Weekly Sentiment Paper Distributed by: One Financial

For the Week of: 10/05 through 10/11 Written by: Andrei Wogen
Email: nance.wogen@gmail.com
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 10
Canadian Dollar 11
United States Dollar 12
Order Levels 14
Week in Review
Australian Dollar
Overall 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 condence numbers. Condence in Australia has taken a hit as of late due budget
ECB leaves interest rates be; announces no new measures or policy changes as it wants to
wait to see how past and recent stimulus measures play out
Draghi gives some details about ABS and covered bond purchases saying that assets from
all 18 Euro Zone countries will be purchased, including from Greece and Cyprus though
still no amount announced
China manufacturing shows minor improvement; overall picture is still bleak though
German CPI comes in a bit better than expected while EZ CPI comes in as expected; both
still at record low levels though
US Consumer Condence slips further than expected despite lower fuel prices and better
job conditions
US NFP comes in
US Manufacturing industry weakens more than expected while the housing market also
continues to weaken
Global growth worries abound with China and the Euro Zone continuing to slow,
Australia and Canada continuing to be weak and the US hitting a soft patch
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 who
have been a benet 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 we heard some discussion by the RBA regarding the housing market which
continues to remain strong. They do not see using any measures at this time to calm the housing
market as happened in the UK and New Zealand. This means that options left to cool prices and
investor activity (which accounts for over 50% of transactions in the country and up to 90% in
some areas) are few with only rate hikes being the obvious option at this time. Though with the
economy as weak as it is right now, this is not a viable option; an obvious one yes, but in my
opinion not a viable one. So it remains to be seen what they will do to help cool the housing
market at this point at this has begun to become more of a concern by the RBA. They did
though mention that whatever measures come, they could likely target more than just investors.
Other things this week included the Trade balance data which came in lower than expected
with both exports and imports falling into negative territory showing both domestic weakness
and weakness in Australias trading partners, mostly China. Retail sales also fell for August
coming in below expectations. Manufacturing and Services PMI data both came in lower than
expected as well as these sectors continue to weaken. Overall then, the economy in Australia
continues to be weak.
The Week Ahead and Other Thoughts
The RBA meeting and meeting minutes being released on Monday, will be of interest.
Overall I expect for little change in their rhetoric in terms of rates, continuing to see rates at
being at the best level at this point to foster growth in Australia while also mentioning, as usual,
the high exchange rate of the Australian Dollar. The one thing to watch is their assessment of
the Australian and global economies as both seem to be struggling and weakening right now,
especially in China. The other big event will be employment data on Wednesday. This though
has been rather a volatile data print as of late and so the details will matter more as well as
comments from analysts on the data to help sift through the data and make sense of it. Overall
though the employment sector does remain weak and I expect it to remain this way for a while.
Other things of interest will be Westpac Consumer Condence numbers also on Wednesday and
then Home Loans and Investment Lending for Homes on Thursday. These last two releases will
be of interest given recent comments from the RBA regarding their concern about this sector.
New Zealand Dollar
Overall View
Overall sentiment for the New Zealand Dollar is neutral negative/negtive 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,
conrmation of RBNZ intervention in the NZD market to bring the currency down and due
to continued improving fundamentals in the US which 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 condence 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 week data was sparse. Building permits came in better than previous possibly
showing a bit of a rebound in the construction sector after some recent weakness. Business
condence was also released which came in lower than previous as the trend continues to move
lower after its peak earlier this year. This fall has been quite substantial though and so is
something to keep an eye on. The other piece of data was the commodity price index which
came in higher than previous but still in negative territory mostly driven lower by milk prices.
And speaking of milk prices the newest Fonterra auction showed yet another decline in whole
milk prices, falling 10% to a ve year low. This continued decline in prices continue to put into
question Fonterras recent payout estimate of $5.30 for this year. There were also a few
downgrades from different banks and analysts to milk prices and payouts to farmers for this
year. If these forecasts do come true, this will put yet more pressure on the economy, pushing
out future rate hikes by the RBNZ. The other big news from the week was news from the RBNZ
conrming that they has intervened into the currency markets in August selling over NZ$500
million New Zealand Dollars in order to bring the exchange rate down after recent concerns
about the height of the exchange rate. So speculation continues that they will continue to
intervene in the market, causing the NZD to fall.
The Week Ahead and Other Thoughts
Data this week is small in number from New Zealand. Electronic Card Retail Sales on
Wednesday and REINZ House Price index numbers will be released. The latter will be of
greater interest likely as housing in New Zealand has taken a step back in recent times. Also
though too Card Retail Sales will also be of interest to give light into the strength of the
consumer. The big thing right now will be continued speculation of more intervention in the
market by the RBNZ to bring down the NZD even further.
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, and expectations of further
easing going forward by the BoJ as well as due to better 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
Data continued to come in mixed to negative last week. Household spending fell again,
Industrial production also fell into negative territory and Manufacturing data came in weaker
than previous. Vehicle sales also continued to slip into negative territory while Services PMI
data came in higher coming in above the expansion level of fty. Some good data was the
Unemployment Rate which came in lower than previous and Retail Trade which also came in
better than expected or previous. Housing starts too came in a bit better than previous but are
still in very negative territory. Also the BoJs Tankan survey for the second quarter came in
mixed to negative. Basically large manufacturers are feeling good while the non-manufacturing
sector showed more weakness. Large manufacturers are feeling good about the overall economy
and are able to take advantage of the weak Yen right now while non-manufacturers are still
struggling after the tax hike in April. So things are still weak overall in Japan.
The Week Ahead and Other Thoughts
This week the BoJ will meet to make their newest interest rate decision while also
releasing their rate statement. Rates will stay at their current low levels while the statement will
also likely stay the same. Though given the recent weak data, in my opinion there is risk for a
more downbeat statement. This should put more pressure on the Yen as well. Other data for the
week will be the Coincident Index and Leading Economic Index on Tuesday and then
Machinery Orders and Tertiary Industry index numbers on Wednesday. Machine tool orders
will then be released on Thursday and Consumer Condence will be Friday. Risks for more
downbeat data over the medium term are high in my opinion though in the short term we
could see a short rebound as declines in data overall in Japan have been quite consistent. The
release of the BoJ meeting minutes will also occur on Wednesday.
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 reforms to 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 recently. 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) as well as now even lower and continued falling ination.
Last Week in Review
Last week, data from China showed a NBS Manufacturing PMI that came in better than
expected but same as previous. Overall though the manufacturing sector remain weak as does
the Non-Manufacturing sector as shown by data released last week for the non-manufacturing
sector. Other news from China came in the form of protests in Hong Kong. People there are
getting restless and frustrated with the government as the central authorities refuse the people
completely free elections. This has caused protests to spring up in Hong Kong this week as
student groups and other groups demand the resignation of the leaders in Hong Kong though
to no avail at this point. However talks were offered to the protestors by the Hong Kong
authorities while Chinas central government has remained quiet overall only to threaten
military involvement if things did not calm down soon in Hong Kong. The central government
in Beijing is likely hoping these protests will blow over as people start to head back to work and
their lives after a holiday last week. Ironically too this holiday was to celebrate Chinas
inception. At this point though this event seems to be contained in Hong Kong and so markets
have not reacted too much to events there except in Hong Kong where markets there declined.
Overall though unless growth in China is signicantly effected or if China does get more
involved, particularly militarily, markets will likely just watch Hong Kong events with interest.
You can bet though that Chinas number one concern and worry is that these protests in Hong
Kong reach the mainland. This would most likely cause the central government to do
something to stop the protests if they were to start on the mainland and that type of situation
would cause the markets to sit up and take notice. The one risk in China getting more involved
is that it will affect US/China relations as US this past week gave a stern warning to China to
stay away from Hong Kong and not get involved. What the US will do if China does get
involved with Hong Kong protestors is beyond me to guess at this point. I highly doubt
sanctions would occur so all we will probably get is some tough talk. But these events will
continue to be watched.
The Week Ahead and Other Thoughts:
This week Services PMI data will be of most interest in terms of data while Money Supply
will also be of interest particularly after recent weak loan growth. With the manufacturing
sector continuing to slow it will be interesting to see how the Services industry performs from
here. Though with recent lower retail sales and other signs of a weaker consumer as well as
lower ination risks in my opinion is for a lower Services number. The other event of interest
will be the NBS Press Conference on Tuesday. Given that the NBS is an agency within China
that is under State council and reports on economic data and conditions this conference could
present some interesting things and give more light into the growth of the Chinese economy.
Other than that events in Hong Kong will continue to be watched especially in Chinas response
or lack thereof.
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 ECB that has now eased policy further during their September
meeting, weak Euro Zone growth overall and continuing falling ination. 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 conict 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
The ECB meeting last week provided no surprises and no real action at all; just a lot of
talk. The ECB left rates alone at their current levels. During the press conference, Draghi struck
a dovish tone in regards to the economy and ination including, for the rst time, saying that
the medium term outlook for ination has worsened. Also, he mentioned that low ination is
not due to just lower oil prices (something pretty much everyone could have told him by now)
and instead mentioned that the current low ination is also due to weak employment
conditions. He also mentioned that the vote is unanimous in using additional unconventional
tools when needed. Though what exactly those unconventional tools are maybe time will tell.
Some more details were released about the ABS purchases though still no amount was released.
The purchases will last two years and will include covered bonds which will start at the end of
this month with the rest of the purchases beginning by the end of this year. These assets will be
purchased across the 18 member countries including Greece and Cyprus. However with lower-
rated countries (Greece, Cyprus, etc.) those countries will have to be part of an EU program to
qualify. However with no mention or indication of the amount of ABS purchases the ECB will
do markets did not react much to the ECB meeting. It can be assumed though that the ECB will
be buying quite a bit as they can as they have expressed a desire to build up their balance sheet
to levels not seen in several years. This amount is over 700B Euros more than where its current
level is at but the amount of ABS type assets in the Euro Area market is far less than this; a big
part of the reason for the speculation going on that QE will be initiated soon. However this
week it should be noted that Draghi stepped back from that commitment a bit giving markets
some pause for thought. Also too, even with these ABS purchases, the question still remains on
how much demand there will be. In my opinion, not much. Other data of the week included
ination data from both Germany and Euro Zone. Germanys numbers came in a bit better than
expected while Euro Areas number came in pretty much as expected. However ination overall
continues to remain weak and expectations continue to be negative for ination. Also from
Germany was unemployment data which came in higher than expected while retail sales were
higher than expected showing a rebound in consumer spending, despite the deation fears.
This follows better France and Spain consumer spending last week as well. So something is
happening to cause consumers to continue to spend despite falling prices in the Euro Zone
though it should be noted that all these countries have been weak overall in the consumer
spending part of the economy and so one month of a rebound is probably not going to make
much of a difference in the overall weak trend. Other data for the week last week was
Manufacturing data with this showing continued weakness in the manufacturing sector of Euro
Zone countries including Germany which slipped into contraction. Services PMI was also
released which showed continued weakness in the Euro Zone economy as Services data from
Spain, Italy, France and the Euro Zone as a whole all came in lower than previous and expected
with Germany being the only country to show an improvement in its Service Sector from the
previous month. On a more bright note, Euro Zone retail sales came in better than expected
with help from France and Spain. So once again, despite the deation-like conditions consumers
are spending. Another thing to note is that Catalonia decided to continue with their vote on
Nov. 9th for independence after initially deciding not to. This will likely be an increasing risk for
Europes markets and the Euro going forward.
The Week Ahead and Other Thoughts
This week data is a little lighter as is the case usually after the ECB meeting. German
Factory Orders will be released on Monday, German Industrial production numbers will be on
Tuesday and German Trade Balance data will be released on Thursday. Other data for the week
will be Greece and Portugal CPI numbers on Thursday and France Trade Balance along with
import and export data on Thursday. France is becoming an increasing concern of the markets
within the Euro Zone as growth there continues to decline quite a bit with the government not
doing what it needs to to revive growth. Other than that things should be quiet in the Euro
Zone.
British Pound
Main Longer-Term Themes
Current 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 ination 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
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 showed 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 ination both which
will still put pressure 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
This week the Pound began to move more based on its own fundamentals again after the
past few weeks have been focused on the Scotland vote. Overall data came in mixed to positive
for the week last week. Services and Manufacturing data came in worse than expected and
previous, Consumer condence dropped, lending to individuals dropped from last month and
house prices fell for the month of September. Total business investment came in mixed with
year-over-year coming in below expectations but far above its previous reading while quarter-
over-quarter came in above expectations and previous and both by a good amount. Also second
quarter GDP came in above expectations and above its previous reading as the economy overall
continues to expand and grow. The Pound however is currently more negative now versus most
of its counterparts as markets continue to focus on weak wage growth and lower ination.
The Week Ahead and Other Thoughts
For this week, a countrys central bank meeting should be a big event but for the UK (and
the Pound Sterling) this months meeting (happening on Thursday this week) will more than
likely pass with no rate hikes and no reductions in the BoEs stimulus program. We will have to
wait a full two weeks until we really get some news out of the central bank when they release
their minutes for this weeks meeting. Other data this week of interest will be Manufacturing
and Industrial production data on Tuesday, Halifax House price data on Monday, NIESR GDP
Estimate for the three months leading up to September on Wednesday and then Trade Balance
data, along with import and export data, will be released on Friday.
Canadian Dollar
Overall View
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 spending
and investment respectively. Oil is also putting a strain on the economy as lower prices hurt
prots 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 and the central bank continues to
strike a neutral to slightly dovish tone on the economy and ination. Speaking of ination, this
is the one of the few bright spots of the economy though 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 for the Canadian
economy.
Last Week in Review
Last week data was light as usual. However GDP data for July and Manufacturing data
for September both came in lower than expected and previous showing continued weakness in
the Canadian economy. Oil prices are another big story affecting the CAD market all last week
as oil prices continued to decline, breaking the $90/barrel level for rst time since the mid-part
of last year. With oil so low and no news of production cuts from OPEC to help support prices,
the CAD is at risk to fall even more as oil declines further due to global growth worries.
The Week Ahead and Other Thoughts
For this week, employment data on Friday will be the key data out of Canada. Recent
data shows some weakness in the data but this is a data piece that is quite volatile. The
unemployment rate has been steady recently hovering at or near the 7% level. But this number
usually does create attention for the markets. Other data of note will be the Ivey Purchasing
Mangers index numbers on Monday, which also creates interest for the markets and Housing
starts on Wednesday as well as New Housing Price index numbers on Thursday. These last two
numbers will be especially interesting for the markets and likely the BoC as the housing market
continues to be quite strong in Canada; almost frothy and so could become more of a concern
going forward by the BoC. Other than that, watch oil if your trading CAD. With oil going
below the $90/barrel for the rst time since the middle of last year as well as due to quite a
good amount of negative sentiment surrounding oil right now, this could very likely put more
pressure on the Loonie going forward.
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 ination 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 ofcially 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, 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
The monthly jobs report last week showed a larger than expected number added to the
workforce while the unemployment rate fell unexpectedly and average hours worked increased
by just a tad. The darker side of the report though continues to be wage growth or lack thereof
as wage levels fell for the month of September. This continues to put the Fed in a good place to
keep rates low for the time being and to not raise anytime sooner than they absolutely want to.
Other data from the week included weaker data from the manufacturing sector, housing sector
and services sector. Even non-manufacturing data came in weaker than expected and previous.
However some of the components of this data did show good signs and overall respondents are
still feeling optimistic going forward. However, all of these had at least one data print that came
in weaker than expectations and previous. This to me that the US economy is almost denitely
headed for a decent soft-patch going forward which means that a correction in the USD should
be due soon. As for the consumer data relating to them was mixed last week. Consumer
spending came in above last months reading but consumer sentiment numbers came in far
below expectations and previous readings which is interesting given that gasoline is lower and
jobs continue to be added. However, with continued weak wage growth as well as reports of
people having trouble nding jobs this is not too much of a surprise. Also trade balance data
came in better than previous months reading with both imports and exports climbing as well.
So the effects of the stronger USD is not being felt.yet. All-in-all though the USD continues to
rise as expectations of rate hikes and better growth going forward continue.
The Week Ahead and Other Thoughts
This week all eyes will be on the FOMC meeting minutes being released on Wednesday.
In it we could get some more indications on when rates will rise but also on how the Fed plans
on tightening policy and trimming down their balance sheet. Other things to watch for will be
their assessment on the economy, though in relation to the jobs market there may not be any
change after last months weaker jobs report which is what this months minutes will cover.
Other events to watch are Fed members speaking with Dudley (on Tuesday) and Fischer (on
Thursday) being the two to watch the closest. Dudley is a known hawk in the Fed and though
he does not have a vote till 2016 when he does have a vote will likely be right in the middle of
the Feds rate hiking campaign. As for Fisher, being the Vice Chairman of the Fed his comments
always matter. Other things of note next week in terms of data will be Consumer credit change
on Tuesday, MBA Mortgage Applications on Wednesday, weekly jobless claims on Thursday as
well as wholesale inventories data. But the main focus will be on the FOMC minutes and will
likely provide direction for the USD until the Feds next meeting later on this month. I am
expecting a pullback to occur in the USD and I think this weeks FOMC minutes could provide
the perfect opportunity for such a pullback. So something to watch there and plus with all the
recent weaker data this could also give reason for this pullback.
Order Levels
Currency Bids Offers
EUR/USD
GBP/USD
AUD/USD
USD/JPY
NZD/USD
USD/CAD
EUR/JPY
GBP/JPY
1.24600 1.27000
1.24800 1.3000
1.58500 1.65300
1.58900 1.62600
1.63000
1.64200
0.83000 0.88400
0.80500 0.91200
108.00 110.00
106.80
0.77000 0.79400
0.82400 0.80900
0.82300
1.08800 1.13000
1.06000 1.17300
1.08000
136.800 137.900
135.800 139.100
136.550 138.800
174.200 180.700
172.950 178.800
169.200 175.900
176.700
178.200