Weekly Sentiment Paper Distributed by: One Financial

For the Week of: 10/12 through 10/18 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 7
British Pound 9
Canadian Dollar 10
United States Dollar 11
Order Levels 13
Week in Review
Australian Dollar
Overall 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 in
no hurry to raise rates with concerns about the strength of the US and world wide slow
growth 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 labor
department in Australia offers a worse than previously seen picture of the employment
sector 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 concerns
about 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 slowing
German and Euro Zone economy
BoJ leaves interest rates and adds no more to stimulus amount though discussion is
begging within the BoJ that things are not doing well in the Japanese economy right
now.bout time they acknowledged this
Canadian employment data came in much higher than expected while the unemployment
rate fell and wages increased; overall then a good release but time will tell if this strength
in the labor market will endure
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 but
with 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 Condence survey
numbers will be of interest for the Aussie Dollar market. Consumer condence 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
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 Dollar
Overall 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 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 along
with expectations that this intervention will continue 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. 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 as
both weak commodity prices and overall weaker global growth put a damper on New Zealand
businesses. Last weeks business condence 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 condence remains strong but if global growth and commodity prices
continue to weaken, this condence will likely weaken further which would then likely become
a concern of the RBNZ.
The Week Ahead and Other Thoughts
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 the
week 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 as
the 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 ination target and
the Banks target date in reaching this ination 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
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 but
this has yet to happen.
The Week Ahead and Other Thoughts
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 ination 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 of
September. 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
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:
Ination data this week will be the key data from China. Ination continues to decline
overall and speculation continues that the PBoC will implement some sort of easing measures to
help lift prices again. Though with ination 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 very
accommodative 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 ination. Ination 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 ination data all showed continued weakness in ination. 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 the
deation like conditions present in the Euro Zone right now which should be causing weak
spending. This is something to denitely 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
badly needed. The conict 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 very
dovish on growth and ination. 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.
The Week Ahead and Other Thoughts
Ination data and nal second quarter GDP numbers will be the key releases this week
for the Euro Zone. As mentioned in the previous section, ination 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 deation. As for the GDP numbers these will also
be closely watched though being they are the nal 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.
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 ination 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 decit
narrowed, 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 a
little. 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 rst
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...nally
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
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.
The Week Ahead and Other Thoughts
This week employment data and CPI data will be the focus on the market with the latter
having the greater focus of the two. Ination in recent months has fallen some and if this
continues 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 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 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 still
couldnt 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
basically the same that weve been hearing: growth is still weak overall and recent ination 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. As
ination, 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.
The Week Ahead and Other Thoughts
This week CPI data on Friday is the data piece from Canada to watch. With the view from
the central bank on ination being that the recent increase in the overall data is just noise, if
ination 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 ination. 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
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. 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 two
main 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 ofcials
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 reects Yellens
own views the most and so it would appear, that things are going to stay easy for a while yet.
The Week Ahead and Other Thoughts
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 justied. 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.
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