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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.
Australia
Risk sentiment in markets has pushed the Australian Dollar up over the three week resistance level of 0.7135 to reach a high of 0.7150 against the US Dollar Friday. Risk currencies surged after US data came in weaker than expected and positive trade comments were made by Trump. Talks held in Beijing ended without any controversial and the yanks not throwing their toys. Trump commenting saying good progress was made. This week in Washington further discussion will be held to potentially resolve the long term tariff problem. We will certainly see a pickup in the mineral dependent Australian economy if trade talks continue positively and we see higher iron ore prices as expected. This week it’s all about Jobs data, starting with Wage price index Wednesday then Employment data Thursday. The unemployment rate is expected to remain at 5.0%
New Zealand
The New Zealand Dollar pushed into new territory prior to the weekly close, the strongest currency of the major bunch. Against the US Dollar it travelled through 0.6850 resistance on its way to reach 0.6875, nearly 2.5% higher versus the Japanese Yen as positive risk sentiment in markets and currencies was evident. President Trump 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 this week in Washington. While some economic data locally has been weaker of lately, comments are surfacing suggesting the NZ economy is not stalling and the chances of a severe downturn are unlikely with the inflation forecast not expecting to go below 1.0% This week we have a light calendar with only the Global Dairy Auction Wednesday. With positive prices over the last 6 weeks can we go one better than last fortnights result of +6.7%?
United States
Trump again is the center of attention as he declares a National Emergency to build a wall along the Mexico border to stop illegal immigration. The White House has defended his move under a 1976 law giving presidents authority. He has requested funds of 5.7 Billion and received approval for only 1.376 Billion from congress. We note that of the previous 59 occasions prior which presidents have declared a national emergency none have been in direct refusal from Congress. Trump now plans to use other funds put aside for other projects to get the wall off the ground, he may receive lawsuits to stop him using these funds. The plan is to build over 320 Kilometres of walls in time for Trump to stand again for re- election. Poor US data kept the US Dollar on the back foot as Retail Sales printed down at -1.2% after 0.1% was expected along with US industrial production falling 0.6% after expectations of 0.1% for January. However the University of Michigan Sentiment index lifted to 95.5 from last month’s 91.2 boosting the greenback. This week’s sees a slew of Fed speakers later in the week.
Europe
The Euro has been caught in a downward spiral against most currency pairs based on recent central bank dovishness. Last week it drifted to a low of 1.1235 before a little optimism creeped back into play with the Euro clawing back losses to 1.1320 against the bearish weakened greenback. Significant to this move is the break away/higher from the bearish move from 1.1515 as the Euro looks to improve on this early this week. While we have also a lot of USD risk with the US political scene, yields are still showing plenty of room for bigger adjustment from the Fed. The bi-product of this, is a good chance the EUR will trade back towards the yearly high of 1.1600 over the next few months. French and German Manufacturing figures release on the economic docket this week as well as the ECB President Draghi speaking later in the week. The French will be hoping they can repeat the good numbers from last month and make it two in a row.
United Kingdom
The English are starting to buy up Euros as the Brexit deadline draws closer. Figures out are suggesting purchasers of Euro are up by matching the statistics of recent years. The British are a worried people and have demonstrated their fears of the Pound depreciating sharply if the UK crashes out after 29 March this year. The Pound had mixed results last week losing 2.20% in value to the New Zealand Dollar but gained on the Yen. Friday’s trading saw a reversal of sorts with renewed enthusiasm for risk trades and US Dollar weakness. Versus the greenback it came off a low of 1.2770 to trade back at 1.2920 Monday morning. UK Retail Sales gave the GBP a kick releasing at 1.0% from the 0.2% expected rebounding from December’s -0.9% illustrating tough times around Christmas for the British. This week’s unemployment rate and average earnings should show a slight improvement also in the December figures
Japan
The Japanese Yen is the weakest performer over the past week depreciating against all the major currencies, coming off 2.4% against the New Zealand Dollar. Risk sentiment has been good this week with a positive mood coming from President Trump towards his border Wall fiasco and trade talks with China. Japan’s economy grew by 1.4% y/y in the final three months of 2018 rebounding off the third quarter contraction of 2.6%. Analysts remain concerned that exports in Japan will weaken this year if the US government and China don’t resolve their ongoing trade dispute. Although the economy has rebounded it is still losing momentum, the longer the dispute wears on the weaker exports will be in Japan. Monday afternoon’s Japanese Machinery Orders printed better than the expected -1.1% at -0.1% this is the total number of machinery orders received by 280 manufacturers in Japan for the month of January.
Canada
Following on from Canada’s whopping job numbers figures from the previous week was manufacturing Sales which printed way down on the 0.3% expectation, to -1.3% denting the CAD. Manufacturing numbers decreased for the third month in a row with the most notable falls in petroleum and coal products. With a recent weaker US Dollar and a surging Crude Oil price back over 55.00 we have seen price move off 1.3300 levels to 1.3220 Monday versus the big dollar. In 2019 OECD levels are expected to increase through to June with projected totals expected to end at 2.96 million barrels. For 2020 stocks are projected to be 105 million more to end 2020 around 4.06 million barrels, with these numbers so high the price could be compromised, and price could be significantly lower. The Bank of Canada speaks Friday prior to Canadian Retail Sales.
Major Announcements last week:
- RBNZ leaves cash rate unchanged at 1.75% – Orr’s comments spike NZD
- Brexit article 50 could be extended past 29 March 2019
- UK Retail Sales releases at 1.0% from 0.2% expected boosting GBP
- US Retail Sales prints poor at -1.2% weakening the greenback
- US and Chinese officials make progress with trade tariff dispute
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