One Financial 09:21 Through 09:27

8/11/2019 One Financial 09:21 Through 09:27

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Weekly Sentiment Paper Distributed by: One FinancialForthe Week of: 09/21 through 09/27 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 6

Euro Area: Euro 8

British Pound 9

Canadian Dollar 11

United States Dollar 12


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Week in Review

Australian DollarOverall View

Overall sentiment for the Australian Dollar now is neutral. A couple of reasons for this.

First is the overall strength of the USD that is expected to continue and grow which of course,will cause its counterparts to fall. The second reason, which is even more important, has to do

with the RBA. They are currently in neutral stance and seem comfortable with that at this point.

Because of this data, general movements in other currencies and global asset moves is what is

driving the AUD right now and this can and has changed on a week-to-week basis. In saying

this, last week, not only did the USD strength pull the AUD lower, so did lower than expected

consumer confidence numbers. Confidence in Australia has taken a hit as of late due budget

The People spoke and Scotland will be staying in the United Kingdom; a sign of reliefswept the markets on this news but the road will likely remain difficult ahead as policychanges get put into place to give Scotland more powers.

FOMC meeting shows some surprises but mostly in how much the same almosteverything was from the previous meeting; statement saw little change and no change tothe considerable time part as was expected

FOMC dots chart shows expectations for rates increased for the end of next year by Fed

members; the USD rose on this FOMC leaves rate statement pretty much the same and overall against expectations

Canada CPI higher than expected and previous

China adds more stimulus to the economy though still not a huge amount of stimulus


3/13

reasons and now it seems to be going lower again. So in light of current reality, sentiment

remains neutral for the Aussie Dollar for now as the RBA remains in neutral territory and

multiple factors continue to push the Aussie Dollar back and forth, though recently more forth

(up) than back (down). Though I expect it to turn more to the negative side of the equation

(neutral-negative) as the USD continues to gain leaving currencies like the Aussie Dollar whohave been a benefit to the carry trade, vulnerable for the foreseeable future. Other driving

factors that continue to drive the Aussie, includes high house prices, falling commodity prices,

falling mining investment, a struggling consumer and employment sector as well as a struggle

for the non-mining sector to gain decent traction.

Last Week in Review

Last week RBA meeting minutes showed a continued mixed message. They reaffirmed

that the most prudent course is a period of rates stability. Also they continue to say that the

exchange rate is above most estimates of fundamental values. Also they are monitoring house

prices and see that risks from house price warranted close observation while there is also someconcerns about asset price buildup (i.e. Bubbles). They also expect the non-mining investment

to increase going forward and that mining investment will continue its decline. And they see

that credit growth has increased (especially to businesses) and that the employment sector

continues to be weak along with wage growth that remains subdued. So overall, as I said it was

a mixed message. The one part of the RBAs statement that did get my attention was their

mention about the heightened level of house prices and their worry about asset price increases.

Though I do not expect the RBA to raise rates anytime soon, it may come that they and/or the

government do something to curb house prices some. Something like what weve seen in the

UK and New Zealand. So something to watch for there. Other than that there was another

announcement that will affect Australia going forward. That is in the announcement by China

that they will now ban dirty coal going into their country as they try and curb smog levels and

try and improve their environment. This will likely negatively effect Australian mining

companies who are the biggest providers of coal to China. Something to watch there as the

decline in mining investment that the RBA sees coming could be even worse than they expect

right now. Also during the week, the AUD fell overall especially versus the USD as it broke a

key technical level during the week.

The Week Ahead and Other Thoughts

This week, things are sparse for data from Australia. On Tuesday CB Leading Indicatordata will be released and on Thursday the RBAs Annual Report will be released which gives an

outline of how the Australian economy performed in the prior year from the perspective of the

RBA. However, on Wednesday, RBA Gov. Stevens will be speaking at an economic forum in

Melbourne and so we could hear something about monetary policy during that time. Though as

is usually the case, the chance of any mention of monetary policy measures or thoughts is pretty


4/13

slim. But still something to watch. Overall then, the Aussie will likely continue to be driven by

US Dollar strength overall as well as developments in its counterparts.

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, a more neutral RBNZ that is happy to leave rates alone for now and due 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 of main concern was second quarter GDP which came in above

expectations overall. The Services industry, which makes up about two-thirds of New Zealands

economy increased overall with 11 of the industries increasing in growth during the second

quarter. The biggest gainers were Advertising, Employment services and software development

services. The draggers on the numbers were in industries related to agriculture, forestry and

mining. The weaknesses in these sectors is not a huge surprise to me either especially since the

prices of both milk (related in part to the agricultural industry) and forestry products have

fallen over the past few months with milk prices falling the most. Overall though, the number

shows continued growth in New Zealands economy however the problem lies in the fact that

recent growth has been not as spectacular and so my expectations are that third quarter GDP

will be lower. Other data from the week was Visitor Arrivals data which showed a decline in the

number of visitors, actually reaching negative territory. And current account data showed a

decline into the negatives which was more than expected for the second quarter. As for election


5/13

results, PM Keys will begin his third term in office. This is good news overall for current policy

and so we should see little changes for the time being.


This week, there isnt much on the table in terms of data. Trade Balance data along with

Exports and Imports data will be the main release for the week. In my opinion, given Chinasweak growth in particular (and with China being a main trading partner of New Zealands) I

am thinking there could be some risk to the downside as far as exports go. If this expectation is

realized, this would match market expectations that are out at the time of writing. The other

data release of importance will be Westpac Consumer Survey numbers for the second quarter.

This number has been gaining steadily over the past few quarters and a continued strong

number will likely support domestic consumption going forward.

Japanese Yen Overall View

Sentiment for the Japanese Yen continues to be Neutral to Negative. The main drivers of

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

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 as

a 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 week the Yen continued its decline versus the US Dollar in particular as positive

sentiment for the US Dollar continued to strengthen as the Dollar/Yen pair continues its climb

higher, scarcely stopping or anybody or anything, including the almighty Fed. Last weeks data

out of Japan showed mixed results. Trade balance data came in a bit better than expected

though both imports and exports continued their decline. All Industry Activity data came in

below expectations but a bit better than previous while both the Coincident index and Leading

Economic index came in above the previous reading. Overall though the Yen remains very weak

overall, even against currencies that have a negative bias right now; the Euro and Aussie Dollar


6/13

both come to mind. Also last week we heard from BoJ Gov. Kuroda. Overall he sounded

optimistic yet again on the Japanese economy. This has been continuing too, this optimistic tone

even though overall the Japanese economy continues to weaken. So either the BoJ and Kuroda

know something that the rest of dont; that the Japanese economy will actually begin to improve

going forward. Or..(and I think this is more the case) the BoJ is doing all it can to NOT add totheir stimulus until they absolutely have to. So in order to not have to ease further, they

continue their message that inflation will reach their target and the economy will continue to

improve hoping that it will create a self-fulfilling prophecy. However, as far as I can tell,

nobodys buying it, especially those that need to: Japanese businesses and consumers. Going

forward then I continue to expect that the BoJ will have to add to their QE amount continuing to

weaken the Yen.


For this week Tokyo CPI and National CPI on Thursday will be the key releases from

Japan. However, with expectations that inflation would go lower as the effects of the April taxhike wear off, which is still happening, these numbers will likely not be a big driver of the

markets unless the readings of the data are far from previous or expectations either higher or

lower. Other data will be Flash Manufacturing PMI on Tuesday and Corporate Prices on

Wednesday. After a sharp decline Manufacturing PMI has been slowly increasing over the past

few three months. So it will be interesting to see if Manufacturing continues to improve as many

other sectors continue to decline. Overall though, the movements in the Yen I expect will

continue to be dictated by movements in the USD and with the Dollar/Yen pair looking like its

wanting to go to the moon and beyond, the risks in my mind are very good indeed for a

continued fall in the Yen. Also too, I am still overall pessimistic going forward in regards to both

the Japanese economy but also Abenomics in general and the positive effect that it is intended to

have in boosting the Japanese economy. Overall then, I expect the decline in the Yen to continue

for the foreseeable future, particularly versus the US Dollar.

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


7/13

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, even though they did ease

some last week. Other concerns adding to the negative sentiment include a frothy real estatemarket, 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) as well as now even lower and continued falling inflation.

Last Week in Review

Last week, the big news from China came in the form of an announcement by the PBoC

would be injecting 500B Yuan into the countrys five largest bank and another 1.3B into the

money markets during the week and they also cut their repo rate by 20bps to 3.5%. Overall

though this will likely not be enough to revitalize the economy as inflation continues to move

lower and overall growth continues to weaken. Also, Foreign Direct Investment numbers tookthe markets attention as it fell into negative territory continuing its decline into negative

territory for the second straight month. Foreign Direct Investment into China is now at its

lowest level in two-and-a-half years. Overall then, things continue to remain bleak for China.

The Week Ahead and Other Thoughts:

For this week, Manufacturing PMI data from HSBC will be the highlight in terms of data.

Over the past few months, this number has been declining as weakness in the overall Chinese

economy continues to seep through to the manufacturing sector. The other piece of data will be

CB Leading Economic index number on Thursday. However I think the main concern of the

markets in China will be continued expectations of further easing coming from Chinese

authorities. Last week, as already mentioned, there were some actions out of the PBoC in terms

of easing but what they did last week will likely make very little difference. So the markets will

likely continue to be looking for more easing to come from them. Stock indices have been rising

in China over the past few weeks as they have been pricing in easing actions by the PBoC.


8/13

Euro Area: Euro Overall View

Sentiment for the Euro is currently and fully negative. The main driving themes of this

negative sentiment are a dovish ECBthat has now eased policy further during their last

meeting, weak Euro Zone growth overall and continuing falling inflation. Other themes in the

background that continue to feed that negative sentiment include high unemployment, weak

political structures, weak consumption, weak loan growth, high debt-to-GDP and weak

business investment which has led to, in part, that high unemployment already mentioned.

Another thing that is helping to feed this negative sentiment are the current sanctions put

against Russia in light of their involvement in the conflict continuing in Ukraine have caused

and are expected to continue to cause weak growth across the Euro Zone. Overall then the

picture is quite bleak. There is one upside risk to the Euro though at this point and that is with

the fact that the Euro, due to its now very low interest rates that are attached to it, has become a

funding currency for carry trades. What this means is that, particularly in times of stress (risk-

off), the Euro will likely get a bid as investors move their money to the Euro in order to keep it

in a safe place during these high-risk times. Because of this too, its downside could very well be

limited going forward.

Last Week in Review

Last week there wasnt too much data for the Euro markets to digest. Euro Zone Trade

balance came in better than expected, German ZEW Economic Sentiment and Euro Zone

Current Situation sentiment numbers came out worse than expected and German ZEW

Economic Sentiment came in higher than expected but overall the trend continues to move

lower. The big release for the week though was CPI data for August which came in overall as

expected minus year-over-year headline data which rose a bit versus expectations. Overall

therefore, the CPI data for now looks pretty good. Also, another big piece of news was the first

issue of TLTRO loans to Euro Zone banks. The amount that they accepted was only !82.6B

which is quite low versus the !400B that is available. But expectations are that more money will

be accepted during the next issue of loans in December. This has to do with the Asset Quality

Review results being released in November. Once this review is completed, banks will likely

feel more comfortable taking on more money. And with two auctions scheduled for December

and more after that between March and June of 2015, there is plenty of opportunity for this


9/13

money to be dispersed. The real question is whether banks will actually lend it out and there are

many doubts about that including from me.


In terms of data this week, there is a bit of it that the markets will be paying attention to.

On Monday, Consumer Confidence numbers for the Euro Zone will be released and with thisnumber sliding over the past few months, prospects for a slide further are pretty high in my

opinion. Other data of importance will be Manufacturing PMI and Services PMI numbers for

Germany, France and the Euro Zone on Tuesday. Things havent been going well in these sectors

either lately and so I do not expect the overall results of these numbers this week to be very

good. On Wednesday, final German IFO Current Assessment and Business Climate numbers

will be released and on Friday GfK Consumer Confidence Survey numbers will be released as

well as Italys unemployment rate. Also this week, ECB President Draghi will be speaking about

monetary policy before the European Parliaments Economic and Monetary Committee on

Monday. Something to keep an eye on since it is on monetary policy. We could get some moreclarification on the recently announced ABS purchases during the speech though my bet is that

there will be nothing too dramatic said. Central bankers dont usually like to use these types of

events to announce anything crucial or important as far as policy changes are concerned. We

will likely just hear a reiteration of what was said at the ECBs most recent meeting and plus

with the ECB meeting next week, the chances of any major announcement from Draghi are

pretty limited. Overall though I expect sentiment to remain pretty bleak for the foreseeable

future for the Euro with the next major risk event for the Euro being next week as the ECB

meets and CPI data is released for September.

British Pound

Main Longer-Term ThemesCurrent sentiment of the British Pound is neutral to negative. Now that the Scotland

referendum is over and the results show that Scotland will stay part of the United Kingdom,

focus shifts back to the overall economic picture of the UK. Overall it is doing good. However

worries have recently surfaced over inflation that continues to move lower over the past few

months and wages that still remain low with both, particularly the latter, being a concern of the

BoE and this has pushed the Pound lower recently. Neutral sentiment continues to be driven by


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overall positive UK growth and expectations that the BoE will soon raise rates as the central

bank moves more and more into hawkish territory. Recent minutes show two dissenters within

the BoE who have voted for rate hikes and so will only be a bit of time yet before members

move in that direction and the majority see a need for higher rates. Overall though, the Pound

will now continue to be driven by the lower wage growth and inflation both which will still putpressure on the Pound going forward and so therefore the main sentiment of the Pound

continues to remain more in the negative territory.

Last Week in Review

The people voted and Scotland stays part of the United Kingdom. Overall the number or

regions that voted No far surpassed those that voted Yes with most of the rural areas voting

No while Glasgow region, the most populous region, voted Yes. Still though, with a 10%

margin between the two sides, this was a better result than most were expecting based on polls

that were released ahead of the main vote. So with that over, the market can turn its attention

back to the underlying fundamentals and central bank rhetoric. You could hear the collectivesigh of relief when the results showed that Scotland decided to stay in the UK. But now the real

work begins as the government in England begins the process of handing over more powers to

not only Scotland, but Wales and Northern Ireland as well. Announcements were made shortly

after the vote was completed in Scotland by UKs PM David Cameron promising more tax

freedom in particular to these regions. But the implementation of these laws will take time and

could make the Scottish people restless. And so speaking of the fundamentals and central bank

rhetoric...last week, amidst all the stuff going on about the Scotland vote, we got some pretty

important data. First off we had house prices which came in higher than previous readings

which continue to show upward pressure on the housing sector. Then we had all-important CPI

data which came in overall as expected though Core CPI year-over-year did climb a tad higher

than expected and previous. So some good news there for those worried about inflation. And

for those worried about low wage growth, good news..it also rose last week as part of a whole

package of employment data showed that the Unemployment fell, the number of unemployed

people in the UK fell more than expected and (more importantly) wage growth ticked a bit

higher. The one weakness in the data last week of importance was retail sales which came in a

tad lower than expected but overall higher than previous. Also, Bank of England minutes were

released and showed a bit of a negative tone from the members. There continued to be two

dissenters voting for rate hikes (Weale and McCafferty) but the committee as a whole was a bit

more negative on the economy saying that risks to the UK probably increased, geopolitical risks

increased, they see vulnerability to shocks and household debt and they are concerned about

the low growth in the Euro Zone. Also they are concerned withe height of the Pound as they see

this as putting pressure on inflation. So overall a not-so-optimistic tone from the BoE this time.

Going forward, their tone will continue to be driven by wage growth, overall growth in the UK

and now (it appears) what is going on in the Euro Zone.


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The week ahead, little data is scheduled to be released. Public Net Borrowing will be

released on Tuesday, Nationwide House Price data is on Thursday and Consumer Credit will be

released on Friday. The housing data will be interesting to see after last weeks Rightmove data

showing an increase for the month of September. Other than that though, we could see somemore readjustments as the market continues to shift their focus off of the Scotland vote.

However, regarding the Scotland vote, I dont think the risks from that situation have

completely left. Now that the vote is over, Scotland will be given more powers but whether it

finds these newly added powers acceptable or not I think is where the real risk lies. And plus,

the more powers that England gives it, the more it will want which could lead to more

disagreement between the two down the road.

Canadian Dollar Overall View

Overall 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 strongshowing 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 of

the 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 alsoneutral.

Last Week in Review

Last week


For this week, retail sales data on Tuesday will be the only worthwhile data being

released from Canada. Recent data over the past few months has shown a pretty strong


12/13

consumer overall which is part of what is driving the mixed sentiment for the CAD right now. If

this trend continues, and if the overall economy gets a boost from a stronger consumer (as well

as other areas) the BoC will have to change their current stance on the economy and monetary

policy going forward. But the BoC will likely want to see a few more months of data before

making such a change and when they do, it will be slow.

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 other

major economies including Japan and the Euro Zone. As for the economy, this continues to

improve as services PMI data, manufacturing PMI data, retail sales data and consumer

sentiment all continue to increase and improve overall. The main thing that is driving the

neutral sentiment is a housing market that is currently slowing some in price and activity and ajobs market that is, though on the surface quite good, continues to struggle underneath which

could very likely lead to weaker growth going forward for the US. 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

Last week we heard from the Fed as they released their rate decision and rate statement

and Yellen held a press conference. Overall, against expectations, the statement remained the

same. The phrase considerable time was left along and their views of the economy remain the

same though their view of the employment sector did sound a bit more optimistic. Theyoutlined how they would deal with their excess reserves going forward and how they plan on

normalizing policy going forward. Also, the dot plot was updated and released which showed a

more optimistic expectations of where rates will be in the future especially by the end of next

year. The markets chose to focus on the dot plots more than the statement itself or the press

conference that followed. In light of this the USD rose and yields rose as well though not by a

very large amount. Overall though expectations pretty much remain the same on when rates


13/13

will be first raised by the FOMC. Though I think there is some risk that the markets are

underestimating on how fast the Fed could raise rates after the initial hike and so I think there

could be some risk going forward that the USD could rise faster than expected right now. Other

key data was CPI data which fell some versus expectations and last months reading. This could

put the breaks on what the Fed does with rates some but we will have to see. Other datashowed jobless claims falling by a much larger amount than expected while Philly Fed

Manufacturing number for September came in below expectations. Housing data showed

Building Permits and Housing starts both falling for August and Industrial production also

came in worse than expected, slipping into negative territory. Also Capacity Utilization came in

lower than expected. Overall then, based on the data anyway, things were somewhat more

negative for the US this week though with rate projections being raised by Fed officials, the

USD continued its climb overall.


The week ahead brings some key data releases. Core and headline Durable Goods orderson Thursday will be the key release as will also be final GDP numbers on Friday. Durable Goods

orders are a big factor in GDP numbers and so third quarter GDP number expectations could be

altered depending on the Durable goods orders number this week. As for GDP numbers, if this

number is revised higher, we will likely see a lift in the USD but really more focus will likely be

put on the Durable Goods orders as this is more forward looking. Other data will Existing home

sale changes and house price index numbers. Also Manufacturing PMI numbers will be released

as will also New Home Sales, Services PMI, Composite PMI, and UoM/Reuters consumer

sentiment numbers. So a fairly important week for data this week for the US. Looking ahead,

and putting the recent USD gains in context, I expect there will be a pullback in the recent gains

we have seen in the Dollar and I expect it will come soon. Ultimately it will come from the what

the Federal Reserve does, or doesnt in this case as I expect them to be a little longer in raising

rates than many expect. The main reason I expect this is due to what I expect will be a slowing

US economy going forward. The US economy has a pretty good run over the past few months

however with colder weather I expect a cooling economy. Hopefully we will not see what we

saw at the beginning of this year (very weak growth) but there are cracks in the economy and

these could begin showing if things start to slow some.

Documents

One Financial 09:21 Through 09:27