NZ First Tanks the Kiwi with UK Retail Sales and Trump to Drive the Pound and the Dollar

Earlier in the Day:

Macroeconomic data released through the Asian session this morning was on the heavier side and included Japan’s September trade figures, 3^rd quarter GDP together with September industrial production and fixed asset investment numbers out of China and Australia’s September employment data.

Japan’s trade surplus widened in September, with exports rising by 14.1% following August’s 18.1% increase year-on-year, providing further support to the Nikkei, as exports increased for the 10^th consecutive month supporting the Japanese export stocks and the continued optimism in the global economy.

In contrast, China’s 3^rd quarter GDP numbers made less of an impact on the markets, with disappointment of a slowdown in growth in the 3^rd quarter holding back a market rally in response to the Dow’s 23,000 breakthrough on Wednesday, despite the numbers being in line with forecast and September’s retail sales and industrial production figures being on the positive side.

With the National Party Congress in progress, both the Hang Seng and the CSI300 were in the red at the time of writing, though the negative response to the numbers will likely be short lived, China’s 3^rd quarter growth being only marginally slower than the 1^st half of the year.

For the Aussie Dollar, there was some upside following the better than expected employment numbers, with Australia’s unemployment rate falling to 5.5%, though looking at the numbers, full time employment gains lagged part-time employment gains. Since September 2016 however, full-time employment increased by 315,900, with part-time employment rising by just 55,600 which is a positive for the Aussie Dollar.

At the time of writing the Aussie Dollar was up 0.04% at $0.7849, with Aussie Dollar having given up gains off the back of the employment numbers following the release of China’s 3^rd quarter GDP figures.

Things weren’t so good for the Kiwi Dollar in Asian trading hours this morning however, with the Kiwi Dollar tumbling 1.08% to $0.7076, on news that NZ First Party leader Peters was preparing to announce with which party they will side to form government.

While the Kiwi managed to make a partial recovery, NZ First Party leader Peter’s announcement of a coalition with Labour pulled back the Kiwi Dollar, which was down 1.33% at $0.7058 at the time of writing, the general view being that the new coalition’s policy on immigration and trade will be a negative for the New Zealand economy. The Greens appear to be backing NZ First’s decision, so that’s the end of that for the National Party.

The Day Ahead:

It’s another day for the Pound today, following the disappointing wage growth figures and a particularly dovish new Deputy Governor of the BoE, with September retail sales expected to provide further indications of whether the BoE will be in a position to lift rates and begin curbing inflationary pressures that have gone above and beyond the BoE’s objective for some time now.

Based on forecasts, the numbers are likely to be a negative for the Pound, though as we have seen throughout the year, the UK economy has remained surprisingly resilient despite the negative sentiment over the effects of Brexit and inflation on the economy. An unexpected boost in sales will add to the prospects of a November rate hike, though with a move largely priced in, it’s likely to boil down to whether the BoE will have to take a more hawkish stance on policy over the medium-term, with the markets currently expecting a move towards normalization to be a particularly gradual one.

The Pound was up just 0.04% at $1.3211 ahead of the European open, managing to hold on to $1.32 levels in spite of the BoE doves.

For the EUR, it’s another big day as the markets prepare for yet another showdown between Catalan President Puigdemont and Spanish Prime Minister Rajoy, with no material stats out of the Eurozone to consider. The Spanish government’s Monday deadline for Catalan to clarify whether it has declared independence was extended to this morning and any defiance from the Catalan government could see the Spanish government respond with Article 155 that will likely result in more Spanish unrest and political uncertainty. While the EUR is up 0.08% at $0.1796 at the time of writing, we can certainly expect the markets to respond, though there have been suggestions by Catalan government officials that no clarification will be forthcoming, which should make things interesting.

Across the Pond, it’s a big day for FED Chair Yellen, who is scheduled to meet with the U.S President to discuss a possible second term as FED Chair. There’s been plenty of hype over who the likely FED Chair will be, with yields swaying on market sentiment, the emergence of Yellen as a front runner reversing the jump in yields following Stanford economist John Taylor’s interview with the U.S President earlier in the week.

We will expect comment from the U.S President on how the meeting went, though the eventual outcome will continue to be a mystery as Trump looks for a supporter of financial deregulation.

On the data front, stats are limited to the weekly jobless claims and October Philly FED Manufacturing figures, which will provide direction for the Dollar, particularly if the Philly FED Manufacturing data is as impressive as the NY Empire State numbers released at the start of the week.

With Trump expected to announce the FED Chair in the coming days, it’s likely to remain the area of focus for the markets however, the prospect of a material change to policy setting and regulation certainly not something to be brushed aside.
The Dollar Spot Index was up 0.06% at 93.416 at the time of writing, with Trump in the driving seat for the day.