Australia
Lowe’s comments post the RBA minutes signalled a shift in mood as he succumbed to a reality of a slowing Australian Economy as he sets an initiative to cut rates starting from the 4th June policy meeting. As wage growth weakens off after the RBA hoped the labour market would strengthen, the time has arrived to come out of denial. Inflationary pressures have also dropped below forecast after expectations that it would return to its target range of around 2%. First quarter 2019 showed a fall to 1.3% y/y from 1.8% y/y in the December quarter – the lowest inflation rate since the third quarter 2016. This week the Aussie has a light economic docket with just Building Approvals and Capital Expenditure q/q Thursday. Rate cut pressures should continue to weigh on the Aussie heading into June 4 and beyond with the potential for possibly 3 cuts this year which would lower the cash rate from 1.5% to 0.75%.
New Zealand
The New Zealand Dollar under performed into Thursday but closed the week in the black across the major currencies. Even though Equity markets posted declines we saw resilience in the kiwi and Aussie both come off earlier lows to push higher. This doesn’t happen very often as the kiwi tracks market risk sentiment very closely, we think this was due to profit taking in the market with investors being extremely short NZD. We also think the overall market sentiment could be that NZD has been exhausted on the downside – for now. The kiwi closed the strongest currency heading into the weekend. Fonterra dropped the 2018-2019 milk solid pay-out forecast price from NZD $6.30- $6.60 to the bottom of the range to $6.30- $6.40 along with the Global Dairy Auction results posting the first index decline in 2019. Adrian Orr speaks Wednesday prior to the ANZ Business Confidence survey. Thursday’s NZ “Wellbeing” Budget will be read at 2pm.
United States
Fed minutes offered up no real surprises with the meeting not changing the pessimistic market mood. Friday mornings poor US data, with PMI and new Home Sales, has bought home the true significance and worry of the global economic downturn. New Home Sales declined for April recording the largest m/m drop since December 2018 and signals that the housing market is on tender ground with the crucial spring selling session underway. Purchases of new home sales fell 7% in April. Folks in China and the US are becoming increasingly worried of the impacts and tensions of the tariff dispute and how it could affect the long term recovery of growth. This is according to a new report run by the (IMF) International Monetary Fund. The IMF warned markets of being to0 optimistic of a short term result being negotiated between China and the US, so rightfully they have dropped their 2019 global growth forecast from 3.5% to 3.3%. The 10-year US treasury yield extended its decline slumping to the lowest level of 2.29% since December 2017. Today is a US holiday in observance of memorial day so market volume will be thin. Friday all eyes will be on quarterly prelim GDP which is expected to print at 3.1%
Europe
The European parliamentary elections have taken centre stage over the last few days with voting underway across Europe and the UK, as voters now await election results. European voters have turned out in their record numbers to vote. More than 400 Million potential voters across 28 countries had the right to vote with the far right, greens making significant ground over the centre. Estimates have suggested that approximately 51% turnout the highest in 20 years. Estimates on Sunday are suggesting the centre-right European People’s Party will remain the largest bloc in the European Parliament but loose around 40 seats. The centre left Socialists and Democrats group are expected to lose about 40 seats. All together they should capture around 322 seats over the total of 751 seats in the house. The Liberals are expected to take 100 seats up from the 68 in 2014 and the Greens could get around 70 seats 18 more than in 2014. Once voting is in, the newly formed parties will begin negotiating to form new parliamentary groups with the current term finishing on the 1st of July and the new parliament taking their seats in parliament on the next day. On the Calendar this week we have German prelim CPI m/m. German and French holiday’s Thursday.
United Kingdom
Theresa May has officially resigned. A teary eyed May has resigned as the British Prime Minister Friday. This stabilised the English Pound across the board retracing previous weeks declines heading into the close. May put in a huge effort to steer Britain out of the EU but ultimately fell short of delivering a Brexit deal which could be agreed. On three separate occasions her Brexit agreement wasn’t good enough. She will remain the Conservative Party leader until June 7th. Britain will vote in a new leader who will ultimately handle all Brexit negotiations. The competition for a new leader will begin on 10th June with Boris Johnson the current front runner to replace May. Now that Johnson has a good chance of getting the top job he has pegged back his trash talk and will follow a more centrist view. Johnson is still considering a “no deal” Brexit. A bill was passed recently to stop this happening – the British people want an exit deal, if the new leader is able to present a fresh Brexit exit strategy “deal” a fresh referendum will more than likely take place. Whatever happens the UK is set to depart from the EU on the 31st October. UK Retail Sales showed a pick up for the month of April at 0.0% based on expectations of -0.3%
Japan
The Japanese Yen retraced off the weekly price of 110.66 against the US Dollar as risk sentiment deteriorated as buyers sought the safe haven JPY after escalations intensified in the trade war between China and the US. Suffering losses over the last three days of trading the JPY is possibly also the beneficiary of weaker US treasury yields- the 10-year dropped in value to 2.29% thus making it the lowest price since December 2017. The Japanese Nikkei Manufacturing PMI came in at 49.6 missing market expectations for 50.2. This week the Japanese Unemployment rate publishes along with Retail Sales Friday and Consumer Confidence. As global market fundamentals remain fragile the JPY could appreciate further this week and beyond.
Canada
The Canadian Dollar remains choppy against the US Dollar and other main board currencies, dropping to 0.8690 against the New Zealand Dollar, an early November 2018 low. Tariff trade concerns have affected the Loonie a risk currency with global growth concerns weighing on sentiment. Disappointing US data has helped to realign the IMF global growth forecast lower from 3.5% to 3.3% sending equity and commodity markets lower. Crude Oil has continued to deteriorate from around 64.00 per barrel at the start of the week closing at 58.48 dragging down the CAD with it. Canadian Retail Sales surprised at 1.1% for the month of March coming in higher than the 0.8% markets were expecting, rising for the second consecutive month boosting the CAD slightly prior to the close. Thursday’s Bank of Canada cash rate will be the focus with the rate expected to remain unchanged at 1.75%
Major Announcements last week:
• Bank holidays in the UK and USA Monday
• Bank holidays Thursday in France and Germany
• NZ Retail Sales improve slightly to 0.7% from 0.6 q/q
• UK CPI y/y prints at 2.1% slightly lower than 2.2% expected but above target 2.%
• Canadian Retail Sales prints at 1.7% m/m after 0.8% was forecast
• May resigns as Prime Minister