One Financial 10:12 Through 10:18

8/11/2019 One Financial 10:12 Through 10:18

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Weekly Sentiment Paper Distributed by: One FinancialForthe Week of: 10/12 through 10/18 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 7

British Pound 9

Canadian Dollar 10

United States Dollar 11

Order Levels 13


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Week in Review

Australian DollarOverall View and Last Week

Overall sentiment for the Australian Dollar neutral to somewhat negative. The key

drivers of this sentiment include an RBA that is currently neutral to slightly dovish on rates

both now and in the future and an economy that continues to struggle as its drivers move from

mining to non-mining related industries. Last week, the RBA held its monthly policy meeting

where they left rates at their historic low level of 2.5%. Within their statement they raised

FOMC meeting minutes released from their September meeting showing that the Fed is inno hurry to raise rates with concerns about the strength of the US and world wide slowgrowth being at the top of their list for why to not raise rates any time soon

Australian employment data shows a mixed result while a re-calculation by the labordepartment in Australia offers a worse than previously seen picture of the employmentsector in the country

Fears of global growth take hold of the markets with stocks down worldwide overall for

the week RBA leaves interest rates at 2.5% as expected and previous; increasingly voicing concernsabout the strength of the housing market though no action to combat it.yet

German Factory and Industrial data comes in weaker showing yet more signs of a slowingGerman and Euro Zone economy

BoJ leaves interest rates and adds no more to stimulus amount though discussion isbegging within the BoJ that things are not doing well in the Japanese economy rightnow.bout time they acknowledged this

Canadian employment data came in much higher than expected while the unemploymentrate fell and wages increased; overall then a good release but time will tell if this strengthin the labor market will endure


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concerns about global growth, particularly China and also concerns about the strength of the

housing market in Australia are starting to take center stage at the RBA. They also are

forecasting that domestic growth will run a little below trend over the next several quarters

due to weak resource sector investment but coupled with expanding domestic demand. There

was also the usual mention that the AUD remains high in relation to historical standards butwith the AUD down over 5% versus the USD since last RBA meeting there was little else

mentioned on the subject. The other drivers right now continue to be falling commodity prices

due to weak global demand (in light of weaker global growth and growth expectations) and an

overall stronger US Dollar which has gained due to more positive developments in the States

over the past few months. Also, the domestic economy continues to remain weak in my opinion

as the hand-over from mining to non-mining investment related growth struggles. Employment

data showed some signs of this as the data for September came in mixed to lower than expected

and previous while the Australian Bureau of Statistics (the agency that releases the employment

data each month) came out and basically said that they will no longer be doing seasonal

adjustments to the data which also included data for August and July. This meant that the

overall employment picture is weaker than previously thought but still holding up alright given

the overall slowdown seen in the commodity sector., both in Australia and around the world. A

bright spot in the domestic growth story of Australia came in the form of better than previous

reading on Construction performance for the month of September. Overall the internals were

good as well as new orders and activity expanded again, employment and deliveries expanded

at their highest rate since the survey began back in 2005 and overall activity expanded across

most major sectors. House building was the strongest performing sector (no surprise there)

while growth in the commercial space also picked up for the month. The one not-so-bright spot

of the survey was a drop in mining related construction activity which is not a surprise. Really

too, the strength of housing construction is no surprise either given the strength of the housing

market in general in Australia right now. This also, in my opinion, begs the question of how

much the construction sector will suffer if and when the RBA and/or Australian government

implements some sort of measures to cool the housing market. This I expect will likely lead to

softer employment, continued low consumer sentiment and overall lower economic growth

going forward. But whether or not the RBA will want to suffer overall growth for a short term

stall in the housing market remains to be seen. Also, speaking of the housing market,

investment in housing fell for the month of August but still remains in an overall uptrend.

The Week Ahead and Other Thoughts

This week, Business sentiment surveys and the Westpac Consumer Confidence survey

numbers will be of interest for the Aussie Dollar market. Consumer confidence has taken a hit

over the past few months mostly due to a stricter and tighter government budget that was

released in the early parts of this year. It still remains low and so any signs of a rebound will be

welcome news for the market and policy makers. Other than that it is a quiet week for data


4/13

from Australia as the Aussie Dollar will continue to digest the latest RBA meeting, what their

concerns about the housing market could mean for future growth and more particularly what

overall global growth looks like going forward.

New Zealand DollarOverall View and Last Week

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

the currency continues to be sold off. This sell-off right now is driven mainly by continuedlower milk prices, a more neutral RBNZ that is happy to leave rates alone for now,

confirmation of RBNZ intervention in the NZD market to bring the currency downalong

with expectations that this intervention will continue 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 spotswhich 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. Domestically speaking the

economy continues to do well as the construction boom and increased immigration continues to

support overall growth there. The consumer also remains strong as was seen by Electronic Card

retail sales data last week which overall continue to show a strong consumer. However there

was some weakness in the month-to-month change in the data but year-over-year the consumer

is stronger than last year at this time. Business conditions remain good but are struggling asboth weak commodity prices and overall weaker global growth put a damper on New Zealand

businesses. Last weeks business confidence numbers showed a continued fall in the data as

they have fallen over the past few quarters after their peak earlier this year. However, based on

historic standards, the confidence remains strong but if global growth and commodity prices

continue to weaken, this confidence will likely weaken further which would then likely become

a concern of the RBNZ.


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This week, data is sparse with only the Business NZ PMI number on Wednesday the only

thing of interest due from New Zealand this week. So the Kiwi will likely take most of its cues

from other developments in the world including likely more continued worries about global

growth and developments in the States and China both of which have some key data for theweek ahead, especially China.

Japanese Yen Overall View and Last Week

With a continued weak domestic picture in Japan coupled with weak global growth

concerns and continued geopolitical risks simmering just below the surface (and coming above

the surface from time to time) the Yen continues to be whipsawed, going back and forth. Overall

though the sentiment for the currency remains strongly negative. This negative sentiment

continues to be driven by weak a weak domestic economy which saw some mixed to more

negative signs last week in terms of data. The darker spots were Leading Economic Index,

Coincident index, Import, Export, Trade Balance and Machine Tool orders all coming in lower

than previous and/or expected. The weakness in exports is one thing of heightened concern asthe export sector continues to weaken and now with what it would appear are weakening

import numbers, this feeds into the story of a weak domestic economy and weak consumer. The

bright spots of the data last week was Machinery orders that came in above expectations and

previous readings though year-over-year data continues to remain in negative territory just that

last weeks data showed it as not being in as far in negative territory as the previous month. Still

weak overall though. The other main driver of the overall negative Yen sentiment is the BoJ

which continues to have a very very accommodative policy and continues to implement their

QE program which is massive. Last week at their monthly meeting, they maintained this

accommodative policy and QE program but also sounded a bit more bearish on the economy.Up to this point they have continued to strike a more optimistic tone regardless of the fact that

the economy continued to deteriorate. In the policy statement last week though downgrading

the industrial sector and voicing more concerns about the weak export sector. There was also an

increased tone of concern by one of the BoJ members in regards to the BoJs inflation target and

the Banks target date in reaching this inflation target level. Also BoJ Gov. Kuroda spoke during

the week saying that export volumes continue to struggle to rise and that more stimulus will be


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implemented if needed and that the sales tax impact has been somewhat prolonged. These

words, as well as the tone in the meeting statement to me means that the BoJ could be starting

to shift somewhat in their tone towards the economy and the lack of growth that is continuing

to be present. But we will have to see how things play out. Another thing that continues to keep

the Yen weak overall are expectations that additional easing will be put into place by the BoJ butthis has yet to happen.


This week Industrial production will be the really only real important data from Japan.

The industrial sector has been weak in recent months and now with the BoJ showing some

concerns over this sector, the performance of this sector going forward is more important in my

opinion. Other things to watch for the Yen continue to be geopolitical events which has shifted

from Ukraine/Russia and Iraq to now protests in Hong Kong.

China Renminbi; Onshore, Yuan Overall View and Last Week

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. A weakening economy which has been driven weaker in part by reforms that have been

pushed through by the central government as well as weak inflation and weak global growth

overall continues to put pressure on sentiment towards China. As for the economy, the main

driver of this negative sentiment, this continues to struggle as the manufacturing sector

continues to remain weak amid a slowdown in both global and domestic demand. The

consumer also looks to be getting weaker though this is just based on the retail sales data while

other sources say that the consumer continues to stay strong. However, if the Services sector is

showing any indication, the consumer remains weak and this weakness in the Services sector

continued with data last week showing a drop in activity in the sector for the month ofSeptember. The other thing of concern continues to be the real estate market. Prices remain high

and activity remains strong which is not a good thing as this strength in the real estate market is

causing a viscous cycle of increasing debt and investment that is unsustainable. However with

recent measure being put into place by the PBoC to boost real estate investment among

consumers in particular this cycle continues. Overall then, with a weakening consumer and a

weakening economy overall along with a weakening global economy things are not going well


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for China and I do not expect things to turn around soon. The main thing at this point that

would increase growth in China at this point, in my opinion would be less reforms. Though this

growth would also not be real growth in my opinion.

The Week Ahead and Other Thoughts:

Inflation data this week will be the key data from China. Inflation continues to declineoverall and speculation continues that the PBoC will implement some sort of easing measures to

help lift prices again. Though with inflation continuing to drop and with no signs of easing from

the PBoC, those expectations of any sort of meaningful help from the PBoC may be lessened as

time goes on. Other data of interest will be import, export and trade balance data for September

as well as Foreign Direct investment numbers for September. I expect both export and import

data to be weaker than previous as both domestically and internationally growth remains weak.

Euro Area: Euro Overall View and Last Week

Sentiment for the Euro is currently and fully negative. Weak domestic growth and a veryaccommodative monetary policy along with expectations of more weak growth and more

easing from the ECB continue to push the Euro lower. Weak German industrial and factory data

last week both continue to point to a weakening Euro Zone economy. The other main concern of

the markets right now continues to be persistently low inflation. Inflation in the Euro Zone as a

whole is below 1% and in several of the Euro Zone economies it is below 0% and in negative

territory. This continues to be a concern of both the ECB and the markets. Last week too Greece,

Portugal and Italian inflation data all showed continued weakness in inflation. As for the

consumer, they remain resilient overall as retail sales data in the Euro Zone and some of its

countries continues to come in fairly good overall. This is surprising in some respects given thedeflation like conditions present in the Euro Zone right now which should be causing weak

spending. This is something to definitely watch going forward. If spending continues to be

resilient despite falling prices, this could point to and could start a recovery of sorts beginning

in the Euro Zone, including in prices. Other weaknesses in the Euro Zone economy continue to

be very high unemployment, especially among the youth, weak loan growth and political and

social divided that is causing a lack of reform to improve the economy and these reforms are


8/13

badly needed. The conflict between Russia and Ukraine is also putting pressure on the Euro

Zone economy as sanctions put on Russia in recent months has had a negative effect on growth

in many Euro Zone countries, particularly Germany which has many connections to the Russian

economy particularly the energy sector which has been hit hardest by these sanctions. We also

heard from Draghi at the IMF conferences in Washington last week. Basically he was verydovish on growth and inflation. He also mentioned the lack of reforms being pushed through in

the Euro Zone and the negative effect this is causing on the Euro Zone. Overall then it would

appear that Draghi anyway is getting closer or at the point that he wants to do full on QE.

However my argument is that the point at which QE could have been successful has already

long passed us. Another note on the political and social divide.I am starting to see some

worrying signs that the political and social divide is beginning to increase. With the Catalonian

vote now going to occur on November 9th, after suggestions that the vote would not happen,

and with political divide continuing to deepen in countries such as France, I see the ending of

this in not very good light. The Euro Zone is going to soon answer the question Work together

or fall apart? and this I believe is coming soon. And these political and social developments I

believe is the key place to watch in particular as to what will likely cause the Euro Zone to

answer that question.


Inflation data and final second quarter GDP numbers will be the key releases this week

for the Euro Zone. As mentioned in the previous section, inflation continues to remain weak

and any more weakness in this area will just reinforce the viewpoint that the Euro Zone is close

to (and in some peoples view at) the level of deflation. As for the GDP numbers these will also

be closely watched though being they are the final reading there will likely not be too much of a

difference in the number from what has already been reported. Growth though remains weak

overall and continues to decline across the Euro Zone as a whole. Other things to watch this

week are German ZEW sentiment survey numbers and German and Spain and Italy CPI

numbers. Sentiment numbers I am not expecting anything good from this data release and this

also goes for the CPI data. So overall things I believe will continue to weaken in the Euro Zone

both economically and politically and socially.


9/13

British Pound Overall View and Last Week

Current sentiment of the British Pound is neutral to negative. Main driving forces behind

this sentiment include weakening inflation and some softer overall growth which has translated

into the manufacturing, exports sector and services to weaken some over the last few months.

Last week too we had Industrial production which came in above previous estimates as did

Manufacturing production numbers. As for overall growth, as seen by the most recent GDP

data, continues to be strong overall however last weeks Trade Balance data, though the deficitnarrowed, showed a drop in both exports and imports with the former being a greater concern

as the global slowdown starts to take its effect it would seem on the UKs overall production

levels. As for the consumer, they remain a good support of the economy as retail sales continue

to be strong. This strong consumer continues to be supported by a fairly robust jobs market

though wages continue to be weak which has become a worry for the markets and the BoE in

recent weeks and months. The other thing that has driven the UK economy to stronger growth

is the housing market and the subsequent construction boom that has resulted in the strong

housing market. However both in recent months, particularly the housing market, have

weakened some with housing prices in particular continuing to fall overall though only by alittle. The fact that the housing market continues to be as strong as it is continues to be a worry

for policy makers. As for the loan industry this remains supported but has weakened over the

past few months especially when it comes to lending for housing as the UK government has put

policies in motion to help cool the housing the market. As for the central bank, the BoE

continues to move towards a more hawkish stance when it comes to the economy and in future

policy measures in terms of interest rates. Basically they are getting closer and closer to raising

rates with expectations continuing to be that they will raise rates sometime between the first

and second quarter of next year. This will be far ahead even of the US Federal Reserve who

seems to be doing everything to not raise rates while the BoE seems to be doing the opposite.Recent comments from BoE members as well as recent meeting minutes show an increasing

desire to begin to move rates higher and soon. All I have to say to this is good for them...finally

a central bank that is not waiting for the right moment to raise rates and is instead just going

to go in that direction and start to tighten policy after several years of very loose and

accommodative policy. Last week too the BoE had their monthly meeting where they did leave

rates and their QE the same as the previous month but the main focus will be on the minutes


10/13

that will be released on October 22nd as this is where the real indication of how the central bank

views things will come into light.


This week employment data and CPI data will be the focus on the market with the latter

having the greater focus of the two. Inflation in recent months has fallen some and if thiscontinues to fall it could very well push rate hikes back a bit from happening. I have no real

opinion on what this number could be at this point but I know that it is important for the

markets and policy makers and so whatever the number will be it will be watched for with

great interest. As for the employment data, wage growth continues to be the key component of

this release. Any sign of this improving will also push rate hike expectations higher and closer.

Overall though, wage growth aside, the employment picture continues to be strong which

should help support the economy in coming months.

Canadian Dollar Overall View and Last Week

Overall the current sentiment for the Canadian Dollar is neutral to negative. The economy

continues to remain weak with both the consumer and businesses remaining weak in spendingand investment respectively. Oil is also putting a strain on the economy as lower prices hurt

profits that would otherwise be obtained by oil producing companies in Canada. Lower oil

prices are also causing the Loonie to fall. The housing sector is the one bright spot with prices

continuing to rise and demand continuing to be good. However housing continues to be a

concern by the central bank though as long as rates stay low (and minus any drastic measures to

help cool it) the housing market is destined to continue to be strong with prices also likely to

continue increasing. The employment sector is also weak however last week the data showed

quite a bit of improvement. The number of newly employed spiked higher and the

unemployment rate dropped to 6.8% from 7% and even wages rose and yet the CAD stillcouldnt rise. In my view this is likely due to two things: the data set is usually pretty volatile

and so traders (including myself) are waiting to see if the trend continues and how employment

is overall over a longer period of time and (2) there are a lot of worries right now about global

growth and the lack of it and the CAD, being a commodity currency, is bound to continue to get

sold off in light of this. As for the central bank, they continue to strike a more neutral to dovish

tone. This past week we heard from Gov. Poloz of the central bank and his message was


11/13

basically the same that weve been hearing: growth is still weak overall and recent inflation data

is just noise. He also said that eventually the BoC will abandon guidance on the direction of

interest rates. A bit confusing there in terms of what they will replace it with but given that

interest rate expectations are one of the main driving forces behind a currencies value, the

abandonment of such a policy could spark some confusion in the CAD market overall. Asinflation, this is the one of the few bright spots of the economy though, as mentioned already,

the central bank has also been negative about this saying the numbers are just noise. As for

overall growth numbers, these continue to be mixed as quarter-over-quarter and year-over-year

data remains strong while month-over-month data has been weaker as of late. Overall then

things remain weak to neutral for the Canadian economy.


This week CPI data on Friday is the data piece from Canada to watch. With the view from

the central bank on inflation being that the recent increase in the overall data is just noise, if

inflation continues to stay strong this could very likely cause the BoC to have to shift their views

on things. However, with oil prices continuing to go lower, I am expecting a lower number

overall this week thereby, in a small way, solidifying the BoCs view on inflation. Other than

that I expect the CAD to continue to move on global growth worries or lack there of as well as

based on the moves in oil which has been moving considerably lower as of late.

United States Dollar Overall View and Last Week

The overall sentiment for the USD right now is neutral to slightly 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 officially this month,and deteriorating fundamentals in other major economies including Japan and the Euro Zone.

As for the economy, this has put a more neutral tone on the Dollar as this continues to improve

overall though there has been some weakness seen lately though so far this is not a huge

concern of the markets as the data has been strong overall and so the recent weakness has been

seen as a simple pullback. The other main thing that is driving the neutral sentiment is a

housing market that is currently slowing some in price and activity and a jobs market that is,


12/13

though on the surface quite good, continues to struggle underneath which could very likely

lead to weaker growth going forward for the US. Last week, JOLTS Job Openings data showed a

larger than expected number of new job openings for the month of August, once again though

showing strength in the overall jobs sector. The big news last week though was the FOMC

meeting minutes. The big news really is that the Fed is in no hurry to raise rates with their twomain concerns being a higher US Dollar value and a weakening global economy. This more

neutral to dovish tone in the minutes might not have surprised too many people but it still

points to a bit longer of a neutral Fed going forward. We also heard from Fed officials

throughout the week last week and overall it was the same thing we usually heard with the

Doves basically saying that rates need to stay low for a while longer while the Hawks saying

policy needs to be tightened soon. The one member of interest though Stanely Fisher (who is

Fed Chairman Yellens right hand man) continued to strike a more dovish tone voicing worries

about weak global growth in particular. The tone coming from Fisher very likely reflects Yellens

own views the most and so it would appear, that things are going to stay easy for a while yet.


Retail Sales data on Wednesday will be the main focus for the markets. Expectations are

bearish overall but could be some upside potential in my opinion given lower gas prices in

particular. Other data will MBA Mortgage Applications on Wednesday as well, NFIB Business

Optimism on Tuesday, Jobless Claims, Industrial Production, Philly Fed Manufacturing Survey

and NAHB Housing Market data all on Thursday. Then on Friday, the other important data

release for the week will be seen with UoM Sentiment numbers coming out and Housing starts

and building permits data being released, the latter two as well likely garnering interest. The

risk for a lower number in my opinion is pretty good given the recent CB Consumer Sentiment

number that recently was released far lower than the previous estimate. So it would appear that

the consumer is possibly not feeling so good right now and in light of this, the downward

expectations for Retail Sales data may be justified. Also this week will hear from Fed members

Evans on Monday, Bullard, Plosser and Kocherlakota on Thursday and Yellen on Friday. Overall

though depending on the data especially, the US Dollar in my view is likely beginning a little

time now going lower as it corrects itself some after the recent very strong run-up seen in its

value over the past few months.


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Order Levels

Currency Bids Offers

EUR/USD

GBP/USD

AUD/USD

USD/JPY

NZD/USD

USD/CAD

EUR/JPY

GBP/JPY

1.2500 1.28000

1.24500 1.30000

1.59500 1.623000

1.652000

0.86400 0.89000

0.85400

107.50 108.20

107.00 108.700

0.77000 0.79700

0.82300

1.10600 1.13000

1.08800

1.08000

134.100 137.90

137.10

176.00 169.20

175.00

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