trump and added to the bull run and booming economy. The NAHB House Market Index hit a 20 year record high reflecting the leading index and the overall economy. The Conservatives massive landslide victory in the UK added to the market festivities, heading into Christmas, allowing the UK to finally ‘Brexit’ and the mouth-watering prospects of free trade deals with the US and Commonwealth countries. The GBP settled up around 1.3320, while the EUR traded 1.1140, despite the weaker PMI data announced.

The great trade news has been welcomed by the commodity and trade exposed counties, NZ and Australia, which should benefit from all the recent developments. The AUD traded up to 0.6880, while the NZD approaches 0.6600, ahead of key economic sentiment data released today. The NZ Business Confidence number has become integral to the currencies direction, reflecting the state of local business and investment prospects. This number has been improving recently, coming off all-time record lows, signalling improved economic prospects and fiscal stimulus.

Australian PMI data was also weak, slipping into contraction, across the board. The Australian economy has been under considerable recent pressure, although the Government has acted decisively, bringing forward massive infrastructure spending to stimulate the economy. This fiscal expansion combines with monetary stimulus, from the RBA, should flow through in to the economy in the new year.

Collinson FX: December 13, 2019 - US China Trade Deal 'Very Close'

President Trump tweeted, that the Phase 1 US/China trade deal was 'VERY close' to a 'BIG DEAL'. This sent US equity markets back in to record territory and overwhelmed the market narrative. Earlier the Fed had left rates unchanged, in a dovish statement, which speculated that little action would be taken in 2020. The Fed confirmed the strong state of the US economy and recognised that current monetary policy would suffice. The ECB met, with new President LaGarde, which confirmed that downside risks to the EU economy were' less pronounced'. Interest rates were left at zero and previously announced additional QE, continues. The EUR broke back above 1.1100, while the GBP slipped back below 1.3100, as the Brexit election results come in. A Conservative victory should result in a big boost to the GBP.

The positive news on the US/China trade front supported the commodity currencies, with the AUD pushing up towards 0.6900, while the NZD traded 0.6570. The Central Bank action was in line with market expectations and thus cleared the way for President Trump to dominate markets with trade speculation while the UK election is the big Geo-Political event dominating markets to close out the week.

Collinson FX: December 12, 2019 - NZ prospects improve

Markets were quiet ahead of the FOMC and ECB rate decision. Expectations were that both Central Banks would leave interest rates unchanged and allow QE to do it's work. The US Dollar was softer ahead of the rate decision, as liquidity allowed softer bond yields, while the EUR was steady at 1.1090. The GBP traded strongly at 1.3170, ahead of the most important election since WW2, with the strength of the currency reflecting the strong showing in the polls, of the Conservatives. PM Boris Johnson is likely to win and effect Brexit. This would be a massive boost to the British economy and would be reflected in the currency, just for economic certainty, without mentioning all the possible trade benefits.

The softer US bond yields translated into a weaker Dollar, which allowed the AUD to jump to 0.6860, while the NZD traded above 0.6550. The NZ Government released plans to bring forward fiscal expenditure to aid and assist the accommodative monetary policy and boost the local economy. This has boosted economic prospects, which reflects a similar situation in Australia, with massive infrastructure projects being brought forward. US CPI came in a healthy 2.3%, while the labour market is at 50 year records, allowing the Fed to resist taking further action on interest rates.

Markets await the British election, the FOMC and the ECB rate decision tonight, which all have the capacity to radically move markets, if they do not come in as expected.

Collinson FX: December 11, 2019 - NAFTA gives big boost for US

US markets were steady amidst a flurry of political and economic activity. The US House Of Representatives have been pre-occupied with impeaching President Trump for a long time, but overnight announced articles of impeachment, but also took up Trump's North American free trade agreement. This is a massive boost to the US economy and will result in a huge boost to trade and employment, with America's two biggest trading partners. Meanwhile the new tariffs imposed on China are set to come into effect on the 15th of December. There are rumours swirling that these may be delayed and negotiations are under way.

The GBP rallied strongly, ahead of the Brexit election, at the end of the week. The polls are pointing to a Conservative victory and this is why the GBP is rallying so strongly. The EUR also managed to hold gains, trading 1.1080, ahead of the all important ECB meeting later this week. UK GDP growth and industrial/manufacturing production was flat and overlooked as the election approaches. The NZD gave up some recent gains, falling back to 0.6530, while the AUD held 0.6800.

Markets will focus on the FOMC and ECB meetings on Thursday, while the UK elections and US political turmoil continues unabated.

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