Long AUD/USD (From 16-Nov to 20-Nov)
We were stopped out of the remaining long AUD/USD position on 20-Nov
Real-Time AmpGFX – Sold AUD/USD (half position), bought Gold/USD (Mon 11/19/2018 11:15 AM MT)
Sold one unit of AUD/USD at 0.7282 to close half long position
Bought one unit Gold/USD at 1222.75
Comment
The Pence and Xi speeches, and lack of communique from APEC suggest that the atmosphere for a cooling in trade tensions when Trump meets Xi on 1 Dec is diminished. Pence may reflect a more hawkish side of the administration view towards China. And the issues of concern he was talking about were more about strategic relationships in the Asia region that go beyond trade. Nevertheless, they highlight that we are in a new era of tensions between the USA and China, and both sides may remain apart on key issues of economic and trade cooperation that will not be solved by the Trump-Xi meeting.
However, we should not forget that US and China officials were reported to be working on trade issues in preparation for the Xi-Trump meeting, and it would still not surprise to see some positive news to come from this meeting.
The other development in global markets is the deterioration in the IT sector. Chip and software stocks are under pressure. There is concern that demand for IT goods is peaking. This may contribute to weakness in key Asian exporter economies, including China, Taiwan and Korea.
It also is weighing on the USD equity market a factor that is tightening US financial conditions and may lead to further unwinding of US rate hike expectations.
US credit spreads have started widening more significantly. IG and high yield credit risk indices are at new wides for the year. The US economy may not be helped much by the recent fall in oil prices that might weaken investment and credit conditions in its energy sector. The Fed looks at broader financial conditions than implied by the equity market, and the widening in credit spreads may play a bigger part in shifting their views on further rate hikes.
The Fed comments from Powell and Clarida last week already showed a significant shift in tone.
We decided to shift half our short USD position from AUD to gold to reflect a more risk-off tone in tech shares that may contribute to further falls in US yields.
Positions
Long one unit AUD/USD at 0.7310; s/l 0.7243; t/p 0.7522 (Capital at Risk 0.67%)
Long one unit Gold/USD at 1222.75; s/l 1213.43; t/p 1261.43 (Capital at Risk 0.77%)
Real-Time AmpGFX – Bought AUD/USD (Fri 11/16/2018 8:49 AM MT)
Bought one unit AUD/USD at 0.7287
Bought one unit AUD/USD at 0.7310
Comment
First an apology, I bought AUD/USD yesterday at 0.7287 in late US/early Asia trading. I thought I had sent an email. But I can see that it did not send. I have added to the position just ahead of this email.
The US and China are talking on a trade deal in preparation for the Xi-Trump Summit on 1 Dec (on the fringe of the G20). This may help generate expectations that the two will keep working on a deal, perhaps leading to a pause on further tariffs. Asia equities may continue to strengthen on cooling tensions.
Both Powell on Wednesday and Vice Chair Clarida on Friday have said the Fed needs to pay attention to evidence of a slowing global economy and that it is time to think more about how far and how fast to raise rates. US yields have fallen from recent highs.
The US economy remains strong, but the market may be moving into a space where it begins to look ahead to see a peaking in rates.
US inflation data on Wednesday showed no acceleration in inflation, supporting a relatively calm outlook for USA inflation.
US political risk appears to be building with Trump going after the Mueller investigation. This may be a precursor to further Mueller indictments or probes. And will make the Democrats in the House more willing to support the investigation.
China has announced a range of plans to shore up financing for private business, to support its equity market and economic growth in recent weeks. This may help alleviate fears of credit tightening and uncertainty related to trade.
Chinese equities and currency have been more stable in the last two weeks.
UK Brexit uncertainty and political infighting has undermined the GBP, but it has had limited drag on other currencies. EUR, in particular, has held up; perhaps a sign investors can see the potential for better demand for Eurozone exports in Asia as the US appears to be willing to find a trade agreement with China.
Australian commodity prices have fallen from recent highs, particularly energy-related commodities. And steel prices are also somewhat lower, but still above what might normally be associated with current levels of the AUD.
The Australian labour market data was strong and wage growth is heading in the right direction.
The NZD may have shown the way higher for the AUD, rising through its Sep/Aug highs.
It is too early to say if there will be a sustained rebound in the AUD.
The US is unlikely to fully reverse its China trade policy.
China still has a long way to go to sort out excesses in its financial system and may experience slower growth going forward. This may at some point affect steel prices.
The Australian housing market remains a weight on the Australian economy for the foreseeable future.
The US economy remains quite strong, and the end of Fed rates may still be some time away.
The RBA will need to see considerably more progress on higher wages before it considers raising rates.
Positions
Long one unit AUD/USD at 0.7287; s/l 0.7243; t/p 0.7442 (Capital at Risk 0.44%)
Long one unit AUD/USD at 0.7310; s/l 0.7243; t/p 0.7522 (Capital at Risk 0.67%)