Month: June 2019

RBA Preview – Another -25 bps Rate Cut Expected This Week

We design to RBA to cut a money rate, by -25 bps, to 1% in July. Although this would be progressing than RBA’s projection in a May SoMP, it is mostly in line with marketplace expectations, that has labelled in about 70% of a rate cut in July. We trust a rate cut this week is suitable due to dual pivotal reasons. First, a incoming information upsurge given a rate cut in Jun has remained soft. The close-watched stagnation rate missed consensus. Second, Governor Phil Lowe new debate has been rather dovish. He remarkable that there is “a satisfactory degree” of gangling ability in a economy. He combined that mercantile impulse is indispensable to accompany financial easing, in sequence to grasp preferred outcome to a economy.

Real GDP stretched during an annualized rate of +0.4% q/q in 1Q19, improving from +0.2% in a before entertain though blank accord of +0.5%. On a pursuit market, a May news shows clever payroll expansion of +42.3K, compared with accord of a +17.5K addition. However, a stagnation rate stayed unvaried during 5.2%, compared with accord of 5.1%. This was especially driven by a boost in appearance rate to a record high of 66%. The news reveals that a movement of pursuit expansion has remained strong. However, a gangling ability in a marketplace is incomparable than expected. At a Jun meeting, a RBA revised lowered a expectancy on a non-accelerating acceleration rate of stagnation (NAIRU) to 4.5%- a turn that can pull to acceleration to a 2-3% aim – from 5% previously. This signals that some-more rate cuts are expected compulsory to move a stagnation rate to around that level.

– announcement –

RBA has recently been scheming a marketplace for a renewed easing cycle. At a Jun assembly mins expelled on Jun 18, it was remarkable that “Given a volume of gangling ability in a work marketplace and a economy some-more broadly, members concluded that it was some-more expected than not that a serve easing in financial process would be suitable in a duration ahead”. Last week, Governor Phil Lowe suggested during a row contention in Canberra that “most indicators advise that there is still a satisfactory grade of gangling ability in a economy”. Given a process rate has been lowered to historically low levels, it is distinct that serve rate cut could not have most impact. As Lowe remarkable that “fiscal policy, including by spending on infrastructure” and “structural policies that support firms expanding, investing, innovating and contracting people” should be implemented together with serve rate cuts.

US-China Trade: Ceasefire a Reality But No Quick Fixes to Reach a Deal

  • As widely expected, a Xi-Trump assembly finished with a ceasefire in a trade war. The trade anathema on Huawei was also lifted, during slightest partially.
  • The ceasefire is good news in a clarity that it confirms that both sides wish to make a trade deal. President Trump’s comments thereafter advise he sees a trade understanding as a pivotal member of his choosing campaign.
  • However, vast obstacles sojourn to strech a understanding that satisfies both sides and we still design a hilly trail ahead.
  • We continue to demeanour for high sensitivity in equity markets in a brief tenure and do not see a ceasefire as a diversion changer for FX markets.

The ceasefire is a reality

As widely expected, a ceasefire became a reality. Here is what we know:

  • There will be no new tariffs on China for now.
  • The trade talks will restart.
  • There is no deadline on a intensity tariff increase, as was a box with a prior ceasefire, where tariffs were ostensible to go adult after 3 months if there was not adequate swell in trade talks.
  • Regarding a export anathema on Huawei, a news was not really clear, yet it seems there will be during slightest a prejudiced lifting of a trade ban. Initially Trump pronounced he had told Xi that a Huawei emanate would have to wait until a ‘very end’. However, he also said, “we sell to Huawei a extensive volume of product that goes into a several things they make and that is ok”. A Chinese diplomat said: “As for Trump’s comments that some restrictions on Huawei will be removed, we will of march acquire this if those difference are put into action”. Trump pronounced during a press discussion that there would be a assembly on Sunday on Huawei and a Commerce Department list. The interpretation by many media, including a Chinese, was that US companies could now sell to Huawei again.

In his press conference, Trump mentioned farmers as poignant beneficiaries of a trade understanding with China. Trump also mentioned a clever US economy. It suggests to us that Trump prefers a trade understanding with China over no understanding as partial of his choosing campaign. It would assistance him keep a clever economy going and give vicious gifts to a farmers, who are essential electorate in several pitch states.

During a press discussion Trump pronounced a US and China could be “strategic partners”. However, this is really many during contingency with any executive US request finished during his administration, that describes China as a revisionist energy (most recently in a US ‘Indo-Pacific Strategy’.

– announcement –

Where to go from here: A hilly trail to a trade deal

We now design a new spin of high-level trade talks soon possibly in Washington or Beijing (mostly expected in Beijing, as they were in Washington final time.) We still design negotiations to be formidable as a dual sides seem distant from any other on vicious points. China has its’ ‘red lines’, that are on points that a US side has seen as peerless for a deal.

Also, for now, Trump is not in a precipitate to make a deal. Although a US economy has slowed, it is still utterly robust. Stock markets have also remained clever with new highs reached lately.

The Chinese economy is pang more, yet China’s ‘red lines’ are accurately that: areas where it will not pierce and where there is extended accord in China that there should be no concessions. Hence, China will not nudge when it comes to a US direct to change specific laws and when it comes to a need for a some-more offset denunciation and altogether trade deal. Xi indicated this during a G20 assembly when he pronounced China contingency “defend sovereignty, honour and core interests”.

The bottom line is that while a ceasefire has been concluded to, we still design a hilly trail from here towards a trade understanding and renewed escalation can still not be ruled out during some point. We do design a trade understanding to be struck during H2, though, as Trump should be means to get a understanding he can sell as a large win to a US public. It would also be a understanding that can advantage him in his choosing campaign, where he is expected to partly benefaction himself as a guarantor of a clever economy and a one who delivered a poignant alleviation for US farmers and business opportunities in China.

What about equities? Good news mostly discounted, and repairs already finished to a business cycle

Equities are maybe a many unprotected item category to a trade war. This means a ceasefire is a positive. The fact that markets have left adult given 5 May, even yet it noted a re-escalation of a trade fight (as Trump aborted a talks and tweeted that he would lift tariffs on USD200bn of Chinese products from 10% to 25%, effective 10 May), does not prove that trade no longer matters. Rather, it is due to executive banks, led by a Fed, signalling an assertive financial easing. That (at slightest in a eyes of a market) neutralised some of a disastrous effects from a trade conflict.

However, from an equities prove of view, a bottom box of a G20 talks was also a best case, and an outcome that we consider was many discounted. Even this ‘best case’ entails copiousness of uncertainty, and regardless, we think a lot of a repairs to a business cycle, a gain cycle and confidence, is already done. Since a trade fight started behind in Mar 2018, prolongation and certainty in prolongation in sold has deteriorated. Plans for collateral output have been shelved. 5 May represents another hit, again clearly manifest in many Jun certainty indicators (even yet models and a heading indicators advise they should have improved). This tells us that corporates are supportive to trade issues. Many companies are also looking to pierce prolongation to variegate their supply chain, yet with inauspicious effects on productivity.

This spells risks for gain – reduce expansion is a risk to a tip line, diseased capability is a risk to margins. In dual weeks a tellurian gain deteriorate will flog off. We have low expectations due to a above factors and we fear that analysts are behind a curve, unwell to cut estimates enough. On aggregate, a outcome could defect for a initial time in many years. There is a risk of an gain retrogression in 2019. The trade fight could also be a ideal forgive (scapegoat) for companies to reduce superintendence (lower superintendence is customarily a biggest trigger for a reduce share price).

We so continue to design high sensitivity in a brief tenure with a transparent risk of equity drawdowns. Renewed escalation in a trade fight can still not be ruled out.

However, holding a longer view, we also trust a understanding will eventually be struck before year-end and yield procedure for a tellurian economy to redeem again in 2020. We therefore design equities to outperform holds on a 12-month horizon.

In a Nordic star we have many companies unprotected to a trade war, by several channels. Below is a outline of a many and slightest influenced ones.

Ceasefire no diversion changer for FX markets

The ceasefire agreement is not a diversion changer for FX and commodity markets in a view. The USD should stay broadly unchanged. The reduce luck of new US tariffs on China is disastrous for a USD, yet a mitigating cause is that a contingency a Fed will cut by 50bp in Jul will expected go down, that would be USD-positive. Commodity prices should stay good upheld by a softened opinion for a trade deal. That in spin should advantage commodity currencies, a AUD, NZD, CAD and NOK. Finally, we could see this change in tinge in a trade talks import a bit on a JPY.

Equities Q3 Forecast: Stock Markets Aim Higher Balancing Trade Wars and Monetary Policy

The second entertain saw tellurian equity markets negotiate a flurry of opposing elemental themes with trade wars and financial process during a forefront. Although a ongoing US-China trade fight weighed on tellurian expansion and sentiment, a conspicuous change from a Federal Reserve authorised many of a vital indices to post a slight benefit for a quarter.

SPX

Chart prepared by Peter Hanks

Technical Analysis: Trend is Up, though Big-picture Price Swings Highlight Growing Uncertainty

The initial half of a year is in a books and it was a certain segment, however; that doesn’t meant longer-term a batch marketplace is in good shape. The final few months of strength went on to emanate a higher-high from Sep after posting a large lower-low in Dec (relative to early 2018).

The draft next highlights these higher-highs and lower-lows, a method called a Reverse Symmetrical Triangle (RST). These patterns prove flourishing doubt as cost swings increase. Whether or not a settlement is about to spin bearish or not will take some time given a trail of slightest insurgency is still clearly aloft in a brief to intermediate-term.

SPX

Chart prepared by Paul Robinson

To review a full Equity Forecast, download a giveaway beam from the DailyFX Trading Guides page

Dollar, Gold, Equities 3Q Forecast Involves Reversal Threats, Destabilizing Themes

Yen Supported by Two Huge Uncertainties; USDJPY Downtrend May Extend

The Japanese Yen has headed into a new calendar entertain on a high note, with a prevalent breakwater purpose underscoring direct that has brought USD/JPY down to a 2019 lows.

US Dollar Q3 Forecast: Dollar Feeling Weight of Fed, GDP and Trade Wars

The US Dollar was streamer into a second half of 2019 in an worried state of doubt and it seems a technical bounds are starting to come underneath existential strain.

British Pound Q3 Forecast: Sterling Fundamentals – Volatility Set to Rise as Brexit D-Day Nears

Sterling (GBP) is expected to turn some-more flighty as a time ticks down to a latest Brexit deadline – Oct 31st.

Equities Q3 Forecast: Stock Markets Aim Higher Balancing Trade Wars and Monetary Policy

Global shares rebounded in a initial entertain as dovish financial process was means to overcome tellurian expansion concerns and US-China trade fight fears were reduced by a prospects of a deal.

Gold Price Q3 Forecast: Gold Outlook Bullish on Imminent Fed Rate Cut

Gold took out a 2014 high ($1392) after a Federal Reserve altered a brazen superintendence for financial policy.

Crude Oil Price: Will Global Growth Fears Overwhelm OPEC?

Crude oil cost opinion over a third entertain looks set to be broadly impressed by negligence tellurian GDP growth, nonetheless OPEC+ supply cuts and domestic risks poise upside risks.

Q3’19 Euro Forecast Sees Economic, Political Uncertainties Back on a Rise

Euro technical positioning looks vague during a mid-year symbol as domestic issues have been a delayed bake in Europe over a past several months while a mercantile expansion design in Europe could be characterized as charitably-mild.

British Pound Q3 Forecast: Sterling Fundamentals – Volatility Set to Rise as Brexit D

Sterling (GBP) is expected to turn some-more flighty as a time ticks down to a latest Brexit deadline – Oct 31st – with both sides apropos increasingly sap and undone during a continued ‘cankicking’ exercise. Against this backdrop, Sterling is expected to turn some-more volatile, a bonus for traders who have had to lay behind and watch many Sterling pairs trade in comparatively limited ranges over a past 3 months.

GBP

Chart prepared by Nick Cawley

Sterling Q3 Technical Analysis: GBPUSD: Holding Flash Crash Trendline Support

Losses persisted for GBPUSD after unwell to connect above a 1.3000 handle. Although, during a behind finish of Q2, a span had managed to find fortitude above 1.2500, that also coincided with a rising trendline stemming from a Oct 2016 peep crash. While a span might have found a building during 1.2500 in a near-term, movement indicators on a longer-term timeframes (weekly monthly) sojourn slanted towards a bearish bias, so a retest of 1.2500 can't be ruled out, quite if a shutting mangle next a pivotal trendline was made, that would display a 1.2426 Jan low.

GBP

Chart prepared by Justin McQueen

To review a full British Pound Forecast, download a giveaway beam from the DailyFX Trading Guides page

Yen Supported by Two Huge Uncertainties; USDJPY Downtrend May Extend

Havens Still Required

The Japanese Yen has headed into a new calendar entertain on a high note, with a prevalent breakwater purpose underscoring direct that has brought USD/JPY down to a 2019 lows.

The banking has been upheld by a operation of mercantile uncertainties, of that dual dawn a largest. The initial is a ongoing trade brawl between a US and China. There has been some cooling of tongue on this theme from both sides as May has slipped into June. A durable allotment clearly stays elusive, though any headlines suggesting that such an finish is being actively and amicably sought could good see risk ardour revive, substantially to a wreckage of a Yen.

To review a full Japanese Yen Forecast, download a giveaway beam from the DailyFX Trading Guides page

USDJPY

Technical Analysis: USDJPY Downtrend May Extend into Third Quarter

In a second entertain USDJPY technical forecast, we summarized a integrate of brewing bullish and bearish candlestick formations that competence have tangible a opinion for months to come. At a time, cost movement hinted that a some-more expected unfolding would be a resumption of a widespread downtrend from 2015. Heading into a third entertain of 2019, that is looking to be a some-more expected outcome.

To review a full Japanese Yen Forecast, download a giveaway beam from the DailyFX Trading Guides page

USD/JPY Monthly Chart

USDJPY




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