Market Overview:
Markets closed in the red Friday in a risk off mood. Equities fall over 2% with European stocks down also over 0.5%. US Equities have traded back to April 2018 levels after global data continues to disappoint. Chinese Industrial output and Retail Sales came in light sending risk associated currencies lower late Friday followed by weak Manufacturing data out of France and Germany. The NZD momentarily recovered towards 0.6800 but failed to make any headway past 0.6890 at the close. The NZD the weakest traded currency over the past few days along with the British Pound, the kiwi down 1% against the greenback and the Pound around 1.10%. It’s not surprising we have seen investors selling risk currencies and equities as global trade tensions heighten. China has already purchased 500,000 tons of US Soybeans as part of the ongoing 90 days truce agreement and will start to buy American corn soon. China has confirmed they will also remove the tariff it has on vehicle imports the US. North Korea have expressed their disbelief at the recent US sanctions accusing the US state department of taking last year’s progress back to a hostile situation. The US said they would seize the assets of Mr Kim’s main man Choe Ryong-hae, Jong Khong-thaek and Pak Kwang-ho for abusing human rights in North Korea which included, killings, torture, rape and sexual violence. The North Korean statement included: “maximum pressure” would be the United States “greatest miscalculation”. The question now is – did President Trump really achieve anything in the June meeting? This week’s Fed meeting the main focus of the week has the potential to be exciting with several market analysts suggesting they will not raise rates to 2.5% but do it next year instead. This week we will see much assessment of what path the Fed will follow over the next year and beyond. This week key local mover will be quarterly GDP with numbers expecting to print around the 0.6% area in line with recent growth.
Australia
Although the Australian Dollar has been down over the last week against the US Dollar it has predominantly outperformed all other major currencies. Flatlining earlier in the week we saw a little movement towards the weekly close with risk aversion coming into play. Falling house prices continue to be occupying headlines with the start of banks tightening up on credit lending policy this could lead to further softening of prices well in to 2019. Economic data out of China late Friday dropped the Aussie below key support levels after industrial production and Retail Sales printed softer. Global economic uncertainty could continue to not only add volatility to the AUD this week but weigh further on any upside momentum. Later in the week key data will come from employment figures including a updated unemployment rate.
New Zealand
The New Zealand Dollar has traded down in the last week, lower against the US Dollar by 1.0% and remains broadly confined to recent ranges against the crosses. A risk off tone developed in the later stages of last week’s NY session with US equities coming off over 2% after global trade risks linger on. Things were starting to look good midweek in equities and risk associated currencies generally, but with fears of a trade war back on the agenda risk appetite turned markets pear shaped with weak Chinese and EU data re surfacing concerns of slowing economic growth. This weeks Fed monetary policy meeting will give us more clues on the 2019 tightening plan, or lack of. The Fed will raise rates to 2.50% Thursday but some market makers are suggesting they won’t hike again in 2019. Jerome Powell said recently the Fed was close to its so called “neutral” rate, after previously saying they were a long way from neutral. This week at home we have quarterly GDP which is forecast to be 0.6% possibly boosting the kiwi into year end.
United States
The Big Dollar finished the week on top after US Equities retraced lower off midweek highs. The DOW, Nasdaq and S&P all closed lower by around 2.0% creating a selloff in risk currencies as buyers purchased the safe haven US Dollar. Core Retail Sales for November published slightly better than the 0.1% expected at 0.2% boosting the US Dollar. China data disappointed though with industrial production and retail sales quickly bringing back risk averse sentiment to an already nervous market. The Federal Reserve will be the main attraction this week as speculation runs rife the US central bank could signal slowing down the 2019 plan to hike rates. Since 2015 the fed have raised rates 8 times from practically nil to where they are now at 2.25% with 0.25% expected his week. Experts fear that by raising to fast it may trigger an economic slowdown or even worse, a recession. Wild equity market swings are not making things easier. US inflation is close to the 2% target, at the latest CPI reading inflation was just roughly 2.2% over the last year.
Europe
The Euro lost its momentum from the previous week dropping from 1.1440 to 1.1270 against the US Dollar as risk market took hold late during the US session Friday. US equities led the charge lower renting ove 2.0% as Chinese data disappointed and US Retail Sales didn’t. German and French manufacturing data released softer than expected reinforcing recent consensus that the economic slowdown has arrived in the Eurozone. The EUR began to drop Thursday after a dovish ECB which anticipates economic growth will slow next year and inflation will remain below 2.0% The business activity boosted the decline in the EUR when the index came in at the lowest level in over four years. On the economic docket this week is tonight’s German Business Climate which should reflect a slowing German economy.
United Kingdom
The Big Dollar finished the week on top after US Equities retraced lower off midweek highs. The DOW, Nasdaq and S&P all closed lower by around 2.0% creating a selloff in risk currencies as buyers purchased the safe haven US Dollar. Core Retail Sales for November published slightly better than the 0.1% expected at 0.2% boosting the US Dollar. China data disappointed though with industrial production and retail sales quickly bringing back risk averse sentiment to an already nervous market. The Federal Reserve will be the main attraction this week as speculation runs rife the US central bank could signal slowing down the 2019 plan to hike rates. Since 2015 the fed have raised rates 8 times from practically nil to where they are now at 2.25% with 0.25% expected his week. Experts fear that by raising to fast it may trigger an economic slowdown or even worse, a recession. Wild equity market swings are not making things easier. US inflation is close to the 2% target, at the latest CPI reading inflation was just roughly 2.2% over the last year.
Japan
The Japanese Yen lost ground against the US Dollar into the weekly close on US based strength. Weak Chinese data unfavourably sending markets into a risk averse mood, the Yen picking up the safe haven buys. Negative sentiment conditions have rolled over into this week with the Yen back at 112.80 after being at 113.70. Soft US data with NAHB Housing market Index fell four points to 56 after markets were expecting 61, alongside this data was global growth risks which have created nervous conditions. Markets are now turning it’s attention to the Fed Funds Rate later in the week along with the Bank of Japan (BoJ) cash rate announcement. The Bank of Japan will continue with their ultra simulative monetary setting but with recent global trade concerns they will reiterate comments by other central banks with ongoing threats to growth.
Canada
The Canadian Dollar remains under massive pressures based on several weeks of huge Crude Oil declines. The oil price dipped lower overnight down 1.8% to trade back just above 50.00 support at 50.32. I am not sure you can call this stable yet but the resent falls have weighed on the Loonie bigtime with price action against the greenback coming from 1.2800 in September to trade over 1.3400 this morning. In 2019 OECD inventories are expected to rise reaching 3.0B barrels late in the year with projections reaching more than 88M barrels more than the end of 2018. OPEC have agreed to cut production by 800,000 barrels for the first six months of 2019 I am not sure this will be enough to stop a price fall to possibly $40.00 pb if we correlate this with oversupply. If this happens we would almost certainly see the USD/CAD price travel into multi year highs towards 1.4000. This week on the economic calendar we have monthly CPI and Retail Sales.
Major Announcements last week:
• US PPI 0.1% vs 0.0% expected
• UK Average Earnings Index 3.3% vs 3.0% expected
• US CPI 0.0% as expected
• ECB leaves rates unchanged at 0.0%
• US Retail Sales 0.2% vs 0.1% expected