Market Overview:
Trade war, NAFTA and N.Korea all dominate the news.
Friday’s US Non-Farm Payroll figures were negative as the headline print of +103k came in way below the expected +188k, markets reacted accordingly dropping the US Dollar like a lead balloon and helping to raise currencies like GBP, EUR, AUD, CAD and the New Zealand Dollar (NZD). US Unemployment was also below par printing at 4.1% when 4.00 was expected. The Fed’s FOMC minutes Wednesday may read hawkish in line with the dot plot. Trade discussions have continued with the US government and China officials this week, with so many new requests by each party it’s hard to keep track of just who is winning the battle. President Trump tweeted: China will take down its trade barriers because it’s the right thing to do. Taxes will become reciprocal and a deal will be made on intellectual property. It’s clear the US Government wants to negotiate. Over the weekend Steven Mnuchin acknowledged the potential for a trade war but at the same time said he wasn’t expecting it to happen. As things progress it’s evident that the US has the most to lose as President Trump continues to put pressure on China with tariff threats, China has a potential route out of the trade conflict that would be extremely detrimental to both countries as they have an option to open new trade connections to Asia, Africa, and Europe. Plans are surfacing that China could possibly devalue the Yuan as a weapon in the current trade war. China’s president Xi has announced plans to further open up the Chinese economy by significantly lowering tariffs for autos and other products. Xi’s address was seen as positive for markets with him saying China does not seek a trade surplus and has a desire to increase imports. Markets turned to favour risk and the New Zealand Dollar (NZD) and other risk products are significantly bullish late Tuesday.
Australia
The Australian Dollar continues to bounce around in a fairly directionless manner. It has been amongst the worst performing currencies over the last few days. Being dictated mainly by offshore influences has kept it on the back foot. The Australian Dollar has been tracking recent movements of the China devaluing the Yuan. Australia has close ties to China and its commodity sector with all eyes being on president Xi speaking at the Boao Forum in China. NAB Business confidence printed slightly down Tuesday on expectations and devalued the Aussie against the crosses. RBA governor Lowe speaks Wednesday about Australian and Global economies where we should see some much needed support for the Australian Dollar (AUD) if a hawkish mantra develops.
New Zealand
The New Zealand Dollar (NZD) has continued to push higher against a basket of currencies with markets taking on more risk dictated by US/China trade talks affecting risk sentiment with market participants and investors. Equity and commodity markets were all higher on the weekly open and have continued to improve. A trade war seems like it won’t eventuate, but we will still see a yo-yo market continue with high volatility gripping the market with no signs of letting up. NZ business confidence improved slightly on Q1 figures after dropping late last year based on an unexpected change of government. The figure was -9 versus -11 in Q4 but it was +5 before the September election. Friday we have the business NZ manufacturing index which could give the NZ Dollar (NZD) a stronger platform heading into next week’s quarterly CPI.
United States
Trade talks continue to dominate the headlines. Non-Farm Payroll published weaker than expected Friday at +103k verses and expectation of +188k with the US unemployment figure also publishing weaker at 4.1% compared to the 4.0% expected. The US Dollar was weaker across the board as investors chose to buy risk currencies. Equities and commodities were also up and continue to push higher as markets enjoy the risk on tone. Trade talks continue to change on a daily basis with China following through on its plans to impose a 25% tariff on soybeans. This would make life easier for countries such as Brazil who would potentially appear on the China radar. This would negatively impact on American Farmers as prices could drop suggesting a new choice of crop may be forced on them. The Fed releases the reserve minutes midweek from its 21st March meeting, Fed chairman Powell should re confirm his stance on a gradual but steady road ahead. President Trump meets in Lima, Peru Friday with reports suggesting he wants to announce the NAFTA deal of sorts. The US Dollar index trades at 89.89, with markets selling the US Dollar this should go lower heading into the weekly close.
Europe
After a week of losses for the EURO (EUR) it has surged back in favour late last week and continued its momentum early this week to trade at 1.2320 against the USD. Fridays US Non-Farm Payroll report was not as positive as the markets were expecting coming in at +103k with the expectations of the number being +188k. Average hourly earnings was up, printing at 2.7% but wasn’t enough to offset the US Dollar weakness with investors ditching the US Dollar. Stocks were all higher Monday with market makers appearing to dial back the tough tone in the trade talks between the US and China. Analysts still remain concerned of future directions in the talks with the potential for things to get ugly quick still a possibility. For now the EURO (EUR) is lapping up the current support with it surely eying the late March figure of 1.2470 especially if data continues to print unfavourably for the US Dollar, Crude Oil Inventories and CPI m/m release later in the week.
United Kingdom
The British Pound went into the weekend making big jumps against most of its rival currencies being the best performer over the last few days. Against the US Dollar (USD) it has come from a low of 1.3980 Friday to go as high as 1.4150 in a market which saw the US Dollar sold off in support of the pound as investors took onboard more risk. The latest pound (GBP) poll has suggested most are optimistic with the current economic situation, the highest level since the Brexit referendum. End of April is the end of the tax year for the UK which seems to benefit the pound in April as a lot of repatriation of funds come back into the UK which are derived from offshore investments. We should see the GBP continue to appeal to buyers but note volatility is still elevated with the ongoing Trump-US/ China talks still taking centre stage. Buying the Pound through to January 2018 levels of 1.4320 seems to make sense.
Japan
The Japanese Yen reversed its bearish trend against the US Dollar (USD) to close the week in positive territory after investors continued to buy the JPY in risky markets. Closing the week at 106.90 after earlier in the week reaching 107.50, US Non-Farm Payroll figures printed negative at -103k far lower than the expected 188k bringing back bears to the market. Japanese cash earnings printed at 1.3% based on expectations of 0.5% showing more disposable income for the Japanese population boosting the Japanese Yen (JPY) Friday. This week we see Japanese consumer confidence and BoJ Kuroda to speak. We expect the Japanese Yen to retest last week’s high at 107.50
Canada
The Canadian Dollar closed the week over 120 points up on the US Dollar (USD) in a week of risk on, risk off sentiment based largely to international trade tariff negotiations and NAFTA. The Canadian Dollar (CAD) has started the week tentatively with the Bank Of Canada business survey showing sales indicators remain positive across most sectors. On Friday the US released a softer than expected Non-Farm Payroll figure with the indicator falling to 103k well short of the 188k expected but markets don’t appear to be too concerned as the March figure historically is always weaker. With months of negotiations on NAFTA negotiations an agreement looks to within reach now as long as outstanding issues can be resolved such as cars produced must contain at least 50% US content, and Trump’s demand for a wall on its border with Mexico. Next week’s Summit of the Americas in Peru is expected to bring an announcement of agreement. The pair currently trades around the 1.2700 area, the strongest the CAD has been against the US Dollar (USD) since late February 2018
Major Announcements last week:
• US Trade talks continue with China
• US Non-Farm Payroll prints weaker at +103k versus 188k
• UK House Price Index up at 1.5% against expectation of 0.1%
• China President announces plans to lower tariffs on imported autos
• Australian business confidence prints down on expectation