One Financial - Week of 09_07

8/11/2019 One Financial - Week of 09_07

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Weekly Sentiment Paper Distributed by: One FinancialForthe Week of: 09/07 through 09/13 Written by: Andrei Wogen

Email: [email protected]

Week in Review 2

Australian Dollar 2

New Zealand Dollar 4

Japanese Yen 5

China Renminbi; Onshore, Yuan 7

Euro Area: Euro 8

British Pound 10

Canadian Dollar 11

United States Dollar 12

Charts 13


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Week in Review

Australian DollarOverall View

Overall sentiment for the Australian Dollar continue to be Neutral to Positive as the

Australian Dollar continues to move higher and higher scarcely pausing for anything driven

Draghi surprises some and disappoints others; all three rates are cut and ABS purchasesare implemented though still no word on the amount of the ABS purchases...expectationsare for around !500B

Australian GDP comes in higher than expected buoyed by household spending andinventory builds

BoC leaves rates as they have been and sticks to same neutral to slightly dovish script

China Manufacturing data slips again causing bets to rise that stimulus is coming from the

PBoC and/or the Chinese govt Euro Zone Manufacturing and Services data falls again showing yet more signs ofcontinued weakness in the Euro Zone economy

US NFP comes in much lower than expected; average earnings rise a bit which is apositive sign and a revision higher in the overall number is very likely; Unemploymentrate fell to 6.1% from 6.2% in July

Canada newly employed came in at negative territory while the participation rate fallsand unemployment rate stays steady at 7%

Ukraine conflicts cools as news of a ceasefire agreement comes to light and which seems tobe supported overall by all parties involved though optimism remains tepid


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depending on the number. I expect sentiment to remain in positive territory up to the

employment data where it will either change or strengthen, depending on the result of the data.

New Zealand DollarOverall View

Overall sentiment for the New Zealand Dollar is neutral negative right now as the

currency continues to be sold off. This sell-off right now is driven mainly by continued lower

milk prices, rumors of intervention in the spot market by the RBNZto bring the NZD down

in value and due, in part, to continued improving fundamentals in the USwhich is causing

the carry trade between the USD and NZD to be unwound in expectation of higher rates in the

US. Other concerns are surfacing too which include some weakness in the real estate sector as

house prices have begun to fall some. As for the milk prices again, the lower milk prices go the

lower buying power farmers will have going forward which I expect will put a damper on

consumer confidence and spending thereby lowering overall growth in New Zealand. However,

beneath these worries there are bright spots which include overall robust growth, as seen by

recent GDP numbers, rising immigration and a jobs sector that remains strong overall. Also

New Zealands Manufacturing sector and Industrial sector remain strong overall according to

the latest data while the consumer remains strong overall right now too as retail sales continue

to be strong.

Last Week in Review

Last weeks data was minimal. The only real data of any level of importance was the

Commodity Price index number which came in at negative territory again. Not a surprise really

given that milk prices continue to fall. As for milk prices, the key event last week was yet

another milk auction which saw milk prices fall yet again; down -6% this time. But overall, the

NZD continued to move based on continued speculation of RBNZ intervention as well as

continued improving fundamentals in both the US and Australia.

The Week Ahead and Other Thoughts

This week the main event will be the RBNZ September Rate decision and press

conference and policy statement occurring Wednesday. At their last meeting, they signaled a

hold on raising rates any further after having done so starting in March. So expectations are that

they will stay on hold this meeting too as elections are nearing in New Zealand. What will be of

interest though is there assessment of the overall economy going forward and what they are

thinking when it comes to future rate rises. With a fairly sizable drop in milk prices recently

coupled with lower house prices as well as inflation that continues to stay steady, what they say

in their rate statement and at the press conference will be crucial. My thought is that there is a

decent amount of risk that the RBZN will stay on hold longer than December which is what the


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general market expects at this point; that they will begin to raise rates again starting in

December. So what the Bank Governor has to say at the press conference and what the Bank has

to say in the rate statement will be closely monitored. Also too, it will be watched what the bank

has to say about the NZD in regards to its value. Recent comments made in their recent rate

statements suggest that the Bank would rather have the NZD down further and talked a bitabout intervention as well. Since those comments speculation has been rising that the Bank has

indeed been intervening in the spot market but we will not know for sure for a little while yet

when a report on this very subject is released later on. Also, dont think that the RBNZ cant and

wont raise rates while at the same time intervene in the currency market to bring the value of

the currency down. Though these actions sound like countermoves, and in many ways they are,

the Bank has done this before and so you can expect them to do it again if they get too worried

about the high value of the Kiwi. As for how sentiment could be affected: I expect that if we

hear no mention of a change in expectations that the bank will begin raising rates again

December along with a fairly decent to hawkish stance on the economy going forward then I

expect the recent negative sentiment towards the NZD to change back towards a more neutral

level. Though if milk prices continue to fall this turnaround in sentiment could be short lived. If

however the Bank does signal that there could be a longer pause in rate hikes happening this

would simply just reinforce the already negative-neutral sentiment that has a grip on the NZD

at this time. Other important data will be Electronic Card numbers on Monday. Recent

consumer spending data has been overall good but as I pointed out earlier there is downside

risk in my opinion as and if milk prices in particular continue to fall. The other piece of data will

be Business NZ PMI data on Thursday which will show how business conditions are in New

Zealand and how businesses feel about things going forward. The other thing I will be watching

is the NZD currency price. The trend continues to be down in both NZD/USD and NZD/JPY

pairs overall and so the risk for more downside movements is high right now. Overall then, I

expect sentiment to stay overall neutral-negative if the RBNZ does signal a longer pause and/or

they are more dovish on the economy.

Japanese Yen Overall View

Sentiment for the Japanese Yen continues to be Neutral to Negative and now with the

Ukraine crisis seeming to be abating again, the negative side is showing more. The main drivers

of this sentiment right now include a weakening domestic economy, risk-on movesas


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geopolitical risks fade a bit and expectations of further easing going forward by the BoJas

well as due tobetter developments in other regions of the world, namely the US. Other things

driving the neutral side of sentiment include a fairly neutral and optimistic BoJ that continues to

see growth improving in Japan going forward. But the negatives still weigh overall including

weak overall growth, as seen by recent dismal GDP numbers, a weakening consumer as well asa struggling Services sector and weak industrial production. So overall the story is pretty bleak

for Japan and expectations from the market for Japan going forward are not very good either.

Last Week in Review

Last weeks data somewhat mixed. Capital spending decreased, Services PMI came in

lower than previous and Vehicle sales fell. However Manufacturing data, the Leading economic

index number and the coincident index number all came in higher than previous readings. Also

the BoJ issued their policy statement and held a press conference where the overall tone was

still pretty optimistic. The BoJ continue to see the Japanese economy improving going forward,

regardless of the weak data seen overall since the sales tax increase. Overall though, theeconomic conditions in Japan remain bleak and expectations continue of more BoJ easing going

forward in both time and quantity.


This week, the main piece of data will be the final reading of second quarter GDP due on

Sunday night (EST US time). Any weaker number than was previously shown will be bad

indeed but really for all intense and purposes, even a slightly better number will not be seen as

very positive. The details of the release though might show some continued weakness or

renewed strength in the economy, so something to watch there. Data overall from Japan will

continue to be watched closely as investors and traders alike continue to gauge the overallhealth of the Japanese economy and adjust their bets for further easing from the BoJ. Data this

week will include Machine Tool orders, Machinery Orders, Trade Balance data and Consumer

Confidence numbers all on Tuesday. And then on Thursday we will have Capacity Utilization

and Industrial Production numbers being released. Also of note, on Monday, the BoJ Monetary

Policy meeting minutes will be released but if the press conference held last week gives any

indication, the message will be the same. The BoJ will likely continue to strike an overall

optimistic tone. So overall, I expect sentiment to remain negative. This negative sentiment I

expect will come from continued overall weak economic data and a falling Euro. The reason a

falling Euro will have so much effect on the value of the Yen is that the Euro has now become aprime candidate for a funding currency for carry trade related positions which is causing

money to come out of the Yen. Also too, the Yen is continuing to decline especially versus the

USD and the Australian Dollar.


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China Renminbi; Onshore, Yuan Overall View

Since the Yuan is controlled by the PBoC at this point in time, it is easier to talk about the

sentiment surrounding China as a whole. So as for the country, sentiment is currently negative-

neutral. Main drivers of this negative sentiment continue to be an overall weak economy, as

seen recently in manufacturing and services PMI data, lower house prices, and overall slower

growth as China implements reformsto move the country to a more market-orientated one. As

for the neutral side, the main driver of this sentiment is current expectations of further easing by

the Chinese govt and PBoC in light of recent weak economic data. Other concerns adding to the

negative sentiment include a frothy real estate market, despite prices going lower recently and

due to a loan industry that is getting out of hand somewhat, especially in the shadow banking

industry (though this has been reigned in some recently).

Last Week in Review

Last week, manufacturing PMI data from both NBS and HSBC fell for the month of

August showing continued weakness in the Chinese manufacturing sector. However a bright

spot was services data which showed a bounce back after last months fall. But overall, things

continue to remain weak overall and in light of this weak data in the manufacturing sector, bets

have been rising that more stimulus will come soon from Chinese government and the PBoC.

The Week Ahead and Other Thoughts:This week, there will be several things for the

markets to chew on and use to increase or decrease their bets of more stimulus coming from the

Chinese government. The biggest and most important data will be the CPI data on Wednesday.

A lot of the expectations for more easing from the PBoC has to do with the low inflation rate

that has continued to fall over the last few months. So if a lower number occurs, those bets for

more easing will increase though the question remains on whether the PBoC will actually ease

or not as they seem to be rather reluctant to ease further at this point. Expectations too for the

CPI release are already lower than its previous reading last month. Other data of importance

will be New Loan growth and retail sales and industrial production. New Loan growth

numbers will be released on Tuesday and after last months quite sizable drop in the number,

interest will be in if that was a one time occurrence or if its the start of a longer-term trend

showing weakness in the loan industry. As for Industrial production and Retail sales, these will

be released on Saturday. But recent data for both has shown some weakness beginning and so

these will be watched for a continuation of this weakness or a bounce back. If these key

numbers show any signs of improvement, particularly in the CPI numbers, bets for more easing


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a massive and world wide de-leveraging process going on right now and until that is done,

businesses and consumers will not want to take on more debt. So in light of this, no amount of

ABS purchases or QE are going to change that fact and no amount of these things are going to

get businesses or consumers any more willing to borrow even more money. Also during

Draghis speech he sounded a dovish tone on the overall economic conditions and also loweredthe ECBs inflation forecast for 2014. So an overall dovish tone from the ECB this month. Other

data last week was Manufacturing and Services PMI data for both the Euro Zone as a whole and

for different Euro Zone countries. Overall the results were pretty dismal as the economy

continues to weaken. A couple of bright spots in the data last week was from Germany where

both factory orders and industrial production numbers both came in better than expected. Also,

a second reading of Euro Zone second quarter GDP came in as expected while retail sales for

July came in below expectations. So an overall negative week for the Euro Zone last week.


Things are quieter this week in terms of data from the Euro Zone. However ECBpresident Draghi speak at a Eurofi Conference in Milan on Thursday and so we could get more

details of the ECBs ABS purchases there. Data of some importance during the week French

Industrial Production on Wednesday, Final German and France CPI numbers on Thursday and

German Trade Balance data on Monday. Also Euro Zone Industrial Production numbers on

Friday will be of some importance. However the biggest event of the week I suspect will not be

in the data but in the Euro as I expect it to continue lower overall next week. So overall I expect

sentiment for the Euro to continue to be negative next week and for the Euro to continue lower.

Really too, the only things I can foresee that would cause sentiment for the Euro to change at

this point is better growth and/or higher inflation numbers overall combined with a more

optimistic ECB. Though these things, and improvement in the Euro Zone as a whole, seem to be

quite a ways off. Another thing to remember about the Euro moving lower too is that it has

become a new funding currency, similar to the Yen and this is due to the low rates attached to

the currency. In saying this, investors will be rotating out of the Yen and into the Euro more to

use the latter as a funding currency more. Also too, the PBoC may start to rotate out of the Euros

they have been buying up lately to rotate out of the USD if the Euro continues to move lower. If

the PBoC does this with the Euro, this would simply just add to the selling pressure.


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British Pound Main Longer-Term Themes

Current sentiment of the British Pound is neutral-negative. Recent weaker domestic data,

falling inflation, and worries about the results surrounding the Scottish referendum have all

taken its toll on the Pound as of late. Other things that have helped contribute to this negative

tone towards the Pound include weaker retail sales but more importantly expectations of rate

hikes and when they will come from the BoE being pushed back some. However, on the neutral

side (and even more positive side) the overall economy continues to grow robustly which

includes the jobs sector as well as the manufacturing and services sectors. Overall then things

are fairly good domestically, but right now with worries about this referendum coming up in

Scotland, the Pound will continue to be whipsawed by that. A vote removing Scotland from the

UK would be Pound negative while a vote for Scotland to stay in the UK would likely cause the

Pound to rebound again and maybe go inline again with the overall good fundamentals that the

UK has right now.

Last Week in Review

This week data was overall good. Net lending to individuals increased from the previous

month, Consumer Credit increased, Construction PMI and Services PMI data both came in

better than expected while consumer inflation expectations also increased. The BoE also met for

their monthly policy meeting, but as expected there was no change to rates or their QE they are

doing right now. The minutes of this meeting though, being released on September 27th will

carry great interest with it as the previous meetings minutes showed two members dissenting

and voting for a rate hike. So it will be watched if more followed during this meeting. Other

than the data, the Pound continued to be beaten down overall. Fears of Scotland removing itself

from the UK is the main driver right now and will continue to be until the vote on September

18th.


The key events this week will be a speech by Mark Carney and the BoEs inflation report

hearings. As for Mark Carney speaking, he will be speaking in Liverpool on Tuesday where he

will be talking about pay at the Trades Union Congress. Then the following day, on Wednesday,

the BoE will be giving their assessment of the economy and their outlook for it during their

inflation report hearing. During these hearings we could likely get a better read on when the

Bank will begin raising rates which the markets would like more clarification on anyway. Other

data of note during the week will be manufacturing and industrial production numbers on


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Tuesday as well as Julys Trade Balance numbers. And then on Monday and Wednesday we will

get a couple of different readings on house prices. Overall though I expect the main focus to be

on the Scotland referendum going forward for the next couple of weeks as I expect there will be

little new info coming from the speech from Carney and the inflation report hearings. So if there

is any more evidence that the chances of Scotland being removed from the UK, the Pound willcontinue to fall particularly versus the US Dollar.

Canadian Dollar Overall ViewOverall the current sentiment for the Canadian Dollar is neutral. It is pretty much a tale of

two cities for Canada right now. On the one hand you have the fundamentals which have been

doing alright lately. Inflation and GDP have both risen lately, manufacturing and industrial

production have been increasing lately and retail sales have continued to be overall strong

showing decent demand from the consumer. Also, most recent data showing business and

consumer confidence have been both rising based on the most current reading of both. House

prices also continue to rise which is a concern by some. On the other side of the equation

though is the BoC which continues to strike a pretty neutral to dovish tone. Their assessment ofthe improvement in inflation as of late for example, is to them, just noise. The one bright spot in

their assessment though is in their assessment of the US economy which has a direct impact on

Canadas. So because the US economy is doing well, the BoC expects the Canadian economy

will soon follow. The other negative part of the Canadian economy continues to be its

employment sector. Overall then things are mixed for Canada and why CAD sentiment is also

neutral.

Last Week in Review

The BoC meeting gave us nothing new in terms of rate changes or anything of that nature.

They continue to see rates at an appropriate level and they say that any adjustment to rates willdepend on how the economy is doing. Then on the data front, employment numbers

disappointed as the number of newly employed came in at negative territory and the

participation rate fell. Other data showed a better than expected trade balance with exports

rising more than expected and with imports coming in weaker than expected while Ivey

Purchasing Managers index came in weaker than expected. So overall, it was a pretty negative

weak for the CAD in terms of data.


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This week there are just a few things for the markets to watch for in terms of data from

Canada and most of the data is in the real estate sector of the economy. First, on Monday,

Building Permits will be released, then on Tuesday Housing Starts will be released and then on

Thursday New Housing Price index numbers will be released. In between these data prints, onWednesday, the Capacity Utilization number will be released. So all-in-all, we will be able to get

yet another view of how the real estate market is doing in Canada and how well it continues to

perform, or not, in this low rate environment.

United States Dollar Overall View

The overall sentiment for the USD right now is neutral to positive. The things driving the

positive sentiment include an overall strong and improving US economy, steady inflation that is

very close to the Feds target, expectations that the Fed will raise rates soon, a slowly tightening

Fed that is currently getting out of their QE program, and deteriorating fundamentals in othermajor economies including Japan and the Euro Zone. The main thing that is driving the neutral

sentiment is a housing market that is currently slowing some in price and activity. Overall

though things are quite positive for the USD right now and as the economy continues to

improve, expectations continue to rise that the US Fed will raise rates soon.

Last Week in Review

Overall, data last week came in mixed for the US. The positive data included

Construction Spending, ISM Manufacturing PMI, Redbook, Vehicle sales, Trade Balance, and

ISM Non-Manufacturing PMI. As for the key event of the week, the non-farm payrolls data, the

overall number came in much lower than expected while the unemployment rate fell butaverage hourly earnings rose a bit. Though the NFP number came in so weak, after an initial

fall, the USD bounced back regaining almost all of its lost value during the release. The reason

for this is two fold: the overall trend is still above 200K and the second reason could very well

be that the August payroll number will likely get revised higher as Augusts NFP number is the

most frequent revised NFP number out of the year. And plus, with earnings data rising and the

unemployment rate dropping, things were not all bad in the report. Other data that came in


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worse than expected included ADP employment data, Factory Orders and Initial Jobless claims.

Overall though, the US economy continues to be strong even with the weak jobs data this week.


This week, the most important data will not come until Friday when Retail Sales data and

UoM Consumer Sentiment numbers will be released. Expectations are bullish for both numbersand if these data releases do come in as expected or better than expected, they will show a US

consumer that is strong overall. Other data will be NFIB Business Optimism index on Tuesday,

Mortgage Applications on Wednesday along with Wholesale Inventories and then Initial Jobless

claims on Thursday. Overall then, I expect sentiment to remain bullish the USD for the week as

there is little data for the week from the US and worsening developments in other regions of the

world I expect will help push the USD higher.

Charts

AUD/JPY -- Weekly chart; next stop the high at the left of the chart?


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EUR/USD -- weekly chart; the fall continues.next support likely at about 1.27500


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