Global Macro Students 1st Attempt
Here is an excellent first attempt by new student Alan from the UK
24th-30th May 2015 News
This week the G7 Meetings are on 27-29th May and will potentially have an affect on every currency. ‘The G7 meetings are attended by finance ministers and central bankers from 7 industrialized nations – Canada, Italy, France, Germany, Japan, the UK, and the US. The meetings are closed to the press but officials usually talk with reporters throughout the day, and a formal statement covering policy shifts and meeting objectives is usually released after the meetings have concluded. Both the comments and statement can create significant market volatility.’
19/05 Monetary Policy Meeting Minutes
- Chinese Manufacturing PMI was just below the anticipated value, but only marginally. This is the third consecutive month it has reduced. The figure was 49.1 which is indicative of a contracting economy.
- The Rally with Zinc has evaporated as investors no longer believe their is a shortage in the metal. Prices dropped 4.9% this last week- highest since last September. MMG have two big mines- one in Ireland and one in Australia- they think they will have extracted the resource by 2017 (14% of mined production last year). Also, Smelters fees have risen- indicating ample supply- supporting notion of reduced price.
- South32 (BHP Billiton Spin off), listed on the Stock Exchange on Monday at the lower end of expectation. The upper end was A$16B, however, it only made A$11.3B.
- ‘RBA Deputy Governor Lowe as well as minutes from May’s RBA meeting failed to underpin the Aussie despite implying that the central bank is in no hurry to cut interest rates further’. This implies the sentiment has moved from Dovish to Neutral.
- Hanenergy, a Chinese company lost $18B last week on the stock market. It was then suspended from the Stock Market for further investigation. In China and Hong Kong stocks can be suspended for many months whilst under investigation.
|ThuMay 28||3:30am||Private Capital Expenditure q/q|
I still favour shorting the Australian Dollar. I don’t think there is much change in the sentiment of the economy. We maybe in line for a pullback on the AUD/USD but overall preference would be to short.
- 19/05 BOC Governor Poloz Speaks
- 20/05 Wholesale Sales- Expected 0.9%, got 0.8%. This is beneath anticipated figures and the continuation of a negative trend over recent periods.
- 22/05 Core CPI- 0.1%, as expected. There has been continued strength over the last 5/6 periods.
- 22/05 Core Retail Sales- Expected 0.7%, got 0.5%. There is an irregular pattern with the previous periods- 2 positive, 2 negative and a wide dispersion in values.
- There has been a continued hit to the oil industry as prices dip beneath $60/barrell again (US Crude), and $65.30 (Brent Crude). Furthermore the number of Rigs has fallen by 1 over the last week. The strength of the USD makes commodities less affordable to holders of the Euro and other currencies.
|WedMay 27||4:00pm||BOC Rate Statement|
|WedMay 27||4:00pm||Overnight Rate|
|FriMay 29||2:30pm||GDP m/m|
Although there is some positive noises coming from Canada, there certainly isn’t the strength of the GBP or USD. The numbers look as though they are starting to turn a corner, a continuation needs to occur for the currency to gain some momentum. We also need some good news regarding Oil production due to the significance for the economy.
There is very little in the news at the moment, so I will hold off on suggested trades until I compile a greater understanding of the overall health of the economy over a sustained period.
- 19/05 German ZEW Economic Sentiment- Negative. Expected 48.8, got 41.9. The last three periods have all experienced less than expected so this is consolidating the trend, however 41.9 is 10 points lower than previous values.
- 21/05 French Flash Manufacturing PMI- Positive. We expected a figure of 48.6, got 49.3. This does show gradual signs over the last 4 periods of improvement, although only fractionally. Despite this, in relative terms it is a contraction of the economy.
- 21/05 German Flash Manufacturing PMI- Negative. Again lower than expected although the figure is over 50 which is indicative of an economic expansion. Mixed results over the last 6 periods with 4 of those being under expectation. Manufacturing is very important to the German economy and hence the eurozone.
- 21/05 ECB Monetary Policy Meeting Accounts
- 22/05 German IFO Business Climate- Positive. This figure is marginally better than expected.
- 22/05 ECB President Draghi Speaks
- 23/05 ECB President Draghi Speaks
- Negotiations with Greek lenders is still ongoing. They need a further E7.9B to avoid bankruptcy as it remains shut out of bond markets. Greece was given a 4 month extension to its bailout program in February hence June is the crunch time when it needs to make substantial payments to the IMF and ECB which hold maturing Greek bonds. “A default would of course be serious for Greece and it would cause a re-awakening of sovereign fears throughout the periphery of the euro area but it’s not the beginning of a Grexit necessarily.”
- Polish presidential elections this week. This is very close to call and their is a chance a new party could take control. Although the Poles have experienced good levels of growth and wage rises the general consensus is that this growth has been unevenly distributed. In Poland, it is the prime minister who leads the government, but the president is head of the armed forces, has a say in foreign policy and in the passage of legislation and also controls who heads the central bank. Poland doesn’t use the Euro, but the uncertainty could have an affect on the European Union. Voting happens on 24/05 with polling booths closing at 9pm. Results possibly Monday.
- European Central Bank President Mario Draghi told the world’s central bankers that the economic outlook for the euro zone is looking “brighter today than it has done for seven long years.”…….. “This is by no means the end of our challenges,” he added, however……. European Central Bank head Mario Draghi said that “growth is too low everywhere” in the 19-country eurozone despite a modest recovery.
- German Finance Minister Wolfgang Schaeuble expects a political tussle with his partners over austerity policy when G-7 finance ministers meet. Germany wants to enforce Budget cuts. France, Italy and the US in particular are against it as it will reduce the demand for goods and services. The 3 nations believe that Germanys reluctance to go ahead with public spending is hampering the progress of the Euro (the US is concerned because it is a very big trade partner). The U.S. trade gap widened in March to the biggest in more than six years while Germany in 2014 again reported a record surplus.
Nothing- The only thing to Consider is the G7 Meeting at the end of the week.
News data from last week was generally very negative. The G7 meetings looks as though it will highlight further issues with the Germans reluctance to public spending. Draghi has been relatively negative recently although honest about growth, unemployment etc. Short.
- 19/05 CPI- Marginally Down- We expected 0.0%, we got -0.1%. The only real down side is that this CPI figure has been loosing momentum over the last 6 periods.
- 20/05 MPC Official Bank Rate Votes- This is votes for movements in interest rates. It was unanimous (9/9 ) to keep rates the same. As expected.
- 21/05 Retail Sales- Positive. We expected 0.4%, we got 1.2%
- 22/05 BOE Governor Carney Speaks.
- BOE mis-sends email to a journalist at the Guardian newspaper. The email highlighted that the UK was investigating the financial impact of leaving the EU, and highlighted that the press and BOE employees should be kept in the dark of such research. Although this does have negative connotations for the EU, isn’t it rational to investigate the implications given the Conservatives promised a referendum regarding the UKs membership by 2017?
- The Labour Party have highlighted their opposition to the referendum. They have stated they are going to vote for the referendum bill and then get into the big questions of for and against Europe.” …….“We will do much better as a nation if we stay in,” they wrote. “Separation will make it harder to tackle the big challenges that require international co-operation to make progress.”
- Sterling just posted its biggest weekly gain versus the single currency in four months and the median forecast in a Bloomberg survey sees it climbing to 70 pence per euro this year, a level last seen in 2007.
- Bank of England Deputy Governor Minouche Shafik said the factors pushing down U.K. inflation are temporary and the economic headwinds hampering demand will ease over the coming years….. expects productivity growth to pick up, which will boost potential output expansion over the long term. Carney has reiterated this sentiment by highlighting expected growth by end of year.
- There is good news about the UK property market as the number of people defaulting on commercial property has fallen dramatically (almost half). Bad loans were cut by approx £21.5B in 2014. The value of new loans by lenders advanced 51% last year.
|FriMay 29||10:30am||Second Estimate GDP q/q|
Overall opinion on the GBP is still very strong. Looking for longs particularly against the Euro and AUD. Also interesting article on bloomberg mentioned the Swedish Krona as a possibility although further analysis would be required.
- 19/05 Inflation Expectations-About what they expected although difficult to confirm without actual values. The overall picture since the middle of 2011 is downward.
- 19/05 GDT Price Index- Negative- Continued fall in the price of dairy products. 5th consecutive period.
- ‘New Zealand’s government reduced its budget surplus forecasts as plunging dairy prices curb economic growth and near-zero inflation damps tax revenue……. The operating surplus will be NZ$176 million ($129 million) in the year ending June 30, 2016, narrower than the NZ$565 million forecast in December, Finance Minister Bill English said in his annual budget Thursday in Wellington. The forecast for this year’s deficit widened to NZ$684 million from NZ$572 million. ‘
- An increase in New Zealand inflation expectations damped bets on the central bank cutting interest rates as soon as next month and drove up the nation’s dollar…… “It does suggest there’s no urgency for a rate cut in June,” said Jane Turner, senior economist at ASB Bank Ltd. in Auckland, who still expects two reductions later this year. “Inflation expectations won’t be the only measure the Reserve Bank is looking at when assessing price stability.”….. Falling dairy prices are curbing farm incomes and threatening to slow economic growth. The annual inflation rate has slumped to 0.1 percent and the central bank doesn’t expect it to return to its 2 percent target until late 2017.
- Yellens statement in the US could increase the cost of Gold and Silver. Delaying the interest rate rice may increase the lure for investors who are looking for a greater rate of return.
|TueMay 26||12:45am||Trade Balance|
|FriMay 29||3:00am||ANZ Business Confidence|
The NZD is certainly one of the weaker currencies at the moment. Measures are in place for the long term future but in the interim period I expect prices to drop further. It does seem like a better candidate compared to the AUD and hence there could be further opportunities to short the AUD/NZD.
- 19/05 Building Permits- Increased- Positive
- 20/05 FOMC Meeting Minutes
- 21/05 Unemployment Claims- Increased marginally over expected value. The previous three months had been significantly better and all under expectation so hopefully this will just be an anomaly.
- 21/05 Existing Home Sales- 5.04M which was less than expected, but follows a pattern over the last 6 months of disappointing data.
- 21/05 Philly FED Manufacturing Index- Lower than expected although it still represents positive growth. Over the last 6 periods the figures have all but one been less than expected, which indicates it is not as important as an indicator of the US economy. This is red flag news, but, it only looks at Philadelphia, and the Manufacturing sector, which is not a true representation of the US economy in its entirety.
- 22/05 CPI- Increased- positive for the economy and represents inflation within the US economy.
- 22/05 Yellen Speaks.
- Trade Deal negotiations for up to 12 nations throughout the Asia Pacific Rim, ‘an economic alliance that would encompass 40 percent of the world’s economies in countries ranging from Japan to Chile.’ The proposal restricts countries from manipulating currencies to favour exports, but, with no official enforcement tools. However, there is a growing number of people who want strict guidelines/penalties to prevent nations manipulating their currencies.
- ‘Yellen reiterated comments that the Fed is on track to raise rates this year and that inflation will ultimately move to 2 percent as the economy strengthens……She said we’re still on track to raise rates,” said John Canally, strategist and economist at LPL Financial. “She didn’t say we’re going to tighten soon or in June, so I think that leaves September or December.”………. “To support taking this step, though, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term. (Yellen)”
- Wall Street has received allegations about rigging of FX markets with automated algorithmic trades executed by computers. This raises the prospect that further fines will exceed the $10B already paid.
- The U.S. currency rose the most since September 2011 as data signaled the economy is starting to recover from a tepid first quarter.
- It is believed OPEC will continue to produce 30M Barrels of oil a day when it has its next round of meetings in Vienna on 5th June. US Shale producers have been closing at record levels and the price of oil has risen since January by $20 which indicates their strategy has been paying off, so why change it? The US production dropped 1.2% which is the biggest drop since July.
|TueMay 26||2:30pm||Core Durable Goods Orders m/m|
|TueMay 26||4:00pm||CB Consumer Confidence|
|ThuMay 28||2:30pm||Unemployment Claims|
|FriMay 29||2:30pm||Prelim GDP q/q|
Overall outlook on the economy looks very favourable. The Unemployment Claims are going to be very important as Yellen identified them along with the inflation rate in the medium term as crucial before she is prepared to adjust the US interest rates. If this is positive then this should add further strength.
AUD/USD – Short – 0.7865, 0.8000
Euro/USD – Short – 1.1090, 1.1180
Euro/GBP – Short – 0.7275, 0.7000 M2, 0.7380
GBP/AUD – Long – 1.9370, 1.9900 M2[xyz-ihs snippet=”Three-Buttons”]