New Zealand Dollar May Look Past CPI, Focus on Stocks, USD & Fed
By Daniel Dubrovsky
NEW ZEALAND DOLLAR FUNDAMENTAL FORECAST: BEARISH
Despite an aggressive global market selloff, in which the S&P 500 was on course to deliver its worst weekly performance since March, the ‘anti-risk’ New Zealand Dollar (and the Australian Dollar) generally appreciated.
New Zealand third quarter CPI is expected to pick up pace and clock in at 1.7% y/y from 1.5%. The quarter-over-quarter inflation reading is also expected to tick up to 0.7% from 0.4%.
Reserve Bank of New Zealand rate cut bets have been somewhat diminishing lately, overnight index swaps are now pricing in only a 11.2% chance of a cut in March. Given that local economic news flow has been tending to outperform as of recently, this may open the door to an upside surprise.
Such an outcome, which would be in line with RBNZ inflation expectations, could further reduce those dovish monetary policy expectations. This would bolster the New Zealand Dollar and could make it more likely that the central bank begins slowly stepping away from a mixed outlook on where rates could go next.
There are numerous risks from the external front ranging from emerging markets to trade wars. In addition, the Fed may continue promoting the case for rate hikes in the week ahead considering that a local market correction seems to have been largely overdue in their projections.
With that in mind, keep an eye out for commentary from St. Louis Fed President James Bullard, Governor Lael Brainard and Dallas Fed President Robert Kaplan. They may continue reiterating the case for gradual rate hikes which could reignite the US Dollar, risking paring the gains seen in the New Zealand Dollar.
Sterling nears three-month high as EU summit approaches
By Tom Finn, Matthew Mpoke Bigg & Larry King
Sterling rose against a weaker dollar on Thursday on hopes of a Brexit deal, but concern among investors about the Ireland border issue kept gains in check.
Hopes are building that a trade deal between the European Union and Britain can be struck before an EU summit on Oct. 18.
The pound has risen for three consecutive days and was buoyed by comments on Wednesday from the EU’s Brexit negotiator Michel Barnier suggesting a this next week was imminent.
“Though investors believe that 80 percent of the work on the Brexit deal framework may be over, it is the last 20 percent that is the most difficult,” said Thomas Flury, head of currency strategy at UBS Global Wealth Management’s Chief Investment Office in Zurich.
“We have a short pound position against the dollar around $1.31 as we believe there is more political uncertainty in store,” he said.
The analysts said that if a no-deal exit from the bloc was avoided the currency could strengthen another 5 to 10 percent in the coming months.
May will brief her cabinet on the progress of Brexit negotiations on Tuesday before she heads to Brussels for the EU summit.
EURUSD Outlook: Remains Elevated but Italian Budget Face-Off Nears
By Nick Cawley
The Italian parliament late Thursday passed the new budget bill and will now forward it on to the government to be approved. The new budget will then be submitted to the EU Commission who have already voiced grave concerns over Italy’s deficit target which they say will break the single-block’s rules. A further escalation in the war of words between Italy and the EU will weigh on the euro and make further headway difficult.
In a timely intervention Thursday, the ECB said that it rules would prevent it from coming to Italy’s rescue if they run out of money, unless the country has already agreed a rescue program with the European Union. Italian banks are thought to have around EUR375 billion of government debt on their books which they use as collateral at the ECB for funding. The recent rise in Italian bond yields will make it increasingly expensive for the government to service its debts.
EURUSD currently trades at a ten-day high but further upside is being blocked by both the 20- and 50-day moving averages around 1.1605-1.1615 area. A fallback to the 1.1508 level looks increasingly likely especially if budget negotiations turn fractious this week.
Microsoft Looks Cheap Amid Correction And Strong Long Term
The tech-heavy Nasdaq Composite is down more than 8% in the past month, taking down some of the best-run technology companies. But if you’re an opportunistic investor willing to hold stocks through thick and thin, this selloff may offer some good buying opportunities.
Microsoft (NASDAQ:MSFT) is our top technology stock to consider adding to your portfolio at prices much lower than a month ago.
Microsoft remains the leader in the desktop and laptop operating system market, with a commanding 88% market share.
Microsoft stock is down more than 8% from its Oct. 3 close of $115.61. We believe Microsoft is a great buy-on-the-dip opportunity for investors looking to get into a solid growth stock.
The stock may climb to $123.55 in the next 12 months, according to a survey of analysts, a potential upside of 16% from the current level as the company continues to benefit from higher demand for cloud computing, artificial intelligence and corporate software.
The cloud computing market, for example, is expected to grow from $285 billion last year to $411 billion by 2020.
Even after the recent pullback, Microsoft stock is one of the top performers among the top tech names, surging 23% in 2018.
Nasdaq dips into correction territory, becoming first major stock benchmark to do so
By Michael Sheetz
The Nasdaq Composite Index on Thursday became the first major U.S. stock market benchmark to dip into a correction, dragged down by losses across all the major technology-related companies.
A correction on Wall Street is defined as down more than 10 percent from its high. The Nasdaq closed down 1.3 percent at 7,329.06. The technology-based index fell as low as 7,274 in intraday trading, down more than 10 percent from the most recent 52-week trading high of 8,133.30.
The S&P 500 and the Dow Jones Industrial Average have further to fall to be in a correction with both down about 6 percent from recent all-time highs.
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