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FX Update

Australia

Australian fourth quarter inflation rose a touch to 0.7% from 0.6% expectations with improved dwelling prices having the biggest impact. Tobacco, Alcohol and transport fuel costs also had modest rises but food prices such as fruit and vegetables impacting from fire stricken areas were benign – for now. These products should filter through into inflation numbers over first quarter 2020. The annualised inflation rate moved higher from 1.7% to 1.8% which will please the Reserve Bank of Australia with some banks now predicting the RBA won’t cut rates today until April. Retail Sales and Trade Balance print late in the week.   

New Zealand

New Zealand plunged 1.5c against the US Dollar last week largely based on Coronavirus fears.  NZ are now blocking travellers who have recently travelled through mainland China in efforts to try to keep the virus out of New Zealand. The ban starts today with the government placing restricted entry into New Zealand on all foreign nationals who have travelled from China or through China. The virus has now killed over 400 people with the affected now more than 20,000. The first death outside China has been reported in the Philippines. This week on the economic calendar we have employment numbers with the unemployment rate expected to stay at 4.2% and quarterly Inflation expectations. 

United States

The Federal Reserve voted 10-0 in favour of retaining the current cash rate at 1.75%. Comments from Powell suggested the economy has been rising at a moderate rate. Recent unemployment remains low and household spending has been rising at a decent pace. The current stance which is exactly the same as the December stance/statement from the Fed on monetary policy is appropriate and supports sustained economic activity. Powell ruled out late last year’s rate cuts forecast saying such a step would require a sustained rise above the forecasted 2% inflation target. Non-farm Payroll holds attention this week, with great numbers of late we expect at least 160,000 people entered the workforce in January with a stronger big dollar.

United Kingdom

The Bank of England left their benchmark rate on hold at 0.75% with the vote 2-7 in favour of no cut. The Pound shot higher off the release which was initially based on a predicted vote of 3-6 in favour of no cut with investors expecting a closer decision. The English Pound was the best performing currency over the week climbing a whopping 4.85% against the Australian Dollar amid a big week of “risk off” movement and optimistic bank of England. The UK formally left the European Union after 47 years on the 31st of January. Brexit parties were held across the UK with Nigel Farage saying “This is the greatest moment in the modern history of our great nation”. From here through to the end of 2020 the EU will remain in charge with very few immediate changes until then.   

Europe

Euro annual inflation ticked up to 1.4% Friday from 1.3% in line with market expectations rallying the Euro across the board. German CPI m/m also published in line with expectations at -0.6% and the y/y rose to 1.7% from 1.5% a five month high due to faster increases in food prices. The risk off theme continued early this week with the coronavirus outbreak affected on the rise. With Eurozone data this week thin markets await Lagarde speaking in Paris at the end of the week for direction cues. 

Japan

The Japanese Yen dipped Monday after January manufacturing results released down on expectations. The index represented a contraction of 48.8 based on an expected reading of 49.3 signalling a tough time for manufacturers as demand remains down. Last week investors flocked to the safe haven Japanese Yen as risks around coronavirus remained elevated and affected numbers ballooned. The Yen rose to a three week high against the US Dollar as it pushed the Australian Dollar to a 4 month low. With the virus struggling to be contained, risk off sentiment could well flow into this week’s action with the Yen pushing its peers further south. Friday’s Unemployment Rate clicked lower to 2.2% from 2.3%. This is the lowest it’s been this since around 1990 based on a labour shortage and an ageing population.       

Canada

Canadian GDP for November printed above the expected 0.0 at 0.1% growth offsetting a lot of October’s decline. Movement in the Canadian Dollar was tiny with only a small reprieve for the underperforming currency. Risk concerns around the coronavirus still weigh heavily on markets across the world as “risk assets” including the Loonie continue to plunge in favour of the safe haven. This week’s data sees employment print for January with a forecast for 5.6% unemployment to remain.

Economic Releases

Below are the weekly economic releases for this week (NZT)

Monday 03/02

  • 245pm, CNY, Caixin Manufacturing PMI
    • Forecast 51
    • Previous 51.5

Tuesday 04/02

  • 430pm, AUD, Cash Rate
    • Forecast 0.75%
    • Previous 0.75%
  • 430pm, AUD, RBA Rate Statement

Wednesday 05/02

  • 1045am, NZD, Employment Change q/q
    • Forecast 0.30%
    • Previous 0.20%
  • 1045am, NZD, Unemployment Rate
    • Forecast 4.20%
    • Previous 4.20%
  • 230pm, AUD, RBA Gov Lowe Speaks

Thursday 06/02

  • 115am, EUR, ECB President Lagarde Speaks
  • 130pm, AUD, Retail Sales m/m
    • Forecast -0.20%
    • Previous 0.90%
  • 130pm, AUD, Trade Balance
    • Forecast 5.60B
    • Previous 5.80B
  • 9pm, EUR, ECB President Lagarde Speaks

Friday 07/02

  • 1130am, AUD, RBA Gov Lowe Speaks 
  • 130pm, AUD, RBA Monetary Policy Statement 
  • 9pm, EUR, ECB President Lagarde Speaks
  • 3pm, NZD, Inflation Expectations q/q
    • Forecast 1.80%

Saturday 08/02

  • 230am, CAD, Employment Change 
    • Forecast 35.2k
  • 230am, CAD, Unemployment Rate 
    • Forecast 5.60%

FX Update

Coronavirus has now claimed the lives of 213 people – as yet none of these have been outside China. The daily confirmed cases keep climbing and are now 9,692 as of 31 Jan, but the true figure may not be known for another week or two as China withhold the true numbers. The virus has impacted markets over the week with investors largely risk averse.  

Financial Market focus has been in the US with US company earnings results with Thursday’s snapshot of Microsoft, Facebook, Tesla and Paypal share prices all jumping higher on better than predicted revenue predictions.

The Federal Reserve voted 10-0 in favour of a remain yesterday morning for 1.75%. Comments from Powell suggested the economy has been rising at a moderate rate. Recent unemployment remains low and household spending has been rising at a decent pace. The current stance which is exactly the same as the December stance/statement from the Fed on monetary policy is appropriate and supports sustained economic activity. Powell ruled out late last year’s rate cuts forecast saying such a step would require a sustained rise above the forecasted 2% inflation target.

Fourth quarter Australian inflation rose a touch to 0.7% from 0.6% markets were expecting with improved dwelling prices impacting. Tobacco, Alcohol and transport fuel costs also had modest rises but food prices such as fruit and vegetables impacting from fire stricken areas were benign – for now with influences to inflation likely to filter into numbers in first quarter 2020. The annualised inflation rate moved higher from 1.7% to 1.8% which will please the Reserve Bank of Australia with some banks now predicting the RBA won’t cut rates on 4 February until April.   

The Bank of England left their benchmark rate on hold at 0.75% with the vote 2-7 in favour of no cut. The Pound shot higher off the release which was initially based on a predicted vote of 3-7 in favour of no cut with investors expecting a closer decision. 

UK Parliament has formally approved Boris Johnson’s Brexit exit deal in a vote 621 to 49 which will pave the way for the UK to exit the European Union at the end of the year after a transition period. The UK has been part of the EU since 1973.

FX Update

Australia

The Australian Dollar is the weakest main board currency over the past 10 days as it has been sold off in risk off flows associated with the coronavirus. Although last week’s employment data highlighted an improvement for December 2019 it offered no relief for the Aussie Dollar as setbacks supporting poor market sentiment have been overwhelming. Add in bushfire costs and we still see a decent chance of a rate cut at the 4th Feb RBA meeting. Looking ahead we have quarterly CPI Wednesday forecast to be 0.6%      

New Zealand

Fourth quarter CPI figures showed a rise to 0.5%, up on the 0.4% expected sighting, increased costs in rental prices and airfares were sighted. This reinforces the RBNZ may not cut rates at the next meeting on 12 Feb given inflation targets fall within the targeted 1-3% over the next 12 months. 82 coronavirus deaths have been reported now with a further 2,700 cases confirmed in mainland China. 50 cases in 13 countries outside China have also been reported with 5 very close to home in Australia concern. This week we have no tier one data on the calendar to consider. Risk flows will dominate movement based on headline news with coronavirus.

United States

It was a quiet week for the US Dollar with no significant economic data printing. Only manufacturing showed moderate expansion of business for the month of January. While trade restrictions may be benefiting the US economy on the whole the latest evidence is suggesting that the manufacturing sector isn’t quite benefiting from Trump’s trade war. Tariffs have increased the cost businesses have to purchase raw products they need for production which has in turn reduced employment in some industries by 1.2%. The Federal Reserve announce their Cash Rate and Monetary Policy this week on Thursday morning – we expect no change from the 1.75% with only small tweaks in policy from the December meeting. Risks to overall growth are still skewed to the downside, we await the Fed chair comments.   

United Kingdom

The UK Unemployment Rate remains stable at 3.8% along with the employment rate which is estimated at 76.3%. Average Earnings also published well up 3.2% from 3.1% showing businesses are paying slightly more for labour.  Boris Johnson’s Brexit deal is one step away from becoming law after the Withdrawal Agreement Bill was passed Thursday morning. The Bill now only needs royal approval for the UK to leave the EU on the 31st of January.  This week’s calendar sees the Bank of England (BoE) publish their cash rate and monetary policy announcement with expectations of a 7-2 vote in favour of rates to stay on hold but after positive employment data chances have increased to around 50%

Europe

The Euro continued its downward slide into Tuesday after ECB Lagarde somewhat dovish comments last week. French and German Manufacturing came in well showing a rise in production growth but flash PMI data for January shows the Eurozone economy has failed to show early 2020 growth. The Euro could face further downward pressure this week as the safe haven US Dollar plays a part with coronavirus impacting markets. The Spanish Unemployment Rate prints and is expected to show a small rise to 14.0%

Japan

The Bank of Japan monetary policy showed Japan’s economy is expanding at a moderate pace and should continue the trend through 2021. Governor Kuroda said they would not hesitate to ease if momentum is at risk of weakening- sighting offshore risks and an upwardly revised 2021 GDP to 1.1% from 1.0%. Japanese Unemployment Rate comes out this week with figures expected to click up to 2.3% from 2.2% 

Canada

The Bank of Canada left the benchmark rate unchanged at 1.75% last week and changed their fourth quarter growth forecast from 1.3% to 0.3% and now predict 2020 growth will struggle to meet the 2.0% target. The chance of a March 4 rate cut has now increased considerably after these results with some speculating a mid-April cut may enter the fold. The Canadian Dollar was hammered post the release over the main board of currencies and has extended declines into today. Monthly GDP prints later in the week.

FX Update

Headlines surrounding the Coronavirus sent markets into a risk off tone Wednesday sending the NZD and Aussie currencies lower. Markets fears eased into Thursday when Chinese officials talked down concerns but further attempts to calm investor confidence failed into Friday with more deaths and reported cases. Equity markets and associated risk products made early gains but fell into risk off Friday.

The English Pound recovered early week losses when employment data published well. The Unemployment Rate remained stable at 3.8% along with the employment rate which is estimated at 76.3%. Average Earnings also printed up at 3.2% from 3.1% showing businesses are paying slightly more for labour. This may dampen expectations of an interest rate cut at next week’s BoE meeting with the probability of a rate cut still around 60%. Boris Johnson’s Brexit deal is one step away from becoming law after the Withdrawal Agreement Bill was passed Thursday morning. The Bill now only needs royal approval for the UK to leave the EU on the 31st of January.     

The Canadian Dollar was in the spotlight Thursday morning- the Bank of Canada left the benchmark rate unchanged at 1.75% but changed their fourth quarter growth forecast from 1.3% to 0.3% and now predict 2020 growth will struggle to meet the 2.0% target. The chance of a March 4 rate cut has now increased considerably after these results with some speculating an April 15 cut may also come into play. The Canadian Dollar was hammered post the release across the board and remains soft into Friday. 

The Bank of Japan monetary policy showed Japan’s economy is expanding at a moderate pace and should continue the trend through 2021. Governor Kuroda said they would not hesitate to ease if momentum is at risk sighting overseas risks and an upwardly revised 2021 GDP to 1.1% from 1.0%.  

New Zealand Inflation for the fourth quarter 2019 published this morning publishing at an annualised growth rate of 1.9% up from the third quarter 1.5% with declines in food prices while airfares and rental costs provided the lifts. This inflation will give the RBNZ confidence in keeping the cash rate at 1.0% when they meet on the 12th of February.

Central Bank’s hold Focus with BoJ, BoC and BoE

Australia

Chinese fourth quarter GDP came in on estimate at 6.0% and Industrial Production was significantly higher than the 5.9% expected at 6.9% assisting the Aussie Dollar late in the week into this morning’s trading. With Chinese imports of Iron Ore at close to record highs in December as well as local production up 12.0% at the same time in 2019 we could see a well buoyant AUD over the coming days/weeks. Also supported by the recent signing of the phase on trade deal between the US and China and talk of phase two underway we should see the AUD well supported for a while if risk sentiment allows. Data this week is limited to the Aussie Unemployment Rate and employment change.

New Zealand

Then New Zealand Consumer Price Index has been rising steadily over the past few years but not quite as fast as recent quarters. The index for the second quarter of 2019 was 1032 (plus 0.6%), rising to 1039 (plus 0.7%) for the third quarter a record quarterly high. The average quarterly rise from 1925 is 318.31 with the average over the past decade at 1018.29 according to statistics. The figures are based on a basket of products and services. Rental increases in various centres across New Zealand particularly over the past year have a big part to play. Fourth quarter CPI is due this Friday the only notable local data which is expected to come in with a 0.4% (1015) rise.

United States

Martin Luther King holiday Monday kicked off the week at snail’s pace. US Dollar value continues to grind higher with a steady flow of decent data. President Trump’s impeachment trial gets underway early this week which all seems a non event. With Trump’s republican majority in the senate there is no way he will be packing his bags. Currently the senate is made up of 53 Republicans, 45 Democrats and 2 Independents. Why the democrats pursued this is strange – he will be acquitted, and that will be that. US housing data published Friday in the form of new residential construction for the month of December showing a rise of 3.9% in new builds or 1,416,000 below the revised November reading of 1,474,000 but 5.8% above the December 2019 number of 1,339,000 a strong rise. These recent figures highlight a return to the mid 90’s housing strength. Federal Reserve’s Harker was on the wires saying the economy was tracking to reach the 2.0% target inflation and achieving economic growth of 2.0% in 2020.

Europe

The European Central Bank met Friday and discussed concerns over negative interest rates to Eurozone households. There has been some optimism since they met back in October 2019 but global bond yields have remained below expectations since mid 2019. The Euro continues to taper off in 2020 versus the US Dollar and the Aussie Dollar. This week we have German Producer Prices and ECB’s Lagarde speech as the main events along with the ECB rate meeting.

United Kingdom

The GBP was the strongest performing main board currency over the past week- up 0.60% against the Australian Dollar. Retails Sales for the three months to December 2019 printed Friday came in lower than we were expecting at -0.6% after 0.5% was predicted. Since these numbers represent Christmas sales it really is a terrible number. Chances are they will cut rates at the next Bank of England meeting on 31st January. This week on the economic calendar we have UK Average Earnings Index numbers with expectations of an annualised three month moving average of 3.1% rise which should fall in line with recent figures representing reasonably consistent labour pay increases.

Japan

The Bank of Japan meet this week to discuss Monetary Policy and Interest Rates. Bank of Japan’s governor Kuroda spoke last week highlighting his positive outlook for the Japanese economy for 2020. However, he said he would not hesitate to ease monetary measures if required. “Japan’s economy is likely to continue on a moderate expanding trend” he said. The Japanese Yen continues to be sold off in 2020 against the big dollar to 110.00- early May 2019 levels as positive US economic data continues to weigh heavy. We will watch any outcome on currencies when Kuroda speaks this week as he often drops hints about future policy and rate changes.

Canada

The Bank of Canada announced their Monetary Policy Report this week and Cash Rate Statement on Thursday with expectations that they will leave the cash rate unchanged at 1.75% for a while. Recent employment data surprised to the upside after dire readings in October and November reflected just how on edge the economic situation is especially with annualised growth is barely at 1.0%. Unemployment showed an improvement dropping to 5.6% which has a fair impact on any decision not to drop the cash rate sooner rather than later along with rising housing markets. Remember the Canadian economy is still the only developed country trading with a inverted yield curve.

Major Announcements last week:

  • Martin Luther King Holiday makes for thin markets Monday
  • UK House Prices lifted from 2.3% in January to be 2.7% y/y
  • UK Retail Sales prints at -0.6% for December from 0.5% expected
  • Chinese Industrial Production lifts to 6.9% from 5.9% expected

FX Update

After years of negotiations and fears of a global recession the phase one trade deal between China and the US has now officially been signed. The deal includes some immediate reduction in tariffs but most will remain in place until phase two has been agreed. The 200B trade deal comprises of 40B of US agricultural products, an increase of the previous 24B the two parties were working off from 2017.  Most of this will come in the form of Soybean with China needing to buy around 80% of the total US produced supply. 77.8B in US manufacturing products like cars, aircraft and machinery, 524B in US oil and gas, 37.9 in financial services which includes protections over intellectual property.  Equity markets charged to fresh highs as a result of the agreement with overall sentiment improving with currencies mostly weirdly unchanged post headline news.

President Trump’s impeachment trial gets underway early next week which all seems a waste of time. With Trump’s republican majority in the senate there is no way he will be packing his bags. Currently the senate is made up of 53 Republicans, 45 Democrats and 2 Independents. Why the democrats pursued this is baffling – he will be acquitted, and that will be that.

The Bank of England Board has recently been discussing the prospects of cutting the cash rate on the 31st of January to allow for uncertainty and potential economic disruption post Brexit. The EU and UK have until the end of 2020 to agree on the terms for a trade agreement. Boris Johnson has vowed to “get Brexit done” by December 2020, however a government report suggests this transition period of 11 months won’t be long enough. The report also warned that businesses won’t be ready and agreeing on the terms of the new relationship with the EU will take years to sort. This is before we add in Northern Island complexities.

FX Update

Australia

Data out of Australian has been positive to start 2020 with a “triple data boost” taking the Aussie off early 2020 lows. Last week’s Building Approvals printed a whopping 11.8% based on forecasts of 2.1% and Trade Balance rose to 5.8B surplus from the predicted 4.1B we were expecting. Also, Aussie Retail Sales closed the door on a buoyant week of support for the currency after figures showed a print of 0.9% growth for December Sales from the forecast 0.4%. This week could see further buyers of AUD push the currency over 2020 opening cross prices. Chinese Trade Balance today and later in the week when yearly GDP prints could be the main drivers. Iron Ore prices are holding steady around 93.50 from the 2020 open of 92.58. 

New Zealand

Happy New Year to all our Direct FX clients and readers.   

The 2019 festive season was less volatile than the previous year but we still had thin trading conditions with decent swings taking place. It will take a couple of weeks before currency pairs are back in full swing with regular volatility as market participants filter back into markets. The New Zealand Dollar over the course of 2019 was stronger than the Australian Dollar and the Euro but weaker than all other majors. The kiwi has started 2020 on the back foot slipping from recent highs due to risk factors. Tier one data in 2020 starts this week today when NZIER Business Confidence releases.

United States

The US Dollar is the strongest currency performer over the past week with the Index improving from its early January lows. Friday’s Non-Farm Payroll release printed slightly weaker than the predicted 160,000 jobs at 145,000 with downward revisions of 14,000 each month for November and October. Average Hourly Earnings came in at 0.1% from 0.3% predicted and the unemployment rate was unchanged at 3.5%. These numbers were seen as largely benign and somewhat boring. This will give the Fed further optimism to keep their view that no change to policy is required. It seems recent threats by both the US govt and Iran has turned into a storm in a teacup with both sides opting out of a war scenario for now. Consumer Price Index and Retail Sales are the anticipated economic events of the week.

United Kingdom

The Bank of England Board has recently been discussing the prospects of cutting the cash rate on the 31st of January to allow for uncertainty and potential economic disruption post Brexit. The EUI and UK have until the end of 2020 to agree on the terms for an trade agreement. Given it’s already taken over 3 years to get to this point this timeframe may seem a long way out but it’s not. Also, the EU have said they won’t be rushed into making a deal just because it’s convenient for the UK – currently Boris Johnson has not made any allowances for any extension past 31 December. This was voted in by MP’s last week and now must get the nod from the house of lords before being law. UK CPI y/y and Retail sales for December publish this week.

Europe

Eurozone CPI Estimate for December published at 1.3% meeting expectations and beating November’s 1.0%. The Euro lost a chunk of its value over 2019 against a broad range of currencies based on poor economic data, international trade concerns and political risks. During late September the currency hit a yearly low versus the big dollar at 1.0900 as economic conditions in Germany weighed on prospects along with the ECB risk of further easing to monetary policy. Many analysts believe 2020 will be a better year for the Eurozone with more support for the EUR. Expectations are that the Euro could be trading about 1.15 by the end of the year against the Dollar- especially if the US election brings surprises. Against the NZD we expect prices to pivot around the 0.6000 area for most of the year.

Japan

The Japanese Yen has reversed late 2019 gains across a raft of currency pairs into 2020 with the currency the worst performer last week. With tensions easing in US/ Iran and a benign US Non-Farm Payroll reading ending the week, investors exited Yen and bought back risk related assets. Optimism surrounding the US/ China trade deal has also added a better mood with investors and not to mention higher equity prices have driven economic sentiment. The Japanese current account will be up around 1.8T- anything less than this could impact the Yen    

Canada

Despite favorable employment data out in Canada early Saturday morning the Canadian currency was strangely unmoved. Jobs numbers showed an improvement from the 24,000 people who entered the workforce to 35,200 and the Unemployment Rate dipped from 5.8% to 5.6%. These represent good numbers BUT, with the Canadian Economy still trading in a negative/ inverted yield curve – the worst since 2000, this should spark the Bank of Canada to drop the cash rate. The 10-year government bond is 40 points below the 3 month rate as an example. The only reason the BoC did not drop rates on the 5th of December is they are tracking around the 2% inflation target. The next monetary policy release is January 23rd with good enough reason we believe based on the inverted yield to cut rates to 1.5%. No data on the Canadian calendar this week.  

FX Update

Happy New Year to all Direct FX clients and readers. 

The 2019 festive season was less volatile than 2018 but we still saw a fair amount of thin trading conditions with some reasonable swings taking place.

It will take a couple of weeks yet before currency pairs are back in full swing with regular volatility as market participants filter back into markets. 

The New Zealand Dollar over the course of 2019 was stronger than the Australian Dollar and the Euro but weaker than all other majors. The Euro turned out the worst performance, with the Canadian Dollar holding a staggering first place even though it’s the only currency to carry a negative yield.

The kiwi has started 2020 on the back foot underperforming on risk factors, the worst performing currency. Tier one data starts next week with NZIER Business Confidence.

We saw a big turnaround in the Global Dairy Auctions with results showing a rise of 2.8% in the overall index from mid December’s negative 5.1% with solid numbers in Butter Milk and Whole Milk Powder products. 

Thursday’s mood turned positive with equities bouncing back from losses after improved appetite for risk after Geo-Political uncertainty eased. President Trump and Iran confrontations calmed after the US assassination of Qassem Soleimani, Iran’s most powerful military leader. Iran has said they would retaliate but Trump made comment that any come back would be met by the US targeting “Iranian Culture Sites”. This implies committing war crimes – but is most likely to just be threats. 

Data out in the US showed the Trade Deficit shank to 43.1B for November making the lowest level during the Trump administration since October 2016 from 46.9B. US Manufacturing index data rose in December to 55.0- This is particularly evident given Manufacturing has been part of the backbone to the rise of the US economy over recent months. Week’s end US Non-Farm Payroll is the focus with Unemployment expected to remain at 3.5%

GBP Fireworks Ahead

Australia

News out of Australia has been largely lacklustre over the last week with Australian markets having had to digest conflicting data- the bumper US jobs numbers on Friday, galvanising confidence in the market regarding the health of the US economy going into 2020. Then, Chinese trade balance data, which revealed a surprise fall in exports, and reminded the market that China’s economy is still feeling the ill effects of its trade-war with the United States. Business confidence data out later this afternoon will be the driver of the AUD with China PPI and CPI later in the afternoon also capable of providing further direction.

New Zealand

The NZD has continued to hold onto gains made last week, grinding to a high against the USD of 0.6576 last Friday. A minor pullback Monday after a mixed overnight session with the NZD/USD now around 0.6552 US-China trade remained in focus as markets looked for signs of progress before a fresh round of tariffs are set to take effect on 15 December. Locall focus is on tomorrow’s Half-Year Economic and Fiscal Update. The NZD looks well supported at current levels but new US tariffs on Sunday, if implemented could dent market confidence in the trading/risk currencies leading to further pullbacks in risk sentiment.

United States

US markets opened the week on a positive note after the much better than expected Non-farm payroll figure last Friday at 266,000 jobs (expected 180,000) created for the November month along with a further reduction in the unemployment rate down to 3.5% from 3.6% with broad- based across most industry sectors. This has seen US equity markets rally sharply along with the US dollar as markets pared  back expectations of further Fed rate cuts. Better direction will be gained this  Thursday when the US central bank the Fed, at its final meeting for the year will release its rate decision…no rate cut is expected but as always the market will closely look at the subsequent press release to see if any forward projections have been changed. Taking a back seat over the last week has been the SIno/US trade talks , with little concrete news but the tone appears more confident that at least a “phase 1” deal may be reached before Christmas, but whether this will be enough to stop the automatic imposition of more US tariffs this Sunday,15th December remains to be seen…If the new tariffs go ahead this would be seen as a negative for risk trades and should further benefit the USD.

Europe

The last meeting for 2019 of the ECB will be held on Thursday with a press conference to follow. This will be the first ECB meeting with  Christine Lagarde presiding over her first rate decision amid a growing dispute over the bank’s loose monetary policy. While Lagarde is a dove that supported Quantitative Easing and low interest rates, she has struck a calm tone in her first public appearances. The French politician will aim to bring more unity  to the bank and is unlikely to make any radical decisions…no rate change is expected , but look for comments on “governments to do more” similar to Draghi’s previous statements.
After a bout of negative data, some positive news overnight from Germany unveiling its October Trade Balance, which posted a trade surplus of €20.6B. Imports in the month were unchanged against a 0.1% decline expected, while exports increased by 1.2%, much better than the -0.3% forecast.  October industrial production for France, Italy and the UK is released tomorrow and this will be closely watched for any evidence of a basing in the slump outside of Germany. 

United Kingdom

All eyes this week on the outcome of the general election on Thursday. The GBP has firmed over the last week as polls have indicated that a Conservative victory is likely, however over the last few days this margin has started to erode and given the lack of accuracy of the predicted outcome of the 2017 election market action is likely to become more volatile.
Any result that does not show a clear Conservative majority should see a sell-off in the GBP as more uncertainty will erode business and investor  confidence. we expect choppy trading leading up to Thursday’s result …Friday morning NZ time should see the first results.

Major Announcements last week:

  • US Non Farm Payroll surprised at a whopping 266,000 new jobs
  • US Unemployment rate clicks lower to 3.5% from 3.6%
  • Aussie Retail Sales drags on the AUD
  • Canadian Unemployment goes higher to 5.9% (previous 5.5%)