One Financial 10:26

8/10/2019 One Financial 10:26

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Week in Review

Australian DollarOverall View

Overall sentiment for the Australian Dollar now is neutral. Themain reason for this 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 movesis

China GDP comes in above expectations though overall growth is still slowing

BoE meeting minutes show the Bank is still willing to hold off on rate hikes with weakEuro Zone growth and low inflation being at the top of their worry list

Bank of Canada leaves rates at 1% as before while also taking out Neutral from theirrate statement making things a bit more difficult for the markets in determining futureBoC action; BoC press conference canceled due to terrorist related activity

Australia CPI as expected while the Trimmed Mean number comes in below expectations

and previous reading New Zealand inflation data comes in below expectations and previous reading putting theRBNZ in a comfortable place to not raise rates again for a while

United State Inflation comes in as expected overall also putting the countrys central bankin a comfortable position to not raise rates

China Industrial Production comes in higher than expected as does HSBC manufacturingdata both showing some good signals for the China economy though it is too early to tell ifthings are on their way to actual improvement

Euro Zone and German Manufacturing PMIs come in better than expected as does EuroZone Services PMI while France PMI data and German Services PMI both slip lower

UK Retail Sales in lower than expected and previous showing weakness in the consumer

after being strong throughout this year First look at United Kingdom GDP shows growth a bit lower than previous but inline with

expectations


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

Right now with global growth worries the AUD is continuing to weaken. As for domestic data,

this continues to be mixed to weak as well. The employment sector continues to be weak

which includes wages. The mining sector continues to decline and the non-mining sector is

having trouble achieving adequate growth to help support the overall economy as the miningindustry has done in the past. Because of what is going on I expect the RBA to continue to

remain neutral and to even become more dovish as global growth continues to slow causing

them to give increased downward expectations in terms of growth and inflation. The one wild

card though is what they do about the housing market, which the RBA has voiced increasing

concerns about recently.

Last Week in Review

Inflation data last week showed a move lower in prices as weak economic conditions and

weak commodity prices continue to push prices lower around the world and now it seems, in

Australia too. This will likely keep the RBA at bay longer in terms of when they will begin totighten policy. Also, with expectations continuing that commodity prices will continue to move

lower, if this does happen, this will more than likely drive inflation even lower. Over the past

few quarters though it should be noted that while other major economies inflation (Euro Zone,

UK, China and New Zealand in particular) has continued to move lower, Australias has stayed

fairly resilient and has actually risen and so in saying that there could be some resilience to the

data causing it to continue to stay strong. The other event of some note last week was the

release of the RBA meeting minutes. However nothing of too much importance came from this

though there was some mention that China has the scope to ease policy if needed to support

growth. This comment to me shows the RBA is closely watching China and is taking cues from

what it does to figure out what it should do in light of what could happen in the Australian

economy should China slow further or rebound. The other thing of note from the minutes was

the mention that the RBA expects the consumer to continue to be supported by the strong

housing market. The reason I bring this up though is because we also heard some stronger

rhetoric from both the RBA and the government in terms of their concern of the strength of the

housing market in Australia. House prices continue to rise aided by continued investor

speculation and this is beginning to worry the RBA and government more and more. They are

currently looking at policy changes that will help curb the housing market. However if this

happens then I expect economic conditions will suffer as consumer spending power is

decreased. This would therefore likely cause the RBA to turn to a more dovish tone thereby

driving the AUD lower. This is all speculation at this point but in my opinion has a good chance

of happening.

The Week Ahead and Other Thoughts

For this week there is little data though housing data on Wednesday could get some

attention in light of the comments relating to the housing market last week. This data will come


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month of September. This does put some credence to anyone out there (including in part the

RBNZ) who are expecting the New Zealand economy will continue to remain strong and that

prices will rise in the future as these new arrivals will aid in the growth of the country. But this

is a slower process and the effects of these continued arrivals will take some time to feed

through and the pace of arrivals will likely slow going forward beginning soon anyway sowhatever effects these visitor arrivals are or will have on the economy will likely be diminished.

The data last week was Trade Balance data for September which narrowed from the previous

month and came in lower than expected. The value of exports fell while imports rose. The fall in

export values was, and has been, mostly due to lower milk and wood related products. The rise

in imports was due to a rise in aircraft orders (Boeing orders) while ex-aircraft, things were little

changed. Also too, Australia surpassed China to be New Zealands biggest export costumer for

last month; the first time this has happened since September 2013.


This week we will have data relating to businesses and the real estate market. The firstpiece of data will be ANZ Business Consumer on Tuesday which has continued to move lower

in the past few months. Any sign of a rebound will be a welcome sign too at this point. The

other data will be building permits data on Thursday which continues to remain mixed overall

over the past few months. The other event will be RBNZ interest rate decision on Wednesday

but in light of recent data and with no press conference due or even a rate statement, this will be

a non-event.

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 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. However recent developments around the world


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have given the Yen a boost versus many of its counterparts. But the underlying picture of the

Yen is still very negative for the Yen due to domestic developments that continue to get worse.

Last Week in Review

Economic data last week was not too busy. All Industry activity came in above previous

reading but still in negative territory while the Trade balance data was the bright spot of thedata last week. While the overall balance widened both exports and imports rose which are a bit

of an encouraging sign as both have been weak in recent months and have been a concern of the

BoJ and government. The other encouraging sign in terms of data was manufacturing data

which came in better than previous. Overall then last week showed some encouraging signs in

terms of the Japanese economy but it is still too early to say things have really changed for the

long run. More data will be needed to determine that.


This week is a fairly packed week in terms of data from Japan. First, on Thursday is the

all-important inflation data for September. Inflation continues to move lower in the country andnot taking into considering the tax hike that occurred this year, the rate is still below the two

percent target of the BoJ. And in my view, I expect inflation to continue lower as domestic

demand continues to be weak and exports continue to be weak (despite the positive data seen

on both fronts last week). Also on Thursday we will get the unemployment rate and the BoJ

monetary policy statement. As for the latter, there will be no change in this mostly likely and

should show the same message and have the same tone as has been in the past few months.

Expectations continue to be that the BoJ will have to implement more QE going forward but in

my opinion, with every month past that they do not do this, brings those expectations lower

and lower. Other data for the week will be industrial production numbers on Tuesday andLarge Retailers sales and retail trade numbers on Monday and then housing starts and the BoJ

press conference on Friday. As for the last event, the BoJ press conference, there will likely be

little to no change in the Governors rhetoric on the economic and policy. But still will carry

interest anyway. Other than that the Yen will continue to be susceptible to risk-on, risk-off

changes in the markets especially as ebola concerns continue.

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-


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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 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 easesome 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 inflation.

Last Week in Review

Quarter three growth data which was released last week, came in better than expected

which caused some relief in the markets. However overall the growth rate continues to move

lower as the Chinese government continues to implement reforms which are slowing growth.

This growth data though does bring some encouragement that the fall in growth may not be asdramatic or as quick as some have feared. Other data of importance that came in positively was

industrial production and HSBC Manufacturing numbers. Both came in better than previous

and expected. Industrial production in particular coming in quite strong in comparison.

However in terms of the consumer, things dont look so great as retail sales data comes in lower

than expected and previous. This data goes in line with lower electricity consumption numbers

few weeks ago. The other data to come in lower than previous was HSBC Manufacturing and

House price data. The house price data falling is of most interest as the index falls into the

negative level for the first time since December 2012. This move into negative territory is very

likely worrying the PBoC and could very likely prompt more stimulus form them to help prop

up the housing market and therefore to help support the overall economy.

The Week Ahead and Other Thoughts:

This week the only piece of data, but one that is important nonetheless to the markets,

will be the release of NBS Manufacturing data on Friday. With recent industrial production and

HSBC manufacturing data last week coming in better than expected there is some upside

potential in my mind for this manufacturing data. However, the effects of this data on the

markets will be quite muted as the data will be released after the markets are closed and so we

will have to wait to see how the market reacts at the beginning of next week. Other than that I

expect speculation will begin to rise again and continue that there will be more stimulus

measures coming from the PBoC and/or central government to help boost the economy,

especially in light of last weeks lower housing price data.


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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 September

meeting, weak and falling Euro Zone growth (particularly in countries like Germany andFrance)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 carrytrades. 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 was a more quieter week in terms of data for the Euro Zone. The key data from

last week, monthly manufacturing and services PMI data, showed some encouraging signs.

Manufacturing and Services data from the Euro Zone both came in above expectations and

previous readings. German Manufacturing came in better than expected and previous while

services slipped. However the rise in manufacturing data likely was attributed to lower pricesas manufacturers continue to cut prices in order to boost production and business in general. As

for France, which continues to be a trouble spot for the Euro Zone, both manufacturing and

services data came in weaker than previous and expected. A couple more notes of optimism

from the Euro Zone was France business condition numbers which came in better than previous

and Euro Zone consumer confidence which came in better than previous and expected though

is still in negative territory. Overall though the picture remains bleak and with expectations of


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more ECB easing, the Euro continues to be weak. In respect to these easing expectations, word

came last week that the ECB would begin buying covered bonds within days. Though no

other mention of it came after that at the time of print of this report. The other report that

grabbed the markets attention was a report from ECB sources that the ECB is getting close to

buying corporate debt. This is another addition to their easing program that, when the reportcame out, drove the Euro lower as this would increase the ECBs easing capabilities, if it is done.

So speculation continues to rise that easing will increase.


For this week, monthly inflation data from the Euro Zone will be the key data; released on

Friday. The other important data will be German unemployment data on Thursday and then

German CPI data. Also on Thursday will be the first estimate of quarter three GDP from Spain

which is expected to come in lower than previous. Other data will be German retail sales data

on Friday as well as Italian CPI data. There will also be German IFO business sentiment

numbers on Monday and then Euro Zone sentiment numbers on Thursday. A couple of releasesof interest these sentiment numbers will be as sentiment overall continues to deteriorate in the

Euro Zone and its member countries. The biggest event though has already happened, on

Saturday, with the release of the EBA and ECBs bank stress test results. There have already

been reports that several banks will fail the test, but so far those banks have been small, regional

banks. But if there are any bigger banks that fail the tests this will cause another move lower int

eh Euro as fears arise of the possibilities of a new banking crisis coming to pass. This will be a

key release overall and has been looked to by the markets for quite some time. The effects of the

tests will be felt not only in the European markets but also those around the world.

British Pound Main Longer-Term Themes

Current sentiment of the British Pound is neutral to negative. Overall the economy is

doing good but has slowed in the past few months. Also inflation has continued to move lowerover 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 is

driven by a fairly decent economy, though as mentioned already has been weaker in recent

months. The neutral story is also being driven by rate hike expectations that continue to be that

the BoE will raise rates by the end of the first half of next year. Recent minutes showed two

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


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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 put pressure on the Pound going forward as well as lower growth now and so

therefore the main sentiment of the Pound continues to remain more in the negative territory.

Last Week in ReviewLast week, the BoE meeting minutes from the Banks October meeting showed that the

Bank is further from raising rates than initially thought, in my opinion. Worries about weak

Euro Zone growth and low inflation are on the top of the Banks list of worries. Also growth in

the UK has been weaker somewhat over the last couple of months or so and so overall the Bank

does have some merit to hold off on raising rates. However, in a previous edition of this report, I

made the comment that it would be nice if they just raised rates regardless of these issues and I

stand by that. Keeping rates this low for so long is not doing anyone any good and is doing

more damage now than good. However if things continue to slow I do understand somewhat

on why the Bank will want to hold off on rate rises but it is still something that needs to bedone, and soon in my opinion. Other data of importance last week was the first look at quarter

three GDP which came inline with expectations but lower than the second quarter. This

weakness therefore came as no surprise to the markets and helps to reinforce the idea that, after

several months of robust and strong growth, the UK is headed for a softer patch. How soft

though will be the thing to watch. Other data was Public Borrowing which came in better than

expected and house prices which came in mixed with the month-to-month change coming in

better than previous while the year-over-year number came in a bit below previous estimates.

Also the CBI Industrial trends survey number came in lower than expected and previous.

Within this report, business optimism fell, export orders continued to be in negative territory

and output expectations fell which all point to a weaker future for the UK economy. Also

services data for August came in lower than previous.


For this week there is not a lot on the agenda from the UK in terms of data. Wednesday is

the busiest day with Mortgage Approvals, Consumer Credit, Net lending to individuals as well

as house price data will all be released. Both Net Lending to Individuals and Mortgage

approvals have been falling some over the past few months though are both still high based on

the overall trend. Other data for the week of importance will Consumer Confidence numbers on

Thursday. This data piece has been softening some over the past couple of months or so after agood run up over the past year or so. More softening in the data should not be surprising either

given the developments in the world right now (Russia, weak Euro Zone growth, Ebola, etc.).

Other than that markets will continue to adjust the Pound based on their re-adjustments or

continued expectations of when the Bank will move on rates and by how much.


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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

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 and the central bank continues to

strike a neutral to slightly dovish tone on the economy and inflation. Speaking of inflation, 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 was a week of loss for Canada. Due to a terrorist attack on a War Memorial in

Ottawa a soldier lost his life. This was truly an unexpected tragedy for Canada as a nation as

well as for the soldiers family. In light of this attack, in which the shooter was shot and killed

later on, things came to a grinding halt in Canada. This also included the Bank of Canada board

meeting which was canceled in light of these events. We did however get an interest rate

decision (which saw rates being left at their current level of 1%) and a rate statement. The rate

statement did carry some interest as the Bank of Canada decided to take out the term Neutral

in terms of its current assessment on rates. This now leaves the markets to have to try and

gauge what the Bank will do based solely on data. This will also make any speeches by BoC

members more important. They also judge that risks to its inflation projections are roughly

balanced and also mentioned that core inflation rose more rapidly than expected mainly due to

sector-specific factors. This to me is a good sign as it means that there are parts of the economy

that may be doing better now. The bank is also optimistic about US growth. But overall the BoC


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continues to see rates at their current low level for the foreseeable future. Other data this week

were retail sales data. This showed a decline in consumer activity and which has continued to

decline for the past few months. Also too oil continues to remain weak and so downside

pressure remains on the CAD for now.

The Week Ahead and Other ThoughtsThings will remain fairly quiet for this week with monthly GDP numbers being the only

important data. Recent developments in Canada point to a weaker GDP release this week. If a

weaker number is released this will continue the downtrend seen in the data over the past few

months. Other than that CAD will likely continue to move based on oil and now as the market

tries and figures out what last weeks policy statement changes means for future policy.

United States Dollar Overall View

The overall sentiment for the USD right now is neutral to slightly positive. The things

driving the slight 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 ratessoon, a slowly tightening Fed that is expected to get 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,

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 fairly positivefor the USD right now though has taken a step back lately as Fed rate hike expectations have

been pulled back some and growth is weakening some.

Last Week in Review

Last week the big release was CPI data for Wednesday which came in pretty much the

same as previous reading. Overall the data will continue to cause the Fed to hold off on raising

rates. Inflation has been holding steady over the past few months overall which is a good thing


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or a bad thing, depending on which way you look at it. Overall though with wages as low as

they are, and refusing to rise, this inflation data means little for the Fed if it continues to hold

steady like this. Real focus will continue to turn more towards wage growth. Other data from

last week saw existing home sales come in better than expected while new home sales rose just

two-tenths of one percent which was a big drop from the previous number while house pricedata came in higher than previously as the trend continues to move higher in this number. The

number of new home sales though was a bit lower than previous though came in higher than

previous by a small amount. Overall though the housing market in my view continues to soften

and will very likely continue to weaken as rate hike expectations increase, if they do. Other data

from the weak was weaker manufacturing PMI data, slightly higher jobless claims and lower

than previous Kansas Manufacturing data. Overall then manufacturing data continues to move

to the weaker side as does housing both of which have the real potential to cause the Fed to

push out rate hikes even further.

The Week Ahead and Other ThoughtsFor this week, the main attraction for US and global markets will be the Fed rate decision

and rate statement on Wednesday. Expectations have been that the Fed will cut the final amount

from their bond buying program though this has been up in the air a bit recently as we have

heard some more mixed messages on whether this will happen or not from Fed officials. If they

do leave the bond buying in tact this will definitely send a clear message to the markets that the

Fed is more worried about the US and global economy (not to mention inflation and the strong

dollar) than previously thought. But we will have to see what happens. The decision will be

within their rate statement which will be watched for for the Feds assessment on things,

particularly their assessment on the labor market and on how long rates will remain low after

bond buying ends, if it does. The other very important data for the week for the US will be

preliminary GDP numbers for the third quarter. Expectations have been that growth will be

fairly good overall but below the second quarter. A lower number in comparison to the second

quarter though should be expected in my opinion as data has been weaker over the past few

months from the US. Other things of importance next week will be Durable goods orders data

on Tuesday as well as Consumer confidence, Services PMI, Pending Home sales and Dallas Fed

Manufacturing index numbers on Monday and then weekly jobless claims numbers on

Thursday. Then on Friday Personal income, personal spending and UoM Sentiment numbers

will be key as will be PCE and Core PCE numbers with these latter two numbers being a focus

of the Fed. So important data. But the big focuses overall will be the Fed decision and GDP

release with the former taking precedence overall for not only the US markets but also global

markets.


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Order Levels

Currency Bids Offers

AUD/USD

EUR/JPY

EUR/USD

NZD/USD

GBP/JPY

GBP/USD

USD/JPY

USD/CAD

0.84600 0.89000

135.50 138.00

134.00 141.50

1.29050 1.26000

1.28500 1.25000

0.77700 0.78800

0.77000 0.80400

171.00 180.80

167.60 178.80

176.00

1.59400 1.62000

1.58500 1.65500

105.05 108.80

104.60 110.20

103.50

1.11800 1.13000

1.10600 1.14000

1.08800

1.08000

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