Another crazed lunatic has gone on a shooting spree in the USA. Robert Bowers stormed into the Tree of Life synagogue in Pittsburgh over the weekend and opened fire on its patrons with an AR-15 semi automatic rifle and 3 handguns killing 11 people and wounding many. The killer yelled anti-sematic comments during his frenzy. Six people were also injured including four police officers. The shooter was described as being an isolated and awkward man who lived alone and struggled with basic interactions. Equity markets in the US closed down for the week with the DOW at -3.0% and the S&P and Nasdaq both around -3.9%. Amazon plunged 10% after its 3rd quarter revenue fell short of expectations and Google was left backtracking after sexual misconduct allegations. This week we have company earnings results for Coca Cola, General Motors, Apple, Starbucks, US Steel and Exon Mobil so we expect the roller coaster to continue well into this week with volatility in equities and currencies. The New Zealand Dollar could come under further pressure on a lack of local data this week if further risk aversion continues. The Bank of Japan (BoJ) releases its interest rate decision Wednesday with investors widely expecting the rate to remain unchanged while a few fine tuning policy changes are expected. US Non-Farm Payroll releases at the end of the week with 190,000 people expected to be formally added to the workforce for October. Average hourly earnings follows with expectations of a jump from 2.8% to 3.1% p/a with US unemployment also releasing around the 3.8% area up from last month’s 3.7%. The US Federal Reserve will be watching these results closely to re-affirm the continued tightening program into 2019.
Australia
The Australian Dollar was the worst performing currency last week along with the New Zealand Dollar after falling to multi year lows across the board and dropping to a 2016 low against the US Dollar. The Chinese Yuan made for tough going with the Yuan dropping to its weakest level for over a decade. The Yuan got close to key physiological levels around 7.0 versus the greenback, having not been this low since the Global Financial Crisis of 2008. Chinese policy makers have allowed the depreciation of the Yuan in an effort to keep exporters happy based on the ongoing tariff war with the US. As the Australian Dollar is reliant on a buoyant Chinese economy based Australian natural resources into China, the Aussie has mirrored every move. All eyes will be on Australian Retail Sales and quarterly CPI releasing this week, with another turbulent week expected in global equities we could see the Aussie trade lower on a lack of positive risk sentiment.
New Zealand
The New Zealand Dollar was the weakest currency last week losing around 3.7% of its value against a basket of 8 other currencies. Dropping to a low against the US Dollar of 0.6470 with heavy selling in Equity markets put massive pressure on the kiwi. With risk averse condition as they were, the NZD was actually fairly resilient considering the falls in equities it should be trading a lot lower. Monday’s trading was light with the NZD/USD pair trading just above the open Tuesday. We expect a trading to remain neutral this week holding the range between 0.6430- 0.6600. Further risk aversion in due with US Company earnings results to continue this week making headwind for the NZD. Friday’s all important Non-Farm Payroll will be watched with interest, figures are expected to be positive for October. We maintain our downward bias, end of month off balance sheet re balancing could also add to kiwi selling pressure over the next couple of days as well. The only local data on the economic docket this week is ANZ Business confidence Friday.
United States
US Company earnings results dominated news late last week with equities all down as a result. The selloff continued with disappointing results from Amazon and Google pulling stocks down further. The S&P fell 1.75% to 2658 a total of 3.9% over the week. Nasdaq was also down 2.07% to 3.8% for the week with the DOW also closing at 24,688 down 1.2% a total of 3.0% on the week. The US Dollar closed the week up 2.7% on its rivals after strong 3rd quarter GDP surprised markets. The result of 3.5% based on a predicted 3.3% shows an economy that has expanded above forecast without any increased inflationary pressures, the perfect storm I’m sure. The only part of the report which is not so rosy is residential investment which is 4% lower making it the third quarterly fall. The last time figures showed a similar trend was in 2008. The figures of new home sales also fell in September to the softest pace since December 2016. With the 30 year fixed mortgage rate shifting from 3.5% to just above 5.0% today the affordability is putting a dampener on sales especially with the Fed still raising rates, this could cause real concerns later. Attention this week lies with US Non-Farm Payroll with employment expected to increase by 190,000 people for October.
Europe
The Euro continued to struggle last week losing 1.0% in value across the main currencies. Falling to a low of 1.1340 versus the greenback this was the lowest level since mid August. Global equity markets have sunk to fresh lows the DOW, Nasdaq and S&P declining over 5% for in the past 7 days. Risk appetite has been dented with investors flocking to the Japanese Yen for safer yield. Geopolitical uncertainty has weighed on the Euro for several weeks with the ongoing spiralling Italian Debt crisis with the Italian government not backing down on the forecasted budget and Brexit woes, not to mention the ongoing trade war between China and the US. Last week the ECB maintained its 0% cash rate and reiterated that they would wind down their asset buying program in December 2018. We could see thin market trading in their sessions later this week with French and Italian holidays Thursday.
United Kingdom
The British Pound closed the week in slightly positive territory gaining 0.36% over its closest rivals. Against the surging US Dollar though it was a different story declining for the third straight week from the high of 1.3250 seen mid October to 1.2770 on continued uncertainty with Brexit issues and US equity losses. With things ticking along nicely in the US the disparity is evident in the GBP/USD currency curve with the Pound battling to stay above the yearly low of 1.2650 from August. Brexit headlines don’t make for pleasant reading with ongoing issues despite Theresa May saying the agreement had been 95% negotiated and agreed. The Independent’s petition to demand that the British people have the final say on Brexit has exceeded one million signatures. Hardcore Brexit extremists have said the “people” will take to the streets if they get another vote. The Pound will continue to weaken in the medium term but we think the value of the British Pound should be closer to 1.3500 longer term post Brexit.
Japan
The Japanese Yen has been the standout performer this week with markets being risk averse the Yen has been the currency of choice. The Japanese Yen, USD pair sank to 111.38 last week, its lowest level since September 13th caused by Equity falls and US Treasury yields amid large demand for Govt bonds. Traders in equity markets have endured a rollercoaster ride this week with most indices down over 5%. The Yen has pivoted off the 112.50 zone versus the greenback bouncing from 112.90 to 111.38 and back. With the Japanese economy heavily reliant on exports the ongoing trade war between the US and China remains a headache for the Japanese. In a report published this week Japanese policymakers were pessimistic about the export sector. In the report they have lowered forecasts of exports due to the ongoing trade disputes. The Japanese economy continues to recover at a reasonable clip a key factor is Trump has spared Japan’s auto sector from tariffs. China growth slid in the third quarter of 2018 which is bad news for Japan with China being Japan’s biggest trading partner. Investors will continue to react to US Equity shifts this week with US company earnings results expected from a group of massive companies such as Apple and Coca Cola. Several key data events will release including US Non-Farm Payroll data along with the Bank of Japan Cash rate announcement Wednesday, the BoJ not expected to change the benchmark rate just yet.
Canada
The Canadian Dollar has banked four straight weekly losses versus the American Dollar with this week looking like it could be the fifth with an early trend showing support for the US Dollar. Despite the Bank of Canada (BoC) raising rates last week to 1.75% from 1.50% the Canadian Dollar continues to lose ground with it depreciating over 1.8% in October. Governor Stephen Poloz reiterating in his statement the economy was no longer needing stimulus in a hawkish tone. The newly formed trade agreement between the US and Canada also had a fairly strong weighting on the result with further hikes expected. Oil prices are down just below 67.00 per barrel and have put clearly weighed on the currency along with the ongoing US/China trade war. Monthly GDP will print later in the week and is expected to show 0.2% growth along with Canadian Employment figures late Friday.
Major Announcements last week:
- US Core Durable Goods surprises markets at 0.1% from 0.5% expected
- ECB leave cash rate at 0.0%
- Bank of Canada hike rates to 1.75% form 1.50%
- US quarterly GDP prints at 3.5% from 3.3% expected
- Australian monthly building approvals publishes down at 3.3% from 3.9% markets expected