Scentre Group Posts AU$3.6 Billion Loss in H1 as COVID-19 Pandemic Bites

Scentre Group, the owner of Westfield-branded shopping malls in Australia and New Zealand, reported an interim loss of AU$3.6 billion in the first half of 2020 amid rising concerns given the negative effects of COVID-19 crisis and the impact on tenants’ ability to pay rent.

The owner of over 40 Westfield malls said it also took AU$232.1 million credit charge relating to COVID-19. Overall revenue slumped 16% to AU$1.1 billion and funds from operations plunged 46% to AU$361.9 million.

Scentre reported a net loss for the six months to June 30 from a net profit of AU$740 million in the year-ago period, due to AU$4.1 billion downward revaluation of its assets.

For the six-month period, the Group collected 70% of gross rental billings and for the months of June and July 2020, gross rental billings collections were over 80%. In-store sales, Scentre’s retail partners were impacted by the pandemic and the associated restrictions on people movement.

In-store sales for the retail partners that traded throughout the six-month period were 8.1% lower compared to the previous corresponding six-month period in 2019. Speciality in-store sales were 12.1% lower for the six-month period compared to the previous corresponding period.

Scentre Group’s shares gained about 4% to AU$2.09 on Tuesday. However, the stock is down over 40% so far this year.

Executive comments

“As customers are returning to our centres, more than 93% of retail stores are open across the portfolio (excluding our Victorian centres). Portfolio occupancy was 98.8% at the end of June 2020. We launched Westfield Plus, our membership customer engagement platform, at Westfield Newmarket in New Zealand in late 2019 and recently introduced the program in Australia. We now have more than 500,000 members on Westfield Plus and this continues to grow,” Scentre Group CEO Peter Allen said.

“The shopping centre industry has provided over AU$1.6 billion of support for retailers during the pandemic. Our industry is unique in that it has provided, and self-funded, a level of financial support beyond any other industry as well as most government pandemic support packages. We have agreed arrangements with 2,438 of our 3,600 retail partners, including 1,624 SME retail partners,” Allen added.

Scentre stock forecast

Morgan Stanley target price is AU$2.71 with a high of AU$3.95 under a bull-case scenario and AU$1.70 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Jefferies lowered their price target to $2.00 from $2.28; retained ‘Hold’ rating.

We think it is good to hold for now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst view

“We believe Scentre Group is better placed to recover from a COVID-19 world than other retail-dominant REITs. Across its portfolio, its malls are located in wealthier areas (by house price), with stronger incomes, and among the highest median population densities in surrounding areas,” said Simon Chan, equity analyst at Morgan Stanley.

“Its discretionary bias means that it is more leveraged to the well-being of consumers than other portfolios. However, we have factored for this by assuming that rent after COVID-19 will be reset to 15% lower, allowing for an economic decline. In our view, what’s priced in is worse than we think our analysis justifies,” he added.

Upside and Downside risks

Upside: 1) A sustained recovery in speciality retail sales, to 3-4% p.a. 2) A pickup in development activities, including third-party activity. 3) Strong recovery trajectory after COVID-19 issues – highlighted by Morgan Stanley.

Downside: 1) Rise in Interest rates at both at the short and long end of the curve. 2) Further deterioration in the shopping habits of consumers – towards omni-channels. 3) Retailers continuing to rationalise store networks. 4) Prolonged COVID-19 impact.

BHP Posts 4% Decline in Annual Profit Amid COVID-19 Slowdown; Warns Slow Growth Recovery Outside China

BHP Group, an Anglo-Australian multinational mining, metals and petroleum dual-listed public company, reported a decline in annual profit of nearly 4% to $9.06 billion in the second quarter and said except China, all other major economies will contract this year as a result of the COVID-19 pandemic.

The largest diversified natural resource company reported an attributable profit of $8.0 billion and underlying attributable profit of $9.1 billion broadly in line with the prior year. The company posted a profit from operations of $14.4 billion and underlying EBITDA of $22.1 billion at a margin of 53%, with unit costs reduced by 9%.

BHP Group also declared a final dividend of 55 cents per share, down from 78 cents a year earlier, or US$2.8 billion, which includes an additional amount of 17 US cents per share (equivalent to US$0.9 billion) above the 50% minimum payout policy. Total dividends announced US$1.20 per share, equivalent to a 67% payout ratio.

BHP Group expects that China and the OECD will return to their pre-COVID-19 trend growth rates from around 2023. Developing economies outside East Asia may take longer. Inflation trends and exchange rates have been volatile.

Executive comments

“We expect most major economies will contract heavily in 2020, China being the exception. Recovery will vary considerably by country. Our diversified portfolio and high-quality assets position us to continue to generate returns in the face of near-term uncertainty, even as we secure and create the options in future-facing commodities that will allow us to sustainably grow value in the long-term,” Chief Executive Mike Henry said in a statement.

“BHP’s operations generated robust free cash flow and our balance sheet remained strong, with net debt finishing the year at the low end of our target range. We have announced a final dividend of 55 US cents per share, bringing shareholder returns to US$6.1 billion for the full year,” Henry added.

BHP Group stock forecast

Eleven analysts forecast the average price in 12 months at GBX 1,820 with a high forecast of GBX 2,130 and a low forecast of GBX 1,450. The average price target represents a -1.15% decrease from the last price of GBX 1,841.20. From those 11, seven analysts rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is GBX 1,680 with a high of GBX 2,450 under a bull scenario and GBX 720 under the worst-case scenario. BHP Group had its price objective lowered by analysts at Royal Bank of Canada to GBX 1,900 from GBX 1,950. The firm currently has an “outperform” rating on the stock.

Other equity analysts also recently updated their stock outlook. UBS Group upped their price objective to GBX 1,850 from GBX 1,700 and gave the company a “buy” rating. Goldman Sachs Group upped their price target to GBX 1,850 from GBX 1,780 and gave the company a “buy” rating. Bank of America raised shares of BHP Group to a “buy” rating and set a GBX 2,050 target price.

Analyst view

“BHP’s portfolio mix and quality stand out among peers. The low-cost position of its assets enables the company to generate FCF yield even in a stress scenario. It maintains a strong B/S, giving the flexibility to pursue growth and/or increase cash shareholder returns, in particular given the company’s net debt target of $12-17 billion (post-IFRS16 adjustment) vs 1HFY20 levels of $12.5 billion,” said Alain Gabriel, equity analyst at Morgan Stanley.

“Spot FCF yields are comparable to peers, even without contributions from the Petroleum division, thus implying long-term optionality to a potential oil price recovery. We prefer BHP on a relative basis, given its attractive commodity mix ex-Iron Ore and free optionality on a potential oil price recovery,” Gabriel added.

Upside and Downside risks

Upside: 1) Growth projects (Jansen potash, Escondida growth, Spence hypogene, Olympic Dam) successfully executed. 2) Better operating performance, lower costs and capital expenditure. 3) Higher commodity prices – highlighted by Morgan Stanley.

Downside: 1) Execution issues at growth projects (Jansen potash, Escondida growth, Spence hypogene, Olympic Dam). 2) Weak operating performance, higher costs and capital expenditure. 3) Lower commodity prices.

Ampol Shares Fall over 4% as Company Eyes 49% Stake Sale in Convenience Stores Property Trust

Ampol Ltd, formerly known as Caltex Australia, said it would sell a 49% stake in the property trust for A$682 million that owns convenience retail sites, sending its shares down over 4% to AU$28.61 on Monday.

Australia’s largest publicly listed refiner said the deal values the entire property trust at AU$1.4 billion and the minority stake was in a newly formed property trust which would own more than 200 convenience retail sites throughout the country, Reuters reported.

However, the petrol company said it would retain a majority, 51%, stake in the convenience retail sites, maintaining operational and strategic control.

“Following the completion of our retail network review in 2019, we identified the opportunity to unlock the value of our high-quality retail property assets through a transaction that would demonstrate value, whilst importantly allowing Ampol to retain strategic and operational control over our core convenience retail network.” Ampol CEO Matt Haliday said in a statement.

Ampol said in the first year it would pay A$77 million in rental to the property trust and it is planning to utilize AU$612 million from the deal to cut its debt amid global uncertainty in the time of the coronavirus pandemic.

At the time of writing, Ampol shares traded 3.99% lower at AU$28.65 on Monday. The stock is up over 15% so far this year.

Ampol stock forecast

Morgan Stanley target price is AU$30.7 with a high of AU$41.7 under a bull scenario and AU$18 under the worst-case scenario. MarketGrader rated Ampol Limited SELL, based on an overall grade of 42.60 (out of 100) and said the company’s growth record is very poor across its top and bottom lines, suggesting it may need to consider strategic initiative. However, MarketGrader said the company’s shares look attractive relative to the stock’s current fundamentals.

The one listed on the U.S. stock exchange, three analysts forecast the average price in 12 months at $21.21 with a high forecast of $22.19 and a low forecast of $20.08. The average price target represents a 76.75% increase from the last price of $12.00. From those three, two analysts rated ‘Buy’, one rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Analyst view

“Ampol had a volatile 2019 in terms of stock performance, which has continued into early 2020 as a result of the oil and energy stock market sell-off given the risks arising from COVID-19. We see a turnaround from Q2 as retail margins improve,” said Adam Martin equity analyst at Morgan Stanley.

“Other considerations include: the effectiveness of Ampol’s operational and capital initiatives in response to weak economic demand from COVID-19; whether the favourable retail margins will continue and offset volume declines; evidence of continued improvement in its retail division; and as with Viva, a better refining outlook.”

Upside and Downside risks

Upside: 1) Higher refiner margins. 2) Higher retail fuel margins. 3) Delivery on cost-out and property. 4) Buybacks or capital management. 5) Stronger USD highlighted by Morgan Stanley.

Downside: 1) Lower retail fuel margins. 2) Lower commercial profits. 3) Softening fuel volumes.

Trading the EUR as Markets Re-Focus on Economics

S&P500 futures now reside 0.8% lower, with June WTI -1.5% and this should weigh on broader Asian equity indices, even if the moves should be less dramatic than opens gone by.

Keep an eye on the ASX 200 as price action is certainly looking less favorable for bullish upside and after a solid run, we’re seeing the daily ranges contract and indecision to push price higher. A rising wedge in the mix for the pattern traders out there, married with a stochastic shift in momentum.

Can the Aussie market lead a potential reversal?

So, one to put on the radar, even if the lead from Wall Street continues to be positive, with the S&P500 closing +2.7% and the Russell 2000 +4.3%. despite a 2% closing decline in June crude.  US equity indices aside, we saw a largely unchanged move across the US Treasury curve, while breakevens (inflation expectations) fell 4bp, resulting in 5- and 10-year ‘real’ yields gaining 4 and 5bp respectively.

Gold was hit hard, with a downside move of 2% and the weekly chart closed with a rather ominous looking candle, with spot -0.3% on open today. One to watch for a kick lower that may resonate with price action traders, even if the fundamentals for gold are solid, and perhaps the Fed announcing it was halving the daily pace of bond-buying to $15b is playing into the move – recall, this is one-fifth of the initial size of Fed asset purchases.

Gold bulls will say $15b is still a huge number and ultimately the Fed’s balance sheet has moved to $6.36t, taking excess reserves to $2.64t and these actions should support gold.

Copper is 0.2% lower on open, after gaining 2.2% on Friday and is another that hasn’t gone unnoticed and the daily shows how ‘The Doc’ is at a very delicate stage in the run. I am compelled to sell this move, especially when you look at the 20-year chart and how price is pushing on the former trend.

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Is copper just following the S&P500 or did the market price in too much bad news for 2020/21?

Personally, I fail to see economics lifting the fortunes of the metal and I know many are looking at 2021 and suggesting better times are ahead. However, we are coming into the eye of the storm and as the market starts to focus less on virus headlines, or at least will be less sensitive to better news, we will focus more on the lasting effects on the economy and solvency. US earnings season should go some way to highlighting this as well.

There is little doubt that last week saw an accelerant in the debate around the disconnect between the financial markets and the real economy. Awful Chinese Q1 GDP, US retail sales, NY manufacturing, and Aussie business and consumer confidence – to name a few – and this week that view will be pushed further with traders eyeing German ZEW, EU consumer confidence, EU PMI’s, weekly US jobless claims and German ifo.

That’s ahead of US ISM and NFP’s on 2 and 8 May respectively, where I am already seeing calls for as many as 28 million job losses in April.

It’s hard not to think this week’s data will be ugly though, and with so much data out of Europe this week, it’s fitting that we also get a Eurozone Head of State meeting (23 April). Expectations for this meeting to be a volatility event are low, with a focus on near-term clues around debt mutualisation. There is also speculation (source: FT) that the ECB is pushing for a so-called bad bank, which would ring-fence the bad loans on the balance sheets of EU banks. Whether this gets much airplay at this meeting is yet to be seen, but with the EU Stoxx bank index at such precarious levels, it is something EUR traders will be keen to watch.

As will be the case for Italian debt, with a new fiscal stimulus expected from the Italian govt, and narrative from the credit rating agencies, with S&P and Moody’s due to review on Friday and 8 May respectively. Few expect a sovereign ratings downgrade at this juncture, but any widening of the BTP-German bund yield spread could weigh on the EUR.

Trading the EUR this week

Trading the EUR will be interesting this week then, especially when taken into context of the debate being had as to where to for the USD. Funding markets aside, you still pay carry to be short the USD and that often gets overlooked.

Options markets often give good insight, and I see EURUSD 1-week risk reversals (1-week call volatility minus 1 week put vol) headed into -0.84. This shows a slight increase in put vol buying, which offers sentiment that traders are seeing modest downside risks. 1-month RR sit at -0.94 and shows a rising belief in downside potential. Spot EURUSD has found sellers into the 20-day MA and the bears need EURUSD to clear 1.0816 for a test of the 1.0766 swing. It’s a tough pair to trade now, and EURCHF is perhaps the cleaner trade – that is, if bearish EU assets.

Certainly, we’re seeing that in risk reversals (white line), where options traders are big relative buyers of EURCHF downside volatility. The moves in spot into the low 1.05 shows the momentum here and options traders are betting on greater downside…the question is whether this is too much of a consensus trade. Price will tell, of course, although I have no position at this stage, but a number of savvy traders have told me they are expecting a bullish reversal this week.

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Chris Weston, Head of Global Research at Pepperstone.

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Australian Earning Results: 17th February 2020

Sectors performance was mixed, with Information Technology, Energy and Real Estate leading gains of more than 0.5%, while significant losses were seen in the Consumer Discretionary and Communication Services sectors.

Brambles Ltd, Regis Resources Limited and QBE Insurance were among the best performers of the ASX200 today, following the release of the earnings reports.

Brambles Limited (BXB) widely recognised as a leading sustainable logistics business rose by more than 4% to $13.18 on an upbeat profit outlook, despite a drop of 9% in the first half net profit. The company manages to deliver sales and earnings growth in the first half in a challenging economic environment.

  • Sales growth +7% at the high end of the Group’s mid-single-digit revenue growth objective
  • Underlying Profit +5% includes +3pt benefit from AASB 16; sales contribution to profit, efficiency gains and lower lumber and transport inflation offset higher operating costs and asset charges across the Group
  • Net finance costs decreased 12% despite US$14m of lease interest recognised due to AASB 16. The decrease reflected interest income from Australian dollar deposits and lower debt funded by IFCO sale proceeds
  • Profit after tax (incl. discontinued operations) down (9)% due to inclusion of US$51.4m of IFCO earnings in 1H19. IFCO was divested in 2H19
  • Underlying effective tax rate decreased to 29.9% reflecting a change in mix of global earnings
  • Underlying EPS of 17.8 US cents up 1.0 US cent reflecting higher earnings and 0.3 US cent benefit from the share buy-back

Regis Resources Limited (RRL) reported a strong half-year net profit after tax of $93.4million. The Australian gold miner’s revenue was boosted by the sales price rather than quantity. For the 2020 outlook, the Duketon operations continue to be on track to deliver the annual production guidance. Its share price ended more than 3% higher

  • Record Net Profit of $93.4 million which represents a 17% increase in the prior corresponding period
  • Revenue of $371.4 million with 182,807 ounces of gold sold at an average price of $2,063 per ounce
  • EBITDA of $185.6 million with a strong EBITDA margin of 50%
  • Cash flows from operating activities of $147.2 million
  • A fully franked interim dividend of 8 cents per share declared
  • Production on track to meet full-year guidance 340,000-370,000 oz

QBE Insurance Group (QBE) announced an FY19 statutory net profit after tax of $550M, up 41% from $390M in the prior year. Its share price jumped by 4.24% to $14.75.

  • Adjusted net cash profit after tax was $733M, up 6% from $692M in the prior year
  • Adjusted cash profit return on equity was 8.9%, up from 8.0%2 in the prior year
  • Group-wide renewal rate increases averaged 6.3% compared with 5.0% in the prior year
  • Premium rate momentum accelerated across all divisions over the course of FY19, especially in International (particularly Europe) and North America
  • Group-wide renewal rate increases averaged 8.3%3,4 during 2H19

GWA Group Limited, the leading supplier of building fixtures and fittings to household and commercial premises performed strongly despite the struggling residential housing conditions. Tim Salt, the Managing Director highlighted the resilience of the business in the face of challenging market conditions.

  • Net Profit of $23.6 million
  • A fully-franked interim dividend of $0.08 per share
  • 1HFY20 revenue of $206.3 million and EBIT of $37.5 million

The Company’s share price rose by 2.05% to finish the day at $3.98 from $3.90.

Index Limited (IMD) share price traded in the red before lunch despite strong earnings reports. The mining tech company edged higher to close at 1.34% higher at $1.51.

  • Strongest half-yearly revenue of $127.9m – up 2% on 1H19 ($125.0m)
  • Underlying EBITDA of $28.1m1 – up 12% on 1H19 ($25.2m)
  • A robust balance sheet with a strong net cash position of $25.5m2 – up 24% on 1H19
  • A fully-franked interim dividend of 1cps declared – up 25% on 1H19 (0.8cps)

Bendigo and Adelaide Bank (BEN) issued its interim-results which a dividend cut and lower profits while announcing a $300 million capital raise and a trading halt.

  • Statutory net profit: $145.8 million, down 28.2 per cent, including a pre-tax software impairment of $87.1 million and accelerated amortisation of $19.0 million
  • Cash earnings after tax: $215.4 million, down 2 per cent
  • Net interest margin: 37 per cent, up 2 basis points (bps)

This week will be the busiest week for February’s earnings. We will see more companies reporting on Wednesday and Thursday. Stay tune for more updates by GO Markets!

Deepta Bolaky, Market Analyst at GO Markets.

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About GO Markets

GO Markets was established in Australia in 2006 as a provider of online CFD trading services. For over a decade we have positioned ourselves as a firmly trusted and leading global regulated CFD provider. Traders can access more than 250 tradeable CFD instruments including Forex, Shares, Indices and Commodities.


Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice

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2020 Kicks off with US-Iran and Climate Change Crisis

The start of the year was marred by the escalating tensions between the US and Iran while extreme weather conditions across the global triggered fierce debates about climate change.

What do we know so far about the tensions between Iran and the US?

  • Iranian-backed militia killed an American Defense Contractor
  • The US retaliated with missile strikes
  • The American Embassy in Baghdad was attacked
  • US airstrikes killed top Iranian military official, General Qassem Soleimani
  • Iran responded by launching missile strikes at two bases hosting U.S. forces in Iraq

As the world witnesses the rising tensions between the US and Iran, and a uniting Iran over the assassination of one of the most influential and powerful men, the downing of Ukraine International Airlines flight PS752 has caused an international outrage and brought internal division within Iran.

Beyond Economic War

The existential conflict between the US and Iran moved beyond an economic war. In 2019, the US announced further economic sanctions on Iran which brought the latter into a deeper recession. As a significant buyer of crude from Iran, China sees the situation as an impediment that can hurt its economy. The Iran risks may therefore overshadow the trade deal.

Investors have already pricedin some extent of the risks associated with Iran since President Trump pulled out of the 2015 nuclear deal and started to impose sanctions. Even though the headlines brought Iran back on the geopolitical risks radar and caused a spike in volatility, we do not see the conflict changing the investment landscape at this stage.

Climate Change

2020 is set to be the confirmation of a new era for climate change. As we entered a new decade, the extreme weather conditions around the world have forced leaders of many countries to reassess their actions over climate change and transform the global energy system.

In Australia, the unprecedented and raging bushfires across the country act as a warning to the world and has even challenged a reluctant Prime Minister to take more action

Energy Sector

Oil prices experienced their largest weekly drop since July 2019 despite the tensions in the Middle East. Coincidently, markets were hit by two contradictory themes for the oil and gas industry: Iran Risks and Climate Change.

Source: Bloomberg Terminal

It should be highlighted that the energy sector emerged as the worst-performing sector of S&P500 in the last decade. Investors are stepping into 2020 being accustomed to the global oil glut and the gradual shift in the oil and gas industry.

Iran risks fuelled expectations of a reduction in supply while the “green” shift lowers demand expectations.

Eyes are now on the US-China trade deal!

Stock Markets

Despite an erratic few weeks of trading, global stock markets have performed quite well:

  • Major equity benchmarks traded at a record high
  • US stock indices are trading higher by 1% and above
  • Most European Bourses are also experiencing similar gains
  • Australian benchmark outshines its peers with more than 4% gain
  • FTSE100 is lagging slightly behind with 1% gain

Brexit will remain the dominant factor for the UK markets. Despite the volatile year 2019, the FTSE100 posted two-digit gains. The Tory win had pushed the index above the 7,500 mark. Looking ahead, the Footsie is expected to rebound and investors are eyeing the next target at 8,000 level for 2020.

However, given that a large amount of earnings of the index is derived from overseas, an appreciation of the Sterling may hinder the performance of the FTSE100 to play catch up with its global peers.

Source: Bloomberg

Are Re-Pricing Risks Required?

The killing of the Iranian key commander took the markets by surprise. Heightened geopolitical risks have somehow become the new normal and unless there is any serious escalation, medium to long-term effect on the markets would be limited. In a new world of higher tariffs, de-globalisation, and historic low levels of interest rates, the most significant risks for 2020 are:

  • Trade deal outcome.
  • Central Banks.

Deepta Bolaky, Market Analyst at GO Markets.

Read Our GO Markets Review

About GO Markets

GO Markets was established in Australia in 2006 as a provider of online CFD trading services. For over a decade we have positioned ourselves as a firmly trusted and leading global regulated CFD provider. Traders can access more than 250 tradeable CFD instruments including Forex, Shares, Indices and Commodities.


Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

Brexit Update – As Britain Gears up for 12th December, Where are we on Brexit?

The Latest

Since the EU approved Britain’s Brexit extension to 31st January 2020, Brexit has been put on ice.

For Juncker and EU member states, the call for a general election on 12th December gave some hope that Britain’s decision to leave the EU could be undone.

MPs failed to deliver on a democratic vote over a period of 3-years of political wrangling.

Not only did the EU Referendum cut short the political careers of two prime ministers but also delivered the keys of Number 10 to the Brexiteer of all Brexiteers.

As the UK General Election rapidly approaches, the chances of Britain’s departure from the EU remains elevated.

Not only has Boris Johnson managed to put back together a Tory Party disarray but has also gained support from the electorate. That is if the opinion polls are anything to go by…

Brexit Manifesto

With just 19 days remaining until the General Election, the Tories look set to finally deliver on Brexit.

Boris Johnson, with an anticipated parliamentary majority, is expected to reintroduce his Brexit deal to Parliament before Christmas.

Electoral Calculus predicts the Tories to gain 43 seats on 12th December, which would give a majority of 72 seats.

The Tories manifesto is Johnson’s Brexit deal, with Johnson stating that the agreement is oven-ready.

On immigration, Johnson is also looking to end freedom of movement for EU citizens. The Tories plan to bring into effect an Australian-style points-based system.

Immigration had been a key contributor to Britain’s decision to leave the EU and continues to drive support for populous governments.

So, while Labour Party leader Corbyn sits on the Brexit fence, the upcoming General Election is and has always been a 2nd Brexit vote.

Johnson will deliver should he win with the projected majority. Corbyn, however, would give voters yet another visit to polling stations to decide on Britain’s membership. A 2nd vote in favor of departing the EU would then result in an attempt to renegotiate an already approved Brexit deal.

More uncertainty for Britain, the economy, the EU and, more importantly, the electorate…

The Pound

The Pound fell by 0.49% to $1.2834 in the week ending 22nd November. Having found support from the opinion polls and predictors going into the week, the televised debate on Tuesday and Q&A with political party leaders on Friday contributed to the Pound’s pullback.

Volatility will continue to build in the run-up to Election Day. Expect Brexit chatter and heated televised debates to also focus primarily on Brexit.

What Lies Ahead?

As Election Day gets ever nearer, we can expect Brexit chatter to build. While Johnson will continue to beat the Brexit Drum, the opposition party and the SNP, the Liberal Democrats will attempt to drum up support from the Remainers. There’s also the fence-sitters to convince…

Live televised debates on Sky News on Thursday and Question Time on Friday will garner plenty of interest.

Voters will have an opportunity to digest views from each of the main political parties.

Brexit fatigue has and will likely continue to contribute to the Tory Party’s upside in the opinion polls.

The Election could deliver a different outcome, however. Theresa May discovered this the hard way in her snap election that led to a minority government and a Brexit standoff.

If Johnson fails to win with a majority, a hung parliament would hand the keys of Number 10 to Corbyn. The SNP has already been clear that they would side with Labour as long as Corbyn allows another Scottish Referendum.

It would certainly be a testy time for Britain. Voters would not only have to vote on membership with the EU. The Scots would also have to also decide on whether to go it alone…

We sat down with Michael Stark, an author with Exness, and asked his opinion on the political situation in the UK and how it could affect Brexit and the economy.

Why do the financial markets prefer a Johnson victory and an orderly departure from the EU?

Companies and, by extension, markets, like stability. Although any form of Brexit is certain to stunt economic growth over the next few years, no deal is clearly the worst possible outcome for the economy. Businesses in general can handle a worse outlook, but they usually can’t handle extended periods of uncertainty very well.

Big and small businesses across the UK are understandably very reluctant to make significant investments or hire many new employees when nobody knows what form Brexit is going to take. We’ve basically been in this situation for three years now, starting when no deal was first seriously considered as an option in late 2016.

Mr Johnson has a workable and reasonably popular deal that might stop the seemingly endless debate and allow the UK and its inhabitants to plan for the future with a degree of sureness. After such a long wait, this is what markets crave.

A Tory Party loss would suggest that voters are in favor of Britain remaining within the EU. Such an outcome should lead to a vote in favor of remaining in a 2nd referendum. Isn’t that a better outcome for the Pound and the UK economy?

Probably but not necessarily. The real question here is what would constitute a ‘loss’ and what would happen in such a situation. Jo Swinson has repeatedly ruled out a coalition with Labour. Equally a coalition between Labour and the Scottish National Party if the Conservatives lose is by no means guaranteed. For either of these to happen, though, there’d need to be a fairly big swing away from the Conservatives across most of the country; this isn’t looking likely.

As far as many voters are concerned, Labour’s policy on Brexit just isn’t realistic. The party would renegotiate Mr Johnson’s deal and put it to a public vote against remain. The problem is that Labour wouldn’t take a side and campaign until later, so their promise to ‘get Brexit sorted’ within six months if they won the election looks a lot like a pipe dream.

Markets have basically priced in a workable majority for the Conservatives next month. Anything else would probably mean a sharp drop for the pound in the short term. Ultimately, a majority for Labour (which almost certainly won’t happen) would indeed be a better outcome for the pound in the further future despite the prospect of even more instability in 2020.

Both the Tories and the opposition party have thrown in pledges in a bid to woo Brexit fence-sitters. On the face of it, whose proposed policies would be more favorable for the Pound, Brexit aside?

Most likely Labour’s, but that’s mainly because the Conservatives don’t really have many policies other than getting Brexit done. Policies in Labour’s manifesto aimed at boosting investment would probably be very positive for the pound if implemented. That last bit is key: a number of British economists, while praising Labour’s intentions, have questioned how practical they are.

Labour’s proposed hike to corporation tax would certainly be bad for shares, but the proceeds of this being used for investment could spur the pound upward, Brexit aside. More investment by government would mean more jobs, and more jobs would mean more spending, boosting Britain’s economy and giving fundamental support to the pound.

The big issue though is that nobody can really put Brexit aside now: this election is basically about Brexit. With the deadline currently 31st January, most other policies are sideshows. Tinkering with corporation tax and targeting investment better don’t matter much when a country’s about to leave the biggest trade bloc in the world.


Disclaimer

Opinions are personal to the author and do not reflect those of Exness.

RBA: “QE is not on our Agenda!”

In a year that saw the RBA cutting interest rates three times, the speech around “Unconventional Monetary Policy: Some Lessons From Overseas” fueled speculations that the RBA is to tap into the unchartered territory of unconventional monetary policy: Asset purchases/Quantitative easing

What is Quantitative Easing (QE)?

QE is a process of creating new money which involves a central bank to buy mortgage-backed securities and Treasuries from its member banks to inject liquidity directly into its economy. There is no actual exchange of funds but the central bank issues a credit to the banks’ reserves as it buys the securities.

Therefore, QE increases the amount of money in the system and lowers interest rate. This particular method is usually used when inflation is very low or there is deflation, and conventional monetary policy has become ineffective.

RBA killed off the idea of QE in Australia

In reviewing the conditions from overseas that pushed major central banks to undertake QE, Governor Lowe outlines several observations why the current state of the economy will not require a QE intervention.

Above all, the Governor highlights that despite the weakness in the economy, the growth prospects, banking system, demographic profile and inflation level have not reached the same levels seen in Europe and Japan that have triggered QE.

Two More Rate Cuts?

The RBA sees QE becoming an option to be considered when the cash rate would be 0.25% and not before that. The Governor acknowledges that there are circumstances that QE will help but investors take note that the RBA is cautious with QE and it would only be used as a last resort if needed.

“…if – and it is important to emphasise the word if – the Reserve Bank were to undertake a program of quantitative easing, we would purchase government bonds, and we would do so in the secondary market.”

The RBA did not close the door to QE completely but has shrugged off the idea in the near term.

The Australian Dollar

The local currency rose higher after the RBA hosed down the prospects of QE anytime soon. However, the momentum was shortlived as market participants now expect two more rate cuts in 2020. During the Asian session on Wednesday, the Aussie dollar underperformed against its counterparts especially after Westpac’s dovish RBA expectations for 2020.

Source: Bloomberg Terminal

Australian Share Market

A combination of positive trade news and rate cut expectations have triggered a rally in the Australian share market. The ASX200 was up by 6.9% and closed at a record high of 6,851 on Wednesday.

Source: Bloomberg Terminal

On Thursday, the rally has tamed down as President Trump signed the Human Rights and Democracy Act into law which could potentially strain the trade negotiations. However, the ASX200 held onto gains despite trade risks and weak business investment data to close at another record high at 6,864.

The RBA has toned down the expectations of unconventional monetary policies in the near term but failed to rule out further rate cuts.

Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

Deepta Bolaky, Market Analyst at GO Markets.

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About GO Markets

GO Markets was established in Australia in 2006 as a provider of online CFD trading services. For over a decade we have positioned ourselves as a firmly trusted and leading global regulated CFD provider. Traders can access more than 250 tradeable CFD instruments including Forex, Shares, Indices and Commodities.


Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.

Daily FX -GBP Crowned as The Wild West of FX Again

Where, it feels as though volumes will track just below the 30-day average, with volumes through the S&P500 some 18% below this average.

The S&P500 closed +0.7% higher, where we can also see a +0.3% net change in the S&P500 futures from 16:10aest (the official ASX200 close). So, while Aussie SPI futures are down 6p from the cash close (hence the flat ASX200 call), we can look to the US and see the index giving us some belief of support at the open. Although, I am really clutching at straws here and would obviously want to see price looking more constructive before hitching a ride. It’s also positive that we’ve seen US small caps outperform with the Russell 2000 closing up 1.2%, and breadth has been pretty good, with 82% of stocks (in the S&P500) closing higher, with the only sector lower being utilities (-0.3%).

Yield curves suggest a sustained bullish move in risk is limited

There have been limited moves in the fixed income world, although we’ve seen a slight outperformance from the front-end, with 2-year US treasury’s closing -2bp at 1.50%. This has created a slight steepening of the 2s vs 10s US Treasury curve, but when this is still inverted by 2.6bp, the message we continue to hear from the yield curve is hardly one that suggests the S&P 500 is going to see a topside break of the 2943 to 2822 range, where price is currently in the 53rd percentile.

As I have suggested before, perhaps the best curve to focus on is the US 3-month vs US 5Y5Y forward rate. Why? Because the 3m Treasury is close enough to the fed funds effective rate, while the forward rate is the market’s interpretation of the longer-term neutral rate. That being, the implied policy setting in fed funds future for the anticipated levels of inflation and growth. With the 3m Treasury yield now 58bp higher than the forward rate, it quantifies how the market sees Fed policy as being too tight, and the Fed needs to cut by 50bp just to get to the neutral setting, that is neither stimulatory nor restrictive. Again, it’s hard to see equities rallying too intently in this environment.

Inflation expectations will keep the Fed from getting ahead of the curve

What we have seen moving is crude, with WTI closing up 1.6%, Brent +1.5% and gasoline +2.7%, driven by a monster 10m barrel in crude and 2.09m in gasoline draw seen in the weekly DoE inventory report. This was somewhat reflected in the price, given we saw an 11.1m barrel draw in the private API survey yesterday. This has helped push US 5-year inflation expectations (swaps) up another 7bp, and at 1.98%, it seems unlikely the Fed will do anything other than a further insurance 25bp cut, when the FOMC next meet on the 18th September.

The US data certainly doesn’t give the Fed scope to ease by 50bp, and the 8% probability of a 50bp cut, implied in rates markets, reflects that. Certainly, if we look at yesterday’s US consumer confidence print, we are yet to see the consumer feeling the world is a darkening place, even if business investment, trade volumes and manufacturing have been a red flag. Consider then, that the next ISM manufacturing report comes next week, ahead of the August retail sales report on the 13th, and that could be a market volatility event.

FX intervention unlikely… for now

In FX markets, the USD has rallied against all G10 currencies and had some bullish moves against EM FX too. The USD index is into the top of its range and would be higher if it weren’t for the fact EURUSD closed the session down a mere 12pips at 1.1078. It’s interesting that Treasury Secretary Mnuchin has said the department doesn’t intend to intervene in the USD for now.

With USD intervention such a hot topic, and the smoking gun for those calling for a future currency war, the use of ‘for now’ will be debated on the floors. We’ve got a decent idea of how intervention looks like, but what are the triggers that change ‘for now’, to ‘right now’. Is it a trade-weighted USD some 3-5% higher, the USD index pushing towards 103, with EURUSD into 105, or USDCNY moving markedly higher? Perhaps its these factors married with a higher rate of change…However, a market which feels US FX invention is coming is a market one step closer to buying FX vol in size as their play on currency wars and gold will be above $1600 in a flash.

GBP – the wild west of FX

GBPUSD has been the talk of the town though, with the price falling from 1.2286 to 1.2157 with Boris Johnson requesting to prorogue (suspend) parliament, something which was later approved by Her Majesty the Queen. The betting markets now have a no-deal Brexit at 45%, although a general election, perhaps after a short A50 extension, still seems the base case for now. However, one thing is for certain; we are in for a lively period of headline risk for GBP traders to navigate, when parliament comes back from recess on 3 September through to when they go back on recess on 9 September.

GBPUSD 3-month implied volatility

As many have commented, this is an incredibly tight window to pass new legalisation from the Remainer camp and a no-confidence vote, therefore, seems incredibly elevated to be enacted through this period. Of course, if neither play out then when parliament comes back on 14 October, with the Queen due to address the nation, then given the limited time until the Brexit deadline on 31 October, the risk of a no-deal Brexit will become the markets base-case. GBP is the wild west of G10 FX from here…consider your position size and risk tolerance above all when trading the quid.

Also, keep an eye on the AUD with private CAPEX data out at 11:30aest. Weak number in the planned spend could push AUDUSD for a further test of 67c, which has acted as huge support of late.

 

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Chris Weston, Head of Research at Pepperstone.

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Asian Equities: The FED and Geopolitics Drive the Majors

The Key Drivers

In spite of last month’s 25 basis point rate cut, the dollar found support off the back of minutes release and clung on to Wednesday’s gains. At the time of writing, the Greenback was up by just 0.01% off the back of a 0.11% rise from Wednesday.

U.S Treasury yields also held relatively steady suggesting that the FED’s unlikely to be delivering a series of rate cuts, despite the U.S President’s demands.

The FOMC meeting minutes failed to point to further rate cuts down the road. The rate cut was described as a recalibration of the stance of policy or mid-cycle adjustment. The first rate cut since 2008 was delivered to better position the overall stance of policy to help counter the effects of weak global growth, trade policy uncertainty and to promote faster inflation.

While the FED delivered on the rate cut, members had noted that there had been some improvement in economic conditions.

In spite of the more optimistic sentiment towards the economy, 2-year and 10-year Treasury yields had briefly inverted before reversing.

The FED may not have delivered what markets had been in search of, but, the minutes did suggest a more adaptable stance towards the economic environment.

It wasn’t just the minutes that influenced through the early part of the session, however. A reiteration of Tump’s lack of interest in reaching a trade deal with China also influenced. There was also talk of further U.S tax reforms to support the U.S economy.

The Stats

On the data front, prelim August Private Sector Composite PMI out of Japan provided direction early on.

The Manufacturing PMI disappointed, in spite of a marginally slower rate of contraction in August. A more material fall in new export orders weighed on the Nikkei. The Nikkei had been up by as much as 0.55% ahead of the numbers.

If anything, the fall in new export orders was a reminder of the effects of the ongoing trade war.

It wasn’t all doom and gloom, however. Service sector activity picked up midway through the 3rd quarter.

The Majors

The ASX200 index and Nikkei index closed out the day in positive territory, with gains of 0.29% and 0.05% respectively.

The prospects of an extended U.S – China trade war, the addition of Huawei affiliates to the blacklist and political unrest in HK continued to weigh on the Hang Seng.

From the bond markets, spreads between 10-yr and 2-yr Treasury yields failed to widen. The lack of movement also tested the market’s resolve.

At the time of writing, the Hang Seng was down by 0.89%, while the CSI300 was up by  0.29%. Stocks with revenue derived primarily from HK weighed on the Hang Seng on the day.

The article was written by Bharat Gohri, Chief Market Analyst at easyMarkets

Classic Make or Break Session

The cause of the recent move

The cause of the vol spike seems clear, but we have to revisit the ebb and flow of the market structure on Wednesday. Here we can see that the market dynamic centered on signs of better data in the US, and enough to confine the Fed to a 25bp cut. A US-China trade truce that had seemingly filtered into the background, sufficient that investors were happy to pay up for the historically higher earnings, supported by the lack of alternatives, low ‘real’ (inflation-adjusted) bond yields and subdued implied volatility.

Fast-forward a couple of days and are hit with the toxic-combination of Trump’s 10% tariffs on $300b of consumer-focused goods, China’s subsequent rebuttal with the halting the purchases of US ag products, and the symbolic gesture of China being labelled a currency manipulator. This series of events was absolutely not in the script, and we have been treated to a genuine shock to the system, that needed to be discounted rapidly. The spike in implied volatility saw volatility-targeting funds dumping risk, and we’ve had a solid shake out.

The politics of tariffs

The market has clearly formed a view that this saga has far more to play out, with a number of investment houses saying we will not see a deal between Xi and Trump until after the 2020 US presidential elections. Trump wants to lean on the Fed to support his hawkish plans to use trade as a policy initiative, designed to galvanise his base and elevate his election chances. However, the Fed currently sees a US economy lacking a need for aggressive stimulus, at this juncture, and the issue of independence has become so great that we saw the unprecedented step of all four prior Fed chairs putting an op-ed piece out to the world.

Just take St Louis Fed President James Bullard comments (in US trade), who has become a reasonable proxy of the Fed collective, with comments that “trade has been tit-for-tat since the spring or even earlier than that,” And, “I’ve already taken into account that trade uncertainty is high and going to remain high.

China, on the other hand, will be hoping the US economy weakens sufficiently that the Democrat candidates can leverage off any economic fragility as a policy miscalculation. With hope, they can forge a far more compelling deal with a less hawkish government. Although, the near-term risk is that China may have to withstand Trump lifting the 10% tariff to 25% or higher, which will no doubt be offset, somewhat ironically, by a weaker yuan. Trump knows the politics involved but understands that he needs the Fed as his offset should the economy deteriorate.

Lower rates will have limited effect on the economics

That’s all well and good, but if the clarity for US businesses under this tariff regime is so poor, it’s hard to see any spike in demand for credit, even if the Fed is making capital far cheaper. It is a dangerous game played by Trump, and the markets know it.

We had some relief yesterday, and as mentioned yesterday, when the PBoC refrained from lifting the mid-point of the USDCNY its daily ‘fix’ anywhere near as high as the models suggested, the market rallied. While a 30b RMB bill sale stabilised helped breath some life into the CNH on the perception that liquidity would be sucked from the system. The PBoC has been out reassuring corporates that the yuan won’t keep falling, but they haven’t seen that today with the bank fixing the USDCNY 313 points higher at 6.9996. This was just above the consensus view of 6.9977, which is close enough, but USDCNH buyers are now making their case, and this is again proving central to moves across markets in Asia.

If USDCNH is going higher, risk assets are going lower, and traders unwind carry structures in earnest, which is why the EUR, the ultimate funding currency (for the carry trade), has been working so well. S&P 500 futures are now -0.7%, and we watch to see if we get a re-test of the 200-day MA in S&P 500 and NASDAQ futures, which is where the buying kicked in yesterday. A break here and thing turn ugly again.

Asia agrees that we are not out of the woods here, and despite the S&P 500 closing 1.3% higher, we see the ASX 200 up 0.4%, however, China, Japan and Hong Kong are trading lower. The China A50 index (CN50) found a strong bid off horizontal support yesterday, and if traders were happy to defend into 12,329 a closing break on the next attempt will be taken poorly.

Big moves in FX markets

In FX, it’s been a huge day for the NZD, with the RBNZ cutting 50bp and showing once again, if you want to get ahead of the curve then the RBNZ does this better than most, and is not one to mess around. One questions if this is a message that if they are genuinely worried, and if so, we should be too? The moves in NZD have resonated in the AUD and AUDUSD has traded below the December flash crash low…all rallies are to be sold here, it seems.

White – NZDUSD Yellow – AUDUSD

USDJPY saw a huge turnaround yesterday, but traders are flipping back to short exposures today and we are seeing the pair through 106.00. The pair taking its direction from US Treasury futures, where we can see yields 3bp lower across the curve on the day, driven by some incredible buying in Kiwi bonds. Its real Treasury yields that interest most here, as US Treasury 10-year ‘real’ (i.e. inflation-adjusted) yields are now just six basis points from turning negative. We see the 2s vs 10s Treasury curve testing 10bp, where a break of 10bp and we talk inversion here and that is certainly not telling me we the world is fine and suggests the rally yesterday was a relief rally – nothing more.

We have seen gold futures traded above $1500 today, although, we watch for spot gold to move to the figure too. If real rates are turning negative, then gold is only going one way. Oil is flat on the day, but flip to the four-hour chart, and if this kicks lower I am jumping on board.

White – gold futures, Yellow – spot gold

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Chris Weston, Head of Research at Pepperstone.

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Pre-Positioning Ahead of The Biggest Event Risk This Year

Do have a look if you have the time, and subscribe to the channel if you want to be notified each time I put up new content:

It was the day before the biggest central bank meeting for years, and all is (fairly) well. Risk is a little lower, where we can see the Nikkei 225, Hang Seng and CSI 300 down 1.0%, 0.8% and 1% respectively.

The ASX 200 is outperforming, with a 0.2% decline. Most have attributed this decline to Trump’s critique of China and its lack of bean buying. We’ve also got the end of month flows underway, but even then, the feel is one of calm and most have prepositioned portfolios ahead of the impending event risk.

China PMI and Aussie Q2 CPI in play

Of course, it’s all about the FOMC meeting, but traders have had to deal with Aussie Q2 CPI and China’s July PMI data through Asia today. The China data is a small risk positive, but only in so much that it wasn’t worse than last month. At this juncture, there has been no impact on markets, and to say these numbers inspire is a stretch. Manufacturing PMI contracted at a slower pace at to 49.7 (vs 49.6 eyed), although, if we look at the sub-components, we saw improvements in new orders, new export orders and output.

Bloomberg

The Aussie Q2 CPI came out 30 minutes after the China data, with AUDUSD spiking 25-pips into .6890 and as we can see from the inter-day chart, there seems to be a supply barrier here.

The fact core CPI remained unchanged at 1.6% (vs 1.5% expectations), doesn’t change the view we should get another rate cut this year, but it certainly fails to provide the RBA scope to go twice this year, and we have seen a slight re-pricing in rate cut expectations for 2019. Given the moves, its clear traders went into the data very long Aussie Treasury’s and short AUD into the release.

(Rate cut probability in Australia)

The calm before the storm?

One way I can look at traders anticipated price moves is through FX implied volatility (IV). Take USDJPY one-day IV; this sits at 11.38%, which to put context on this level, 11.38% is the 53 percentile of the 12-month range. So, given we’re talking about an event that so many have talked about for weeks, if not months, it probably seems a tad low.

We can apply this IV into the Black-Scholes model (with other variables) to understand the market sees, with a 68.2% degree of confidence, a 50-pip move on the session (higher or lower) from the current spot price of 108.5. I can increase this confidence factor to 90%, and see the market feels moves will not exceed 70-pips. We can effectively use this as a guide for risk and position sizing.

Levels to watch in USDJPY

I am not one to advocate trading over this sort of event risk; the variance in the playbook is just too diverse that a high probability trade is unclear. However, in G10 FX USDJPY is probably the purest play on the Fed meeting, as it tracks 2- and 5-year US Treasury’s the closest.

With the sort of move expected, it feels like fading rallies into 109.10/20, or buying pullbacks into 108.00/107.90, is the more compelling trade and adopting a mean reversion strategy. Of course, we will be watching gold, US equities and USD pairs more broadly, not to mention EM assets which will be very sensitive to the language.

Maybe the market is wrong with its view that the Fed meeting won’t cause too great a stir, but this is why traders buy volatility. However, it feels as though everyone is positioned for a 25bp cut, and this will be sold as an insurance cut, predominantly to meet the market and to keep the dream alive.

Of course, we may see 50bp, and subsequently, we may see a short, sharp burst of USD selling, with the yield curve steepening, and gold and equities going on a bullish run, but for a sustained reaction the Fed would need to offer insight that they plan to go again.

A more simplistic approach

Don’t underestimate the fact that fed fund futures are pricing in 66bp of cuts by December – so two cuts and a 65% chance of a third. So, at a very simplistic level for the Fed to get ahead of market pricing, they would need to go 50bp, and offer a view they are prepared, if needed, to go again this year. Anything less, will not meet the market.

The disaster situation

Of course, they could leave the fed funds rate unchanged, a fate some 11 of 86 economists (polled by Bloomberg) feel is possible. And, of course, there is logic here given US GDP is growing around trend, consumption is rosy, with the consumer is feeling fairly content. We can even see housing is fine and the labour market is in rude health, and we saw a slight uptick in core PCE, although it’s still too low at 1.6%. However, it’s the supply side which is concerning; it’s the notion that falling business investment is going to feed into hard data, at a time when global trade volumes are looking uninspiring.

The question of whether a 25bp cut actually achieves anything other than meeting market pricing and risk having the market throwing a wobbly should they not go at all has come up a few times today. Personally, I feel the answer is no, and this measure certainly doesn’t feed into Powell’s recent comment that “an ounce of prevention is worth a pound of cure”, where one would argue a 50bp cut is more suited to meet this statement, married with an outlook that gives us a belief we may see another cut in September.

Ex-NY fed president, Bill Dudley, caused a stir overnight, detailing in an op-ed piece (for Bloomberg) that he thinks it’s a one and done and that marries with the view of ex-Fed Chair Yellen.

After the wait, all the hype and speculation, we finally get a chance to hear the aggregated views of the central bank and to see if they are prepared to set policy as the markets have priced. While implied volatility is unsurprisingly elevated, the market is convinced it will hear what it wants to hear…that is no glaring surprises. Let us see.

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Chris Weston, Head of Research at Pepperstone.

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Private Sector PMIs, Corporate Earnings and Monetary Policy in Focus

Earlier in the Day:

After a quiet start to the week, the New Zealand Dollar was in action this morning. Economic data out during the Asian session was limited to New Zealand’s June trade figures.

For the Kiwi Dollar

Month-on-month, New Zealand’s trade surplus widened from a revised May’s N$175m to NZ$365m. Economists had forecast a narrowing to NZ$100m. Year-on-year, the trade deficit narrowed from a revised NZ$5,590m to NZ$4,940m in June. According to NZStats,

  • The value of all goods exports increased by NZ$136m (+2.8%) to NZ$5.0bn from June 2018.
    • Exports of logs and wood led the rise, up NZ$65m (+16%).
    • China had the largest increase in exports, up NZ$297m (+27%).
  • The value of all goods imports fell by NZ$515m (-10%) to NZ$4.6bn in June from June 2018.
    • A slide in the imports of fuel was attributed to the decline. Fuel imports fell by NZ$328m compared with June 2018.
    • The numbers were skewed, however, with the shutdown of Marden Point oil refinery back in the 2nd quarter of 2018 driving fuel imports back in 2018.

The Kiwi Dollar moved from $0.67015 to $0.67026 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.12% to $0.6696.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.02% to ¥108.21 against the U.S Dollar, while the Aussie Dollar was down by 0.34% to $0.6981.

In the Asian equity markets, the majors found support early on. The CSI and Hang Seng led the way, up by 0.95% and 0.89% at the time of writing. The ASX200 was up by 0.84%, whilst the Nikkei was up by just 0.57% early on.

Sentiment towards ECB and FED monetary policy, coupled with positive earnings results provided support to the broader market early on. For the Hang Seng and the CSI300, news of face to face trade talks commencing next week was also positive.

The Day Ahead:

For the EUR

It’s also a particularly busy day ahead. Key stats due out of the Eurozone include prelim private sector PMI numbers out of France, Germany, and the Eurozone.

While we can expect the focus to be on Germany’s manufacturing PMI, a better than forecasted Eurozone composite would offset any weak German numbers.

Outside of the stats, geopolitical risk will continue to be of influence, with corporate earnings also in focus on the day.

At the time of writing, the EUR was down by 0.06% to $1.1145.

For the Pound

There are no material stats due out of the UK. The lack of stats will leave the Pound in the hands of the next British PM and Brexit chatter.

At the time of writing, the Pound was down by 0.06% to $1.2432.

Across the Pond

It’s a relatively busy day ahead. Key stats due out of the U.S include July prelim private sector PMIs and June new home sales.

While we would expect the services PMI to be the key driver, the manufacturing sector will need to support. The devil will likely be in the details, with employment, productivity and new orders likely to be the main area of focus.

Outside of the numbers, expect any chatter from the Oval Office to also influence on the day.

At the time of writing, the Dollar Spot Index was up 0.03% to 97.739.

For the Loonie

It’s yet another quiet day ahead, with no material stats due out of Canada. A lack of stats leaves the Loonie in the hands of crude oil prices. While the U.S EIA weekly report will provide direction, sentiment towards trade and Iran will likely remain the key drivers.

The Loonie was flat at C$1.3136, against the U.S Dollar, at the time of writing.

The Race to the Bottom is On

The ‘dots plot’, or its fed fund projections on where each Fed member sees the fed funds rate by a set date have been a market mover when so many had said they were redundant. With seven Fed members now forecasting a 50bp cut this year, a movement has started. Powell even went one further, detailing that those members whose ‘dot’ call was unchanged for this year, felt “added accommodation may be necessary”. They just need a bit more convincing.

The removal of “patient” was mostly in the price, where we see new guidance, where “in light of these uncertainties and muted inflation pressures, the committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion”. Another highlight of Powell’s speech was the line, “in a world where you are closer to the zero-lower bound. It is wise to react to prevent a weakening from turning into a prolonged weakening. An ounce of prevention is worth a pound of cure.” Aside from the theatrics in his choice of words (my emphasis), it gives us a belief that when they ease, they could try and get ahead of the curve, and this appeals to the magnitude of easing.

The triggers for a 50bp cut 

The reaction in rates markets couldn’t be any clearer, and now we see a 100% probability of a cut at the July meeting and over 100bp (four cuts) over 12-months. The question of a 50bp cut in July has come up, and I guess that will be determined by the outcome of the G20 meeting later this month. But we have to consider the data too, and between now and 31 July, we look for core PCE (28 June)ISM manufacturing (2 July) and non-farm payrolls (5 July) as our guide. Specifically, if US non-farms come anywhere near the numbers, we saw in May then 50bp in a thing. In the market’s eyes, it’s on, it’s a race to the bottom, and this notion of currency wars is kicking fully into gear, and It feels like this week is genuinely significant, with powerful insight to what could lie ahead.

While we’ve seen Asian equity indices finding buyers, it’s the flow in our ASX 200 index that has been noticeable. Interestingly, the ASX 200 is just 2.8% from a test of the 1 November 2007 all-time high. Valuations are punchy here, and the forward price-to-book is at an all-time high, with the 12-month price-to-earnings ratio at 16.22x – the highest since December 2017. I am not sure valuations matter too much when we look at subdued realised and implied volatility and Aussie bonds yields, which are negative if we adjust for inflation expectations and the ‘real’ return. The market will generally be interested to pay up for those earnings in this dynamic, especially as the current earnings yield in the index is now some 427bp (or 4.27ppt) above what Aussie 10-year bonds yield.

And, it’s the moves in bonds that have reverberated, they are in beast mode right now. We can see when US 2-year Treasury’s smashed through 1.80% it just heightened the need to buy more, and the 50-week average at 1.59% beckons. US 10s have sailed through 2% through today, trading a further 5bp on the day to 1.97%, and while there is just so much love for bonds, this is a juggernaut that few sellers are going to get in the way of. If we adjust these bonds for inflation expectations, and look at 5- and 10-year Treasury’s on a ‘real’ basis, then at 17bp and 28bp, they are not too far from turning negative. In Aussie fixed income markets, we see the inflation-adjusted yields in Aussie 10-year bonds now -9.9bp – a record low.

Gold is the best house on a progressively awful neighborhood

If the loser from the moves in rates and bond yields is USDJPY, which we see at 0.3% lower at 107.73, the beneficiary of these moves in bond yields is gold, and our flow has lit up today. Mostly, we’ve seen the two-way flow in USD-denominated gold (XAUUSD), but we have seen good buying of AUD-denominated gold (XAUAUD), which has smashed through A$2000 and into new highs. The FX translation effect isn’t a huge issue at this point, as gold is rallying in every G10 currency, including NZD, which is the best-performing currency today after a slight hotter-than-forecast Q1 GDP (2.5%). And, when gold is rallying in every currency you know it’s hot, as traders see gold as a currency in its own right and the best house in an ever-deteriorating neighborhood. As long as real rates are headed lower, the pool of negative yielding bonds increases (currently $12.3t) then gold is only going one way.

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Chris Weston, Head of Research at Pepperstone

IMF Downgrades Global Growth, Inflation Weak In U.S., Brexit Summit Begins

The U.S. Market Is Unfazed By Weak Data

The U.S futures were indicating a slightly higher open in early pre-opening trading. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite were all up 0.10% to 0.15%. The move comes despite a downgrade to global growth from the IMG and weak inflation data at home.

The IMF says global growth will only be 3.3% this year, down another 0.20%, and the second major downgrade this year. According to them, downside risks prevail and the solution is in the hands of world governments. The IMF says a coordinated effort (ie resolving trade disputes) is needed.

On the economic front, U.S. CPI data was mixed. The headline 0.40% MoM and 1.9% YoY were both hotter than expected but core data was weak. Stripping out food and energy CPI rose a tepid 0.1% and 2.0%, both below consensus estimates. The dollar barely moved on the news.

The ECB Holds Rates Steady, An Emergency BREXIT Summit Is About To Begin

In Europe, the ECB held rates steady as expected. The bank did not issue any major changes in its policy statement and intends to continue on with TLTRO-III. The European Central Bank has had to backtrack on its plans to tighten policy later this year and may increase QE if the data doesn’t alter its trajectory. There was no data from the EU today.

In England the data was good. UK GDP grew faster than expected over the last 12 month period. The monthly data shows a 0.20% increase which is as expected but the YOY read is hot at 2.0%. Industrial and manufacturing production were both hot in the last month as well, helping to drive strength in the UK economy. The news is good for Brexit too because it shows confidence among the British people.

In Brexit news, Theresa May is headed to Brussels for an emergency summit with UK leaders. Among the dignitaries, she will meet German Chancellor Angela Merkel and EU Council President Tusk. May is expected to ask for an extension to the Brexit deadline, President Tusk is in favor of a flexible one-year deal.

Asian Markets Mixed, Data And Earnings Are In Focus

Asian markets were mixed in Monday trading following the IMF’s downgrade. The Japanese Nikkie fell -0.53% leading the declining indices despite positive moves in index giants Fast Retailing and Softbank. The Korean Kospi led advancing indices with a gain of 0.49%. It was supported by a tech-led really that had SK Hynix up 1.0%. The Shanghai Composite and Hang Seng were both hugging break-even levels while traders wait on new trade data.

In Australia, the ASX advanced only 0.03%. The index was weighed down by a near 10% drop in Crown Resorts after it yesterday’s 20% rise. The leaked news Wynn Resorts was interested in buying the company caused Wynn to pull out of talks. Now it looks like there is no Wynn for Crown Resorts.

Earnings Season Begins, Equities Markets Mixed, Trade Hopes Take Back Seat

The Q1 Earnings Season Is Set To Begin

The U.S. futures were indicating a modestly lower open in early Monday trading. The move is one of caution as traders await the first major reports of the Q1 2019 earnings cycle. By all accounts, this should be the first quarter of negative earnings growth since 2016.

Earnings expectations have taken a dive over the last quarter on signs of slowing economic growth. If the S&P 500 falls short of expectations it could send the broad market moving sharply lower. The Dow Jones Industrial average led the major indices with a loss of -0.25%. The S&P 500 and NASDAQ Composite were both looking at losses near -0.10%.

In trade news, reports out of China indicate “new progress” has been made. The news follows the conclusion of last week’s high-level trade talks in Washington and suggests headway has been made on key issues. Key issues yet to be resolved include forced tech transfers, treatment of intellectual property, and the trade balance.

In earnings news, banks JP Morgan and Wells Fargo are set to report on Friday. Both are estimated to report flat to slightly higher earnings from the year-ago period. Next week earnings season will kick into high gear with reports from several dozen important S&P 500 companies. Later today traders will be looking for the Factor Orders data around 10 AM.

European Equities Cautious As Brexit Draws Near

European equities markets were flat and mixed in midday trading. Investors in the region are cautious ahead of this week’s earnings events and the upcoming Brexit. Brexit is slated for April 12th, Friday, and can only be avoided if the UK Parliament reaches consensus on Theresa May’s deal or the EU grants another extension. Theresa May is expected in Brussels later this week for a summit of EU leaders, she is expected to formally request another extension at that time.

The FTSE 100 was up in early trading, about 0.05%, and matched by the French CAC. The German DAX was down about -0.25%. In stock news, shares of SAP fell -1.5% after another of its top executive’s leaves. Shares of Euronext, France-listed equities exchange, moved higher after it was approved to purchase a Norwegian stock exchange. Shares of Safran, the supplier of engines for Boeing’s Max-8, fell after Boeing cut production outlook for its most popular jetliner.

Asia Mixed After Strong U.S. Labor Data

Strong labor data on Friday helped push the U.S. indices to new highs last week. the positive sentiment did not carry over into Asia where indices were without direction in Monday trading. The Australian ASX led advancers with a gain of 0.65% on strength in mining and energy while the Japanese Nikkei led decliners. The Nikkei fell about -0.20% while the Shanghai Composite fell -0.05% and the Hang Seng and Kospi both posted small gains. Traders in the region will be looking out for the FOMC minutes on Wednesday, word on trade, and earnings.

As Risk Aversion Hits, Focus will be on Theresa May and the Pound

Earlier in the Day:

The economic calendar was bare through the Asian session this morning. Other than a BoJ board member Harada speech, there was very little to shift market sentiment following the European and U.S sell-off on Friday.

While there were no stats, the markets had a window of opportunity to respond to the outcome of the Robert Mueller investigation. The investigation into the U.S administration’s presidential election campaign failed to implicate the U.S President. While positive for risk sentiment, any upside in the futures market was short-lived

For the Major Pairings,

At the time of writing, the Japanese Yen was up by 0.12% to ¥119.79 against the U.S Dollar. Risk aversion provided support through the early part of the day and will likely continue to do so throughout.

In spite of risk aversion, the Kiwi Dollar held on through the early hours. At the time of writing, the Kiwi Dollar was flat at $0.6879. Support continues to come ahead of this week’s RBNZ monetary policy decision. While the RBNZ is expected to leave rates steady, 4th quarter GDP numbers supported the optimistic outlook towards the New Zealand economy.

Things were less rosy for the Aussie Dollar, however, which was down by 0.07% to $0.7078.

In the equity markets, the Nikkei was down by 3.22%, with the Hang Seng and CSI300 down by 1.81% and 1.27% respectively. The ASX200 also saw heavy losses ahead of the close, down by 1.2% at the time of writing.

Bond yields were back on the slide, with both Australian and Japanese government bond yields taking a tumble at the start of the week.

The Day Ahead:

For the EUR

It’s a quiet day ahead on the economic calendar. Business sentiment figures will provide the EUR with direction in the early part of the day.

Barring particularly impressive numbers, however, we would expect risk sentiment to be the key driver.

At the time of writing, the EUR was down 0.04% at $1.1298.

For the Pound

There are no material stats to provide direction to the Pound. Brexit will be the key driver through the day and throughout the week for that matter…

Uncertainty over what lies ahead weighed on the Pound in the early part of the day. Theresa May is due to convene later this morning with her cabinet and lay out her plans. A timetable that must include her resignation will then decide the fate of the Brexit Deal that had been voted out previously.

At the time of writing, the Pound was down by 0.08% to $1.3198.

Across the Pond

It’s a quiet start to the week, with no material economic data to provide direction to the Dollar. FOMC member chatter and risk sentiment will be the key drivers.

FOMC member Harker is scheduled to speak later today. The question will be whether there will be an attempt to calm the markets over the Treasury yield inversion. It will take more than one FOMC member to ease the pain, however, so more members could hit the news wires through the day.

At the time of writing, the Dollar Spot Index was down by 0.04% to 96.617.

For the Loonie

It’s also a quiet day on the economic calendar. Crude oil prices and risk appetite will provide the Loonie with direction through the day.

With January’s trade data not due out until Wednesday, it could be a tough first half of the week for the Loonie.

The Loonie was up 0.01% at C$1.3429, against the U.S Dollar, at the time of writing.

The Week Ahead – It’s Brexit, Powell, Trump, Trade and Stats to Drive the Markets

On the Macro

For the Dollar:

The week kicks off with December housing figures and February consumer confidence number on Tuesday. December factory orders and pending home sales are due out on Wednesday, ahead of 4th quarter GDP numbers and the weekly jobless claims figures. A particularly busy Friday has December’s core PCE price index and personal spending figures due out, ahead of manufacturing PMI numbers and finalized consumer sentiment figures for February.

Outside of the stats, FED Chair Powell’s testimony Tuesday and Wednesday will garner plenty of attention ahead of a scheduled speech on Thursday.

The Dollar Spot Index ended the week down by 0.42% to $96.507.

For the EUR:

Key stats through the week include consumer confidence figures out of Germany on Tuesday and the Eurozone’s consumer confidence figures on Wednesday. On Thursday, 4th quarter GDP numbers and January consumer spending figures out of France will be in focus. Inflation figures out of Spain, Italy, and Germany are also scheduled for release on the day. Focus on Friday will shift to finalized manufacturing PMI numbers, the Eurozone’s unemployment rate and inflation figures. Of greater influence will likely be February employment numbers out of Germany.

The EUR/USD ended the week up 0.35% to $1.1335.

For the Pound:

It’s another relatively quiet week on the data front. Key stats are limited to February manufacturing PMI numbers on Friday.

While there will be some interest in the inflation hearings on Tuesday, focus through the week will continue to be on Brexit.

The GBP/USD ended the week up 1.27% to $1.3053.

For the Loonie:

Economic data includes January inflation figures due out on Wednesday. Also in focus will be January’s RMPI due out on Thursday, while 4th quarter GDP numbers on Friday will be the key driver on the data front.

Outside the numbers, the effects of U.S – China trade talks on market risk sentiment will also influence crude oil prices and the Loonie.

The Loonie ended the week up by 0.82% to C$1.3135 against the U.S Dollar.

Out of Asia

It’s a busier week ahead.

For the Aussie Dollar:

After a quiet start to the week, 4th quarter construction work done will provide direction on Wednesday. A relatively busy Thursday sees the release of 4th quarter new CAPEX and January private sector credit numbers. February’s AIG manufacturing index numbers round off the stats for the week on Friday.

The Aussie Dollar ended the week down 0.17% at $0.7129.

For the Japanese Yen:

Stats through the week include January industrial production and retail sales figures on Thursday. On Friday, economic data includes 4th quarter capital spending, February’s Tokyo inflation numbers and employment figures for January.

Market risk sentiment will continue to be the key driver through the week as trade talks resume.

The Japanese Yen ended the week up 0.20% at ¥110.69 against the U.S Dollar.

For the Kiwi Dollar:

Stats include 4th quarter retail sales figures due out on Monday. Mid-week, January trade figures are scheduled for release on Wednesday, with business confidence numbers due out on Thursday.

The figures will have a material impact on sentiment towards RBNZ monetary policy and the Kiwi Dollar through the week.

The Kiwi Dollar ended the week down 0.32% to $0.6846.

Out of China:

Economic data includes the NBS manufacturing and non-manufacturing PMI numbers on Thursday. We can expect Thursday’s figures and Friday’s CAIXIN manufacturing PMI will have a material impact on risk sentiment later on in the week.

Geo-Politics

U.S – China Trade War:  Trade talks have been extended, with both sides talking of progress. With the 1st March deadline on Friday yet to be extended, an agreement will need to be wrapped up or close at hand to support an extension.

Brexit: It’s another big week ahead. Theresa May will address Parliament in the early hours of the Asian session on Tuesday. Parliament will then debate the Brexit deal on Wednesday. At the start of the week, it will become clearer on whether the EU will ease on its stance towards the Irish border.

The U.S – North Korea Summit: U.S President Trump and North Korean Leader Kim Jong Un will be meeting on Wednesday and Thursday. The markets will be looking for progress on denuclearization.

The Rest

On the monetary policy front,

For the USD, FED Chair Powell gives testimony on Tuesday and Wednesday, ahead of a scheduled speech on Thursday. Other FOMC members scheduled to speak through the week include Clarida, Bostic, and Harker.

It’s Risk on, Dollar Off as the Markets Consider the FED’s 2019 Rate Path

Earlier in the Day:

Economic data released through the Asian session this morning was limited to December machinery order numbers and 1st quarter forecasts out of Japan.

For the Japanese Yen,

According to figures released by the Cabinet Office,

Core machinery orders fell by 0.1% in January, month-on-month, which was better than a forecasted 1.1% decline. In November, orders had stagnated. Year-on-year, core machinery orders rose by 0.9%, falling well short of a forecasted 4.8% increase. In November, orders had risen by just 0.8%.

  • For the 4th quarter, core machinery orders slid by 4.2%, quarter-on-quarter.
  • Forecast for the 1st quarter of this year is for core machinery orders to fall by a further 1.8%.
  • Machinery orders from overseas fell by 21.9% in December, month-on-month, whilst rising by 12.1% in the 4th quarter of last year.
  • Orders for the 1st quarter of this year are forecasted to slide by 17.1%, reflecting the effects of weaker global growth and the ongoing U.S – China trade war.

Upon release of the figures, the Japanese Yen moved from ¥110.536 to ¥110.521, against the Dollar. At the time of writing, the Yen stood at ¥110.50, down 0.03% for the session.

Out of China,

Vehicle sales will give the likes of the DAX a move and also give the markets some further insight into the direction of the Chinese economy. Sales figures are due out later this morning.

Elsewhere,

The Kiwi Dollar stood at $0.6887 at the time of writing, a gain of 0.28% for the morning. The Aussie Dollar was also in positive territory ahead of the RBA meeting minutes due out tomorrow. Rising by 0.17%, the Aussie Dollar stood at $0.7153.

In the equity markets, direction came from positive updates from trade talks, with an anticipated extension to the 1st March deadline for tariffs supporting risk appetite early on.

At the time of writing, the Nikkei was up 1.87%, in spite of the disappointing machinery order figures, with the ASX200 up 0.33%.

Leading the way through the early part of the day was the CSI300, which was up by 2.11%, while the Hang Seng trailed with a 1.51% gain early on.

The Day Ahead:

For the EUR

There are no material stats scheduled for release through the day. The EUR will be in the hands of market risk sentiment. With the Spanish government calling for snap elections in April and economic woes troubling the markets, new questions have arisen over the fiscal policies of both France and Italy.

Both Italy and France have budget deficits that are forecasted based on overly optimistic growth forecasts. With the EU cutting Italy’s growth forecasts and France’s existing forecasts sitting ahead of Germany, the EU may be forced to deliver cuts to French growth forecasts should 1st quarter economic indicators fail to support the numbers.

Expect plenty of rumblings over the respective budget deficits of both France and Italy and the likely impact of sizeable downward revisions to growth projections for this year.

Outside of the political arena, sentiment towards the U.S – China trade talks and today’s vehicle sales figures out of China will also influence.

At the time of writing, the EUR up by 0.18% at $1.1316.

For the Pound

It’s a quiet day on the data front, leaving the Pound in the hands of Brexit chatter through the day. For now, the focus is on Theresa May’s attempts to unite parliament but, should there be a lack of progress and the prospects of a no-deal departure rise, more ministers could state support for a vote against a no-deal Brexit.

At the time of writing, the Pound was up by 0.19% at $1.2914.

Across the Pond

It’s a quiet day ahead, with the U.S markets closed for President’s Day, a celebration of George Washington’s birthday. While there are no stats to consider, weak economic data out of the U.S through the last week and political wrangling on Capitol Hill have left the Dollar on the defensive going into the week.

At the time of writing, the Dollar Spot Index was down by 0.17% to 96.735.

For the Loonie

Canadian markets are also closed today. With no economic data scheduled for release, the direction will come from risk sentiment through the day. While trading volumes will be on the lighter side, positive updates from trade talks between the U.S and China should provide support early on.

The Loonie was up by 0.09% to C$1.3232, against the U.S Dollar, at the time of writing.

The Week Ahead – Brexit, PMI Numbers and Trade Talks in Focus

On the Macro

For the Dollar:

Key stats include December durable goods orders, February’s Philly FED Manufacturing Index, prelim U.S private sector PMI numbers and existing home sales figures all due out on Thursday. An upward trend in the weekly jobless claims figures has also made the Dollar more sensitive to the weekly figures.

The FOMC meeting minutes on Wednesday and FOMC member commentary will also be in focus.

The Dollar Spot Index ended the week up by 0.29% to $96.916.

For the EUR:

Stats include economic sentiment numbers due out of Germany on Tuesday and Eurozone consumer confidence numbers on Wednesday in a quiet start to the week. A busy Thursday includes prelim February private-sector PMI numbers out of France, Germany, and the Eurozone. At the end of the week, finalized GDP numbers and business sentiment figures are due out of Germany. Finalized January inflation numbers are also due out during the week, with Friday’s Eurozone figures of greater influence.

Outside of the numbers, the ECB will release its monetary policy meeting minutes on Thursday.

The EUR/USD ended the week down by 0.24% to $1.1296.

For the Pound:

It’s a quiet week ahead, with stats limited to employment figures on Tuesday and CBI Industrial Trend Orders on Wednesday. The employment figures will be the key driver on the data front.

Outside the numbers, Brexit chatter will continue to overshadow the economic calendar through the week.

The GBP/USD ended the week down 0.42% at $1.2889.

For the Loonie:

Economic data is limited to wholesale sales figures on Thursday and retail sales figures on Friday. We would expect the retail sales figures to be the key driver on the data front.

Outside the numbers, the effects of U.S – China trade talks on market risk sentiment will also influence ahead of a scheduled Bank of Canada Governor Poloz speech on Thursday.

The Loonie ended the week up by 0.26% to C$1.3244 against the U.S Dollar.

Out of Asia

It’s a relatively quiet ahead.

For the Aussie Dollar:

Economic data includes 4th quarter wage growth figures due out on Wednesday and January’s employment numbers due out on Thursday. We would expect both sets of stats to provide direction.

Outside of the numbers, the RBA meeting minutes are due out on Tuesday, which will be a market reminder of the latest shift in sentiment towards policy. RBA Governor Lowe is scheduled to speak on Friday, who may add further color. Additionally, expect updates from trade talks between the U.S and China to also influence.

The Aussie Dollar ended the week up 0.75% at $0.7141.

For the Japanese Yen:

Stats are limited to January trade data, which is due out on Wednesday and January inflation figures due out on Friday. Of less influence, but of interest, will be the release of December machinery orders on Monday and February’s prelim manufacturing PMI on Thursday.

Market risk sentiment will be the key driver through the week as trade talks resume.

The Japanese Yen ended the week down 0.67% at ¥110.47 against the U.S Dollar.

For the Kiwi Dollar:

Stats are limited to 4th quarter producer price input figures that are due out on Wednesday. The lack of stats will leave the Kiwi firmly in the hand of market risk sentiment through the week. Following the RBNZ’s surprisingly hawkish outlook on growth, some resilience in the Kiwi Dollar is to be expected.

The Kiwi Dollar ended the week up 1.90% to $0.6868.

Out of China:

There are no material stats scheduled for release through the week, leaving sentiment towards trade talks the key driver and influence on market risk sentiment.

Geo-Politics

U.S – China Trade War:  Trade talks are due to resume, with no agreement reached on Friday. With the 1st March deadline looming, an extension will be likely should there be no collapse in talks.

Brexit: Unity!!! British PM calls for a united parliamentary front on Brexit. With time running out, finding support from the EU should be the first order of business. We can expect progress, or lack of, to be the Pound’s key driver in the week ahead.

The Rain in Spain: Snap elections called for April. Polls show a divided country, which could deliver another populist party to Brussels before the summer.

The Rest

On the monetary policy front,

For the USD, the FOMC meeting minutes are due out. Some more details on how the Committee is divided on policy and sentiment towards the economy will be of particular interest. A number of FOMC members are also scheduled to speak through the week, which will garner the Dollar’s attention.

For the EUR, the ECB’s more dovish outlook on growth will give the ECB monetary policy meeting minutes a greater influence on Thursday. ECB President Draghi is also scheduled to speak on Friday, which could add further pressure on the EUR.

For the AUD, the RBA meeting minutes are due out on Tuesday. With the RBA also taking a more dovish outlook on growth, sensitivity to the minutes will depend on progress on trade talks between the U.S and China. RBA Governor Lowe is scheduled to speak on Friday that could provide further direction should monetary policy be discussed.

For the Loonie, BoC Governor Poloz is scheduled to speak on Thursday. Economic data has been far from impressive suggesting a dovish bias should monetary policy be discussed.