XM weekly update

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Good morning. Welcome to the XM Weekly Market Update. And we’re joined again by Peter Maguire, the CEO of XM.

Welcome back. Good morning, Andrew.

Plenty to discuss. Again, these markets are certainly volatile.

They certainly.

Are. So let’s start. The Aussie dollar, we’ve got the chart there which is showing just over 63. But yes, recently it’s drifted below 63 overnight.

It certainly has. And there you are. Yeah, the Aussie peso, we were at 75 going back I think it was around about that April, that late April. And there it is on that chart. And what you’ve seen as the sell off is that a rise to the five handle and you would have to say most analysts are now calling for a 60 or 59 something and the US dollar is just marching and marching and marching.

And you get that interest rate differential as well. Last week the RBA only raised rates by a quarter of a percent, which was half expected. But it certainly didn’t help the currency. Crucified the dollar.

Very much. Retail sales coming out this week as well, which is always a fairly good barometer of what’s happening on the streets. They’ve held up pretty well over the last four this year.

Really, and they’ve been okay.

But once again.

As we march closer to Christmas.

Which is interesting because you would think it would pick up a bit then, but the effect of these higher interest rates is certainly yeah, people are certainly feeling the pinch.

Yeah, certainly. And from an inflation standpoint in the buying power of the Aussie dollar. So if you’re buying stuff out of the US you need a lot of horsepower to get that to match that $1.

So you would sort of think those numbers would look to drift off in the in the coming months. So the Christmas may help that slightly in the new year. It could be a different story. Certainly the UK. Wow. Where do we start? So are a whole range of issues with the UK here at the moment, which is showing twin deficits both the current account and the government deficit, which is not ideal in a very sort of dire global market.

Absolutely. And we know that news coming out today and tomorrow in the UK. So it’s how that rolls forward from here. Are you going to pan sitting at 1.1? So it’s been incredibly volatile and you know, has trusts going to manage this one. It’s going to be how long is her tenure? And people are already calling for a head.

So, yeah, well, it’s very up. Tough time for her for a new PM coming in. So plenty of work to be done there. We’ve also got plenty of data out from the UK this week. The employment numbers come out, the GDP numbers come outside. Once again, the numbers on the chart, the, you know, sort of okay. But you would think that they are probably already in recession.

Oh, absolutely.

And these numbers will reflect that in coming months and how deep it’s going to be. And with a ten point price hike as far as energy over the last week, then what’s that going to represent come November?

Yeah, well, it’s tough that with as you say, with the crude Oil.

Going up again, it’s the last thing that the central banks would have wanted. So absolutely interest rates more or less Bank of Japan, they have been very steady, but everything else is heading north this year. And you would sort of think that will continue. And it definitely for the next few months, the leading into the back end of the year.

Sure. It’ll be interesting when there is that pivot. Not so much to a downturn in right spot. Where do they tend to back off a little bit? Yeah, because at some stage it’s all.

Dependent on the CPI and and with higher energy prices, then what’s that going to be if OPEC plus are able to achieve what they I think they are wanting, which is a 100 plus dollar barrel of oil. And we were nearly there yesterday with Brant. And if WTI gets to above 95, then that’s going to be a very dire situation to try and rein in inflation, which would nearly be impossible unless they open the Keystone pipeline back up as Larry Summers, Professor Larry Summers mentioned, and the issues which are going to be felt today for weeks today is the US midterm and how that could be a absolute shellacking for the Biden administration.

Very much. And I think also with these rates, how hard do they go? Oh, I think they go a lot higher than where they are. If we head up towards that four and a half, 5%.

To 7%, if you’ve got inflation running at 15.

Or so, it’s interesting times. Yeah, inflation. We’ve talked about that once again, the numbers coming out of the states this week, which obviously are the main game in town at the moment to see where they’re coming in at. They would want a, I reckon at least a half a per cent drop off to get some confidence back in the market.

It’s got to be because last month was dead in the water. Yeah. So it’s got to be if it’s underwhelming and even I think anything less than half a per cent that US dollar is going to go to the crisis and I’m sure that equities will get crushed. We’ve seen 5% what they had in the last two sessions as far as the Nasdaq.

So yeah, it’s incredibly volatile and that’s they’ve got to get a good number and how can they get a good number with energy prices the way they are?

And I think the equity market would be looking for probably a seven and a half number. Oh, whether or not we get that or not in know but that might there’s not fixing things it just puts things on hold again.

Kick the can down the road a little bit with no rate rises this month for the Fed it’s only it comes back into play in November. And you’ve got, as I said, the midterms four weeks today. Yeah. I don’t know when they when that right decision would be made. Would it be after the midterm? I would assume.

You would think.

So, yeah. So it’s normally around the middle of the month. So we’ve got five weeks of reprieve.

Yes. And finally, the currencies same story which has been going on for what’s four months now where the US dollar reigns supreme and everything else is is heading in the other direction.

US dollar index one third and then back at 110 the other day and it’s been just onward and upward. So that’s again putting more pressure on base metals and on precious and naturally on equities. That seems to be the safe haven and everything’s getting crushed. You’ve got a euro in that 96 handle yesterday. It’s come up a little bit today, pound sitting at one ¥10 intervention actually at 145, 146, New Zealand dollar at $0.55.

Oh, I’d love to travel overseas to the US with the New Zealand dollar and the Aussie peso sitting at 63 and marching towards a 50 plus handle. It’s it’s great for a currency trader and.

He’s it’s all one way traffic for a lot of these currencies at the moment. And it’s been like that for quite some time.

And if the Fed is underwhelming as far as that inflation, then that’s going to be more aggressiveness from Jay Powell and the Fed team. And that is 75 to handle. They look forward and they say now we’ve got to really put that pedal to the metal and jack it up at 1%. So these are all the the issues that are playing out.

And that’s going to force more momentum, I think, to the dollar we’re seeing now. 1/16, the new handle. Then you might see a pullback and then all of a sudden this one, I mean that US dollar index and that will really crush these currencies.

And real interesting times ahead. So we’ve got plenty of data out again this week or even in the next week, which will have a fairly big impact on all the markets really. So we’ll keep a close eye on that and regroup again next week. Look forward to it. Excellent. Thanks.

I see you enjoy.

And that’s the XM. com weekly market update.

 

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