Market Overview:
US President Donald Trump threatened to close down the federal Government in September this year if congress didn’t approve further funding for his wall to be built on the border of Mexico. Trump will no-doubt run into issues when his idea won’t be supported by fellow Republicans. He signed a Trillion Dollar spending bill which will keep the government funded through to the end of September 2018. You will remember how the government briefly shut down in January 2018 over immigration differences then. The US Dollar has surged of late with home sales and services PMI both supportive publishing well above expectations earlier helping the US Dollar to advance over all the main G10 currencies. Everything of note recently has published well for the Americans including upside on inflation which should lead the Federal Reserve to hike rates three more times this year. The next announcement is this Thursday morning NZ time along with the usual monetary statement. Consensus is that the cash rate will for now stay at 1.75%. The US Dollar index firmly rejected a 92.00 handle late last week along with the 10 year yield coming off its four year high of 3.035% to close the week at 2.96%. The Dow came off its high of 24400 mid last week and could remain under pressure if the 10 year US bond rises further. The US cannabis index jumped more than 15% the biggest one-day gain of the year based on a shift in US cannabis policy. President Trump signed a letter in support of letting each US State decide how to regulate marijuana, in a statement protecting state cannabis rights. This could send cannabis stocks soaring to all-time highs. The Marijuana Index is currently trading at 88.81 and has setup to potentially be one of the best products in 2018 to invest in. This week we have NZ unemployment rate publishing which should offer the NZD support above crucial 0.7000 against the greenback if last month’s drop of 0.2% is anything to go off. Brexit news out overnight is suggesting a deal to exit the EU is becoming less likely with the Cross party amendment passed with support of 19 Tory Rebels winning by a majority of 91 votes. Ministers have warned that should government vote against the deal by negotiators, Britain would leave the bloc with no agreement.
Australia
The Australian Dollar (AUD) lost further ground over the week and has started the week on the back foot again. The RBA will announce the cash rate today at 4.30 NZ time with no expectation of an increase to 2.00 from 1.75% just yet. The RBA has not raised rates since 2010 and it looks like this could continue being the case well into 2019. Interestingly the view on this has been somewhat divided with some predicting a hike as early as today to 2.00%. While unemployment is ok and inflation in the general range the attention now is on next week’s budget as any broad based economic development will certainly heighten any need for an increase. This week we also have a speech from governor Lowe along with trade balance on Thursday.
New Zealand
Friday’s Trade Balance surprised to the downside publishing significantly lower at -86M based on expectations of 270M but failed to depreciate the kiwi. ANZ Business confidence released weaker than predicted on Monday and stalled the NZ Dollar from an early open higher. This week we have a busy day Wednesday with GDP and employment figures to release. Unemployment is expected to stay unchanged at 4.5% for March. Anything less and we should see the kiwi trade lower continuing its bearish mood, against the US Dollar its pivoting above 0.7000 and could test key support here. Keep an eye on US Non Farm Payroll Friday.
United States
The US Dollar continued to push higher against its main rivals late last week after supportive data boosted the greenback. Towards the end of the week the Dollar came off its highs even though quarterly GDP published well higher at 2.3% from an expected 2.0%. This reflects the sentiment now that the US economy is still very buoyant but growth may not eventuate as fast as predicted. Attention on the 10 year US Treasury yield has diminished after rising to 3.035% late last week from its four year high, back down below the physiological 3.00% area to 2.957% putting pressure on the US Dollar (USD). The US Dollar index is also down off its 92.00 high to 91.54 as we head into a week full of US local data publications including the Federal Cash Rate, closing with Non-Farm Payroll.
Europe
Last week’s Central Banks interest rate meeting went as predicted leaving policy unchanged for a period longer. Dragi highlighted the moderate expansion of the economy saying interest rates would be left at current levels for some time. Following on from the reaction of this was a weakened EUR breaking through key support against the US Dollar (USD) at 1.2100 as investors took stock of a softening Eurozone looking forward. The other key driver of USD strength and the demise of the EURO (EUR) has been the US 10 year yield trading over 3.00%. The US Dollar (USD) holds a position of strength with continuing weaker than predicted data- German Retail Sales has fallen well below expectations at -.06% with economists predicting an increase by 0.8%. Later in the week we have Spanish unemployment and CPI.
United Kingdom
Preliminary GDP Friday disappointed publishing well down at 0.1% for the first quarter of 2018 after 0.3% growth was expected. This was after rising a significant 0.4% in the fourth quarter of 2017. The British Pound suffered across the board generally falling over 2 cents against the US Dollar. Economists seem to have put aside any Bank of England (BOE) excitement of a rate hike for next week’s announcement after the disappointing data. It’s possible we now may not see any further hikes until 2020. This really does make us rethink our view of the overall UK economy with slower overall growth more than likely because of lagging consumer and wage growth. Manufacturing and Construction figures this week should be interesting to gauge where medium term support lies for the Pound.
Japan
The Japanese Yen (JPY) lost ground during the later stages of the week against its closest rivals. Considerably depreciating against the US Dollar as closing the week at 109.10. The Bank of Japan (BoJ) left the benchmark cash rate unchanged as expected but highlighted in the following monetary statement that they were looking for a possible exit strategy for their quantitative easing program by 2019. While inflation data was heading higher earlier in the year the idea that 2% could be achieved has been omitted from discussions suggesting an unreasonable target? Growth for Japan is still good with Manufacturing and Consumer confidence to publish this week.
Canada
The Canadian Dollar (CAD) performed as expected last week with a lack of economic data driving the currency. With US support in favour most pairs dropped in value, the CAD was no exception. Poloz governor suggested the Canadian economy was on target to meet its inflation targets during his monetary policy announcement and seemed encouraged by recent economic fundamentals. Economists have since factored in a 48% chance of a May 30th hike. This week we have manufacturing and trade data along with Poloz to speak on Household debt. Also of note this week we have Crude oil inventories, the market are optimistic of a positive result in line with April 26th 2.2M release which could give the CAD renewed momentum.
Major Announcements last week:
• USD remains well supported
• BoJ leaves the Cash Rate unchanged
• NZ Trade Balance prints well below expectations at -86M versus 270M
• ECB Interest Rate left unchanged at 0.0
• Brexit exit takes a turn
• AU CPI prints down on expectations of 0.5% coming in at 0.4%