Overview
US equity markets opened the week off last week’s all-time highs, with the USD slumping with crude oil as risk trades took a back seat and markets opened a week full of events on a cautious tone. This week will be dominated by 3 main events all occurring on Thursday, the UK election (we should know the outcome by Friday midday), the European Central Bank (ECB) meeting and the former head of the FBI James Comey is scheduled to testify before the Senate Intelligence Committee on Thursday morning in the US. Hopefully in the UK the Conservatives will win with an increased majority, giving some certainty to Brexit negotiations. The ECB will continue with a “steady-as-she goes” policy statement (expected by the market) and Comey’s testimony will not have a “smoking gun” that destabilises (further) the Trump administration. Read more
Economies of Note
Australia
The Australian dollar had a good and bad day yesterday with choppy trading in a day dominated by data. The release of Australian April retail sales which were better than expected, showing a 1% growth for the month saw the AUD climb to 0.7453, but then was battered down to 0.7372 after Chinese manufacturing PMI figures came in at 11 month lows and iron ore prices continued to fall hitting an 8 month low. Next week will see the RBA rate decision on Tuesday, expectations are for no change but as always the wording around the statement and any forward guidance given by the RBA will be closely analysed. Read more
FX Update: A quiet start to the week
Overview
Last week ended on a mixed note as although the S&P 500 closed on Friday at an all-time high, there was negative news, with Hong Kong receiving a credit rating downgrade from Moody’s from Aa1 to Aa2, this followed a cut, for the first time since 1989, in China’s debt rating on Wednesday. A shortened trading week due to the US Memorial Day holiday yesterday will give traders a lot to digest over a reduced period as a raft of economic data is released this week. Markets are pricing in an 80% chance of a Fed rate hike in June but as always data is key. Later tonight will bring US personal consumption expenditure index data, the central bank’s preferred gauge of inflation. Wednesday will bring initial jobless claims and ADP payrolls, a day later traders get manufacturing survey results, and the week culminates with monthly Non-Farm payroll data, the bright spot of the economy. Read more
Economies of Note
Australia
We have only had some minor second tier data released from Australia this week and it’s had little effect on the markets. The CB leading index increased 0.5% up from 0.4% prior, while construction work done disappointed printing at -0.7% vs -0.5% expected. The Australian dollar has struggled to maintain a firm footing this week undermined by Moody’s downgrade of China on Wednesday and soft commodity prices. It heads into the end of the week feeling a little soggy. Next week’s data will be of more interest with building approvals, private capital expenditure and retails sales all set for release. Read more
FX Update: Commodity recovery helps drive NZD and AUD higher
Overview
A quiet open to the week with little economic news and with President Trump “on-tour” the bad news eroding USD confidence has temporarily taken a back seat. US stocks rose for the third day boosted by President Trump’s trip to Saudi Arabia that saw trade deals announced across the defence, energy and infrastructure sectors, lifting industrial shares such as Boeing, Raytheon and 3M. Crude pushed to a one-month high before OPEC meets later this week. A more “risk-on” tone is now evident in financial markets, returning after political turmoil on a daily basis in Washington rattled investors and saw stocks have some the biggest declines since last September. Read more
Economies of Note
Australia
Data and news out later in the week was better for Australia and saw the Australian dollar rise over the old AUD/USD resistance level of 0.7400 soaring to a high of 0.7465 yesterday. On Wednesday, ratings agency Standard and Poor’s confirmed Australia’s AAA credit rating, however it continued to leave the nation on negative watch, and suggesting that the Turnbull government may struggle to return to surplus by the forecasted date of 2020-21. Also positive and unexpected was yesterday’s fall in the April unemployment rate to 5.7% its lowest level in four months, expectations had been for a figure steady around 5.9%. Read more
FX Update – US data mixed, while equities trade like they don’t have a care in the world
Overview
Markets traded sideways with little direction on Friday awaiting the US CPI and retail sales data. When released the results were mixed; CPI figures rebounded for April (up 0.2%) although year-on-year at 2.2% lower than an expected 2.3%. April retail sales were lower than forecasted, up 0.4% (expected 0.6%) raising some concerns that Q2 is not seeing continuing positive momentum. With confidence knocked on the data release, US equities and the US dollar moved lower as speculation weakened around the odds of a June Fed rate hike. However it should be pointed out that the numbers weren’t that bad, they just failed to be as good as anticipated and we believe that the Fed is still on course for a June rate hike. Read more
Economies of Note
Australia
As we expected there was little discernible market reaction to the Australian Federal Budget, other than the reduction in banking stocks suffered as news of the new tax leaked out earlier in the day. Rating agencies will now be casting an eye over the underlying cash balance projections to see how robust these projections are, it is equally unclear how they will see the new bank tax and what it means for growth and risk. Earlier today Moody’s rating agency noted that although the budget supported their assessment of Australia’s high fiscal strength, the deficit would likely to be wider than the Australian government expects. They also commented that they believed revenues would not rise as fast as the government forecasted and that expenditure would remain higher than that budgeted. Read more
FX Update: Europe breathes a sigh of relief after Macron’s win
Overview
There was an air of general relief by financial markets, with geopolitical risks easing, as polls for once were proved correct and the French Presidential election was won by centrist, pro-business, pro-European Emmanuel Macron in a convincing manner. Although this result was somewhat built into pricing, there was a rally in the EUR on Monday, but this was short lived as attention focused on whether Macron and his fledgling En Marche movement will be able to win a majority in the legislative elections in June. If he does not, this will limit any reforms that he has proposed to make the French economy more efficient and lower unemployment, curtailing his effectiveness as President. Read more
Economies of Note
Australia
As expected the RBA left rates on hold at its Tuesday meeting. Rates have remained at a record low 1.5% since last August. Economic data continues to be mixed with unemployment stubbornly high at 5.9%, retail spending weaker and inflation remaining at near record lows. In a speech presented yesterday by the RBA Governor he commented that the key risk to the economy from any fall in house prices or rising interest rates, is what might happen to consumer spending. Read more