Brexit Drags on
Brexit continues to drag on with investors having no idea what the outcome might be. UK parliament is stuck in gridlock and the EU seem unwilling to help. As we have long predicted, Brexit visibility was close to zero and probability pricing on outcomes was misleading. Despite uncertainty, GBP against EUR and USD remains in manageable ranges ahead of 12th April. In general, the thinking has shifted from damage to the UK economy to effect on EU industries. While investors have been quick to price in the economic result of separation on UK assets, EU exposure is now coming under scrutiny. Finally, we have scant hope that May and Corbyn will find a common plan for Brexit. We suspect the opposition labour party leaders primary objective all along was to put that vote back to the people. With the hope of overturning the EU Referendum (no a compromise of ultra soft Brexit such as EU customs union). The meeting is a massive political miscalculation by May playing right into Labours hand and breach of the prime minister own “red line”.
WTI Crosses 200d MA
WTI crude crossed the 200d MA to $62.79 brl after OPEC signaled tightening in global energy markets. This follows OPEC supply cuts. The Saudi resilient led output reductions, come on the heel for Venezuelan product issues increase optimism that $70 is a manageable target. Despite US supplies jumping (US stockpiles data will be released today), weaker US production and firmer manufacturing data further fuel upside outlook. Heading into the summer driving season Gasoline futures have also gained a bullish bid rising 1.6% to $1.93 a gallon. Crude strong showing this quarter is likely to push up oil companies providing a wider boast to stock indices.
Aussie in demand as risk-on sentiment shows up
The Australian dollar is changing course of action as Chinese Vice Premier Liu He and his delegation is resuming trade talks in Washington in order to agree on an enforcement mechanism. Sticking points remain on topics such as intellectual property and trade surplus reduction. Furthermore, recent economic releases and hopeful statements made by the Australian government on a budget plan to help low- and middle-income classes ahead of general elections helped the Aussie to recover from RBA’s neutral outlook.
Indeed, the RBA maintained its monetary policy unchanged, with its cash rate at 1.50% and put emphasis on the downside risk for global growth during Tuesday monetary policy meeting. Yet the surprise came from February trade balance ticking at AUD 4.8 billion ($ 3.4 billion), its highest historical level thanks to a rise in resource, metal ores and minerals which largely offset the decline in coal amid Chinese import reduction. In addition, February retail sales at 0.80% (consensus: 0.30%) suggests that the Australian economy is doing great considering that personal consumption accounts for more than half of Australia’s GDP while unemployment rate is lowest in 7 years.
We therefore remain optimistic that a rebound in AUD/USD is feasible in the future, as supportive measures for the Australian economy as well as an improving Chinese economy should support the pair during 2Q 2019. Currently trading at 0.7119 (+1% year-to-date), AUD/USD is heading along 0.7130 short-term.
