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Australia

Weekend news following the Trump/China trade talks was positive with Trump formally taking the 1 March increase to 200 million of Chinese worth of products off the table. Investors bought risk currencies with the Aussie gaping higher to 0.7100 from 0.7075 on the weekly open. It’s a big week of data for the Australian currency starting with building approvals and Company operating profits printing Monday. Building approvals has come in at 2.5% from the expected 1.5% which is clearly better than the past two months of data which were down 9.85% and 8.4% but its the year on year figure which has us concerned down 28.9% from January 2018. Company operating profits were also a miss with 0.8% q/q after 3.0% was expected, significantly down on the December quarter showing worried strain to Australian businesses. The AUD fell across the board on the combined news back to 0.7080 versus the big dollar. The RBA will announce their benchmark cash rate today at 4.30 NZT with no expected change to the 1.5%. Comments by Lowe will be keenly analysed after recent banks have forecast at least one rate cut later this year. I suspect that if the property market devalues much lower we could see an intervention sooner by the RBA.

New Zealand

ANZ Business confidence Friday came in worse than expected with a net 30.9 % of businesses expecting the economy to perform poorly over the remainder of 2019. The New Zealand Dollar was slightly weaker on the news trading down to 0.6800 against the US Dollar after the news. Earlier Trade Balance printed at -914 million which showed the weakest January number since records began. Dairy Farmers received mixed news when Fonterra increased the milk solid price to a range of $6.30- $6.60 per kg from $6.00 – $6.30 but dropped the earnings forecast. As all dairy farmers who shop through Fonterra have a share in Fonterra the lower share earning of 15c to 25c from 25 to 35c is a real kick in the teeth for farmers. Hurrell the chief executive said – the business is not where it needs to be. We have a light economic calendar this week so offshore factors will drive the kiwi. Read more

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Market Overview
US trade officials have confirmed they will suspend the March 1 tariff increases to Chinese products entering the US until further notice. US Trade representative Lighhizer said the country’s problems with China were to significant and to serious to be resolved by promises of further US product purchases, currently China have agreed to buy 30 Billion worth of agricultural products over the next 12 months. So as it stands China will get themselves another 60 days before tariffs rise to 25% from the current 10%. Trump has said this is an amazing deal. Markets were buoyed by early week positive comments but have since come off highs on risk aversion after the general feeling a deal could be a long way off being properly negotiated. Fed chairman Powell has said they will be patient and won’t rush to make judgement about changes in policy, instead waiting for economic data to flow in as they were in a currently in a good place economically. Consumer confidence bounced back in February after poor figures in January up from 1.21.7 to 1.31.4 which shows an improvement to business and labour conditions. Donald Trump has met Kim Jong Un for the second time in Hanoi for the nuclear summit. Trump seems to think the first meeting was a great success and the second dinner meeting would be even more successful. If he thinks North Korea will suddenly and openly declare denuclearisation in North Korea he is a better President than he looks.  As it turns out the US President has left early from the summit, saying “sometimes it’s better to walk away”. The Pound rallied to its highest level in over 7 months as markets digested prospects that a no deal was pretty much off the table and the UK’s leaving the EU party would be delayed. NZ Business confidence showed that 30.9% of respondents expected the economy to deteriorate over the next 12 months. Momentum over the last 6 months has slowed noticeably. Fonterra this morning have raised the milk solid price to $6.30- $6.60 per kg, the price is expected to go up further to $7.30 for the June 2019- May 2020 season from $6.90.

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Market Overview:

Currency markets closed lower Friday after investors became nervous around US/China trade talks. Over the weekend President Trump has delayed the planned increase of tariffs which were to take effect on 1 March. He said “substantial progress” had been made over the past few days with further talks planned in Mar-a-lago on the 3rd or 4th week of March to hopefully lock in a deal. Trump saying “a very good weekend for US and China”. The optimism around the meeting in Washington with the progress being made has been supportive of risk currencies, Monday morning has seen every major currency push higher including the NZD and the AUD. The kiwi received an extra boost when Retail Sales printed well up on the expected 0.5% at 1.7% for January, with decent spending on pharmaceuticals which is strange, duty free products and food. At the same time last year Retail Sales was also very good but with an increase of “grocery” sales. Australian Trade Minister Birmingham has downplayed the Friday claims of China imposing a full ban of Australian exported coal into China saying “I want to provide reassurance that we have no basis to believe that there is a ban on Australian coal exports into China or into any part of China,”. Apparently Chinese officials were just carrying out quality and safety inspections of imported coal to make sure they complied with laws and regulations to better protect Chinese importers. Checking the quality of Australian coal seems a little odd as the quality is of a much better standard than other countries provide – political retaliation perhaps. Support is building in the UK for an extension of article 50 past the 29th March deadline with EU senior officials in support of an extension by as much as 21 months past the deadline. 21 months seems an extreme amount of time with the more likely scenario being 2-6 months. Equity markets closed the week in positive territory amid fresh news coming from the Washington Trade talks with the DOW reaching 26000 for the first time since November. Interestingly after US indices had the worst December in 87 years markets bounced back gaining 7.9% in January – the best January since 1987. Historically when the equity markets start the year in the black they finish the year higher, with global uncertainty still on the horizon we will need to see economic data post significantly better than predicted over the second half of this year. The calendar this week looks reasonably exciting with most announcements to come from the US with the Fed speaking tomorrow and Friday as well as Trump who will talk on a range of topics. US GDP is Thursday along with manufacturing Friday. Key NZ data to release Wednesday is ANZ Business Confidence with Aussie Capital expenditure Thursday. Read more

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Australia

The Australian Dollar has been volatile in the past 24 hours after starting the week at 0.7080. The FOMC minutes bought nothing new to markets Thursday morning as they highlighted ongoing global uncertainty and the possible flow on effects from a slowdown in Europe and China. Equities all closed higher with the Aussie Dollar holding recent strength. Wage growth in Australia went backwards in the December quarter according to statistics wage growth grew by 0.5% coming in below the expected 0.6% pace expected. Unemployment data came in better than expected Thursday when employment was higher for January with employment jumping by 39,000 with 65,400 additional fulltime people and a downturn of 26,300 part time people. The wage data pushed the Aussie higher across the board on the news, against the greenback to 0.7205. Within minutes however, the AUD was back under pressure after Westpac suggested the RBA will cut interest rate twice this year. Overnight, reports of China blocking Australian imports of coal pressured the AUD further.        

New Zealand

Prices in the Global Dairy Auction held overnight Wednesday showed another healthy rise of 0.9% increase, this is the sixth consecutive price increase. A total of 25325 Metric Tones of product was sold with milk powder and cheddar making the most gains of around 2.8% and 2.95% respectively.  President Trump earlier comments to media were positive at the end of last week’s Beijing trade talks. He said the meetings went “extremely well” with further talks expected to continue today and tomorrow in Washington. The meeting in part will cover the pledge by China to purchase a significant amount of goods and services from the US. The US have highlighted the need for structural changes to be made in China. China more than ever looks to be engaged to reach a deal with the US. Next week’s main event on the docket will be Retail Sales ending January quarter. Read more

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Market Overview:

US Presidents Day holiday Monday made for quiet markets with a slow start to the week. The US Dollar came under pressure towards the end of the week which has carried over into this week’s trading pushing most currencies against the greenback north. President Trump declared a national emergency late last week in an effort to obtain his required 5.7 Billion to build his wall along the Mexico Border. He has already received approval by the democrats for 1.376 Billion but as per his campaign promise he is insisting the wall be built regarding a matter on national security. Going against congress approval could get the president in hot water legally. Thousands of people has rallied in protest against the national emergency on the Presidents holiday with protesters carrying banners saying “Trump is the Emergency”. Protesters and civil rights organisations have asked congress to step in and take action against the move by Trump. With the weaker US retail sales figures printing Friday the US Dollar index has come off to 96.78  but still remains fairly robust with equities pushing higher the three main US indices up over 2% from last Thursday. US officials met with Chinese negotiators in Beijing to hold further talks regarding the ongoing trade tariff disputes. Both parties have hailed the meeting as progress with further talks to continue this week in Washington. As the 2 March deadline looms where tariffs will be pushed from 10% to 25% we view the situation from the top of the fence – from here anything is possible. A swag of data is to publish on the economic docket this week starting with RBA minutes today and ending with FED members speeches at the end of the week. All eyes will also be on UK and Aussie employment figures. The New Zealand Dollar has a quiet week and will be driven by offshore developments. Read more

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Australia
The Australian Dollar has had a mixed week against the major currencies holding ground
against the US Dollar but posting losses against the Kiwi. The currency rode on the coat
tales of the mighty Kiwi Dollar after the RBNZ left rates unchanged Wednesday pushing up
broadly. It’s a very quiet week on the economic docket with only RBA  governor speaking
again Friday. Some support for the Aussie Dollar in 2019 could come in the form of higher
Iron Ore values with prices expected to rise over the coming months based on increased
demand in China. With the RBA coming out last week on three separate occasions with a
pessimistic Australian economy for 2019 we can’t sweep away speak of the RBA cutting
rates in the second half of this year. The RBA has left rates on hold since August 2016 but
we are predicting a drop to 1.25% in the second or third quarter with current dire signs we
have seen.

New Zealand
The New Zealand Dollar spiked higher Wednesday after the Reserve Bank of New Zealand
left the benchmark rate unchanged at 1.75% The general view of markets was for a dovish
tone but this never eventuated. Certainly not a hawkish statement but rather less dovish than
expected. As markets had priced in a bearish kiwi based on other central banks recently
downgrading their 2019 forecasts the kiwi got well long on the news. Adrian Orr said a
balanced outlook remains while warning that a sharp global downturn could eventually
weigh the NZ economy down. The next cut could be up or down with the probability of a rate
cut now 50/50 to the end of this 2020. President Trump stated the ongoing trade talks in
Beijing this week are making good progress ahead on the March 1 deadline where tariffs
will go from 10.0% to 25.0%. With this being said equity markets have posted a positive day
helping to boost the kiwi. Read more

Market Overview:

Major US indices have closed the week in negative territory after coming in lower Friday for the third straight day. The Nasdaq, DOW and S&P have posted the first loss in seven weeks based on a risk averse tone which has developed. With reports surfacing that the US/China trade negotiations may be delayed a while past the 2nd of March deadline for tariffs. Tariffs will go from the current 10% to 25% on this date with trade negotiator Robert Lighthizer saying China best hurry to speed up discussions. The US Dollar has had its best week in over six months with the US Index at 96.66 posting gains of over 1% on its rivals with over 2.2% on the Australian Dollar. The last time the big dollar made gains of this size was in August last year. The safe haven US Dollar really coming into play with investors preferring to stay in USD based on weakening global economy. Crude oil has a choppy week trading between 55.25 and 51.75 losing around 5% on global concerns. Recently Oil has had some support with OPEC supply cuts and sanctions over Venezuela. The New Zealand Dollar has been the poorest performing currency over the past week next to the Aussie falling against the major’s down 2.19% against the greenback from 0.6900 to close around 0.6742. Monday has seen the kiwi pick up early week support but with the RBNZ Cash Rate announcement due to release at the new time of Wednesday 2.00pm trading until then could be subdued. With recent Reserve Bank of Australia and Bank of England downwardly revised 2019 growth forecasts we are expecting more of the same from Adrian Orr in his statement to gauge direction and tone for 2019 Read more

Australia

Retail Sales figures published Tuesday came in light as we expected at -0.4% instead of the 0.0% markets were expecting putting the Aussie under pressure. The RBA left rates unchanged at 1.50% as it has done since mid-2016 saying downside risks remain over the following two years as they suggested a possible downgrade to the GDP forecast. Markets reacted with relief with the AUD recovering well into Tuesday evening sessions. Wednesday saw the Australian Dollar hit hard after news out in a speech by RBA governor Lowe adopted a more neutral bias, suggesting the economy could be weaker than forecasts suggest, the AUD against the big Dollar dropping from 0.7240 to 0.7100 Thursday. Lowe went on to say the RBA could cut rates if jobs growth deteriorates and the unemployment starts to climb.   

New Zealand

Waitangi Day Wednesday made for quiet local trading in the New Zealand Dollar, in fact except decent movement in the Aussie Dollar one could have argued Waitangi Day affected the whole market. US stocks were benign and Crude Oil also had no real change. The Kiwi however started to show signs late during the overnight sessions Wednesday what it was starting to feel the effects of some selling perhaps a by-product of the Aussie falling so hard, or perhaps a sign of things to come. Thursday’s employment figures for the fourth quarter showed the employment rate jumped from 4.1% to 4.3% reflecting a spike of 10,000 were added to the cue which was made up of 8,000 unemployed men and 2,000 women. This is the first time since 2010 that the figure was lower for women than men. Immediately after the news the kiwi was sold off across the board falling to 0.6770 against the greenback. The global dairy auction took place Wednesday night and published good numbers with prices up 6.7% on good quantity. These results only offered slight momentary relief for the kiwi.    Read more

Market Overview:

US economic data Friday by the bureau of statistics showed Jobs numbers print well up on expectations. The US economy added a whopping 304,000 jobs for January after figures were only expected to be around 165,000. The employment rate is back up to 4.0% from 3.9%. The report follows a 35-day Federal shutdown, the longest in history. The figures also highlights the 100th straight month of job growth. The US equity markets traded largely benign with the S&P and the Nasdaq trading down on the day.  January for equity markets turned out positive with gains of over 7.8% in the S&P- its best January month since 1987, 7.1% in the DOW and 9.7% in the Nasdaq.  With the terrible earnings reports last week from Caterpillar, ExxonMobil lifted the market Friday with gains of more than 3%. After a tough end to the year for Crude Oil it has bounced back to post gains in January of 16.3% which is a massive turnaround after losing around 9.0% in December. The Big Dollar has closed the week higher than all currencies except the Canadian Dollar. Talks by President Trump and the Democrats are not expected to produce a result for Trump containing the 5.7Billion he wants to build his wall, he said talks which took place over the weekend were a waste of time. February 15th is the day all hell could break loose in markets with Trump gearing to declare a national emergency over what he thinks is a crisis at the southern border. Temporary federal funding is expected to run dry around this date and another shutdown foreseeable. Trump has said without a border wall the US is subject to vast lawlessness including human trafficking with drugs and gangs pouring in. This week’s local driver will be Thursday’s NZ employment figures which are expected to be negative with the unemployment rate expected to increase to 4.1%. The Bank of England will announce their official cash rate on Thursday with expectations forecast to be 0-9 vote for rates to be hikes past the current 0.75%. Prospects of a no Brexit deal continue to gather pace with only around 60 days left until the UK must bail from the EU. There is still a massive amount of legislation to be agreed on before the deadline. Thousands of UK businesses are preparing plans for a no Brexit deal with many hinting of shifting to other countries. The RBA are not expected to hike their cash rate this Tuesday from 1.50%, with recent positive CPI numbers we may see a more of a hawkish view for 2019?  Chinese New Year over this week will ensure trading volumes are reduced, also NZ Labour day holiday Wednesday. Read more

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Market Overview:

A game of two halves…?…the US government shutdown has ended after a record 35 days, but we may see a redux come the 15th February!
President Trump succumbed to pressure over the weekend, ending the shutdown with no concession for “Wall” funding but instead provides time for Congressional negotiations over the next 3 weeks with a decision made before the current funding extension expires again on the 15th February, this result has seen a rise in risk markets. However, President Trump has said that if he can’t get a fair deal, he will either use his emergency powers or government will shut down again, look for more fireworks on this front over the next few weeks.
After a solid start to the year, investors are looking for more direction from a corporate earnings season that has so far been indecisive. Chinese Vice Premier Liu He has arrived in the US for what the White House is describing as “very, very important” trade talks this week. Amidst the backdrop of U.S.-China stress and geopolitical tensions in Venezuela, traders/investors also need to navigate the Federal Reserve rate decision, developments in the U.K.’s Brexit process and a potential slew of American economic data that was delayed by the government shutdown.
Brexit continues to dominate the Eurozone with the UK Parliament overnight voting not to delay the Brexit date of 29th March thus giving PM May an opportunity to send a unified message to Brussels to rip open the Brexit agreement or watch chaos unfold as the U.K. splits away from the bloc without a deal. The GBP has come under pressure as the chances of a no-deal Brexit are now perceived to have risen.
Also, on the agenda this week are further US/China trade talks, now complicated by the new indictments by the US Justice Dept against Chinese technology giant Huawei, along with the FOMC meeting and statement on Wednesday night.

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