1. US And Japan Butt Heads
Recent developments in the US-Japan trade talks have seen the US demand a currency clause in any agreement reached between the two nations which could seriously tie the Japanese Central Bank’s (BOJ) hands in the event of a recession. Here we go again….
This latest trade crusade from President Trump has been part of all of his bilateral negotiations with other countries, such as Canada and Mexico, and now he’s trying his luck with China and Japan. Even though Japan’s currency chief denied any direct influence on the currency from the BOJ, the US has insisted that the currency clause remain a prominent feature in the contract.
Japanese officials have said that their fiscal and monetary stimulus programmes have not been aimed at manipulating export prices and that a currency clause has no place in this deal as it could severely hamper its ability to respond to recessionary pressures in the future. However, many years of stimulus have dramatically weakened the Yen over time, making the argument a hard one to defend against the US.
Talks are expected to begin in the next month or so, and investors will be watching closely for any signs of friction between the two nations. Should Japan fail to comply, then we may see a heightened risk of a second trade war emerging…Like we need another one of those!
Let’s hope some common ground can be found before things get too heated.
2. Trouble Brewing Down Under
The Aussie economy is in trouble once again after a fourth quarter slump in the property market weighed heavily on the construction industry. When will the boys Down Under catch a break?
Domestic activity hit the brakes last quarter with GDP rising a meager 2.3%, missing the 2.5% forecast by quite some distance and sending currency investors into sell-off mode.
The poor figures pushed the Aussie Dollar to a two month low against the US Dollar and sparked more chatter among investors about the likelihood of rate cuts coming in 2019 to support Australia’s ailing economy.
While the Reserve Bank of Australia (RBA) expects growth to pick up to 3% this year, many investors are pricing in the likelihood of further downgrades to this estimate in the coming months. A decrease in rates would benefit its stock and commodity markets extensively and generate some much needed inflation.
For now the RBA will likely stick to its plan to keep rates on hold, but more poor data in the coming months will undoubtedly drive them towards cuts. We’ll just have to see what comes out in the wash. Hold tight, Aussies!
Today we are watching…
1. Abercrombie & Fitch (#anf)
Abercrombie is looking solid ahead of its earnings announcement today with the company managing to claw back some momentum thanks to some innovative cost-cutting and marketing programmes. The expansion of its Hollister arm and digital capabilities have also aided the company’s progression of late. The only real headwind facing the company is related to foreign exchange, but analysts are downplaying the impact of this factor. The consensus EPS estimate is $1.15 (-16.7%) on revenue of $1.13bn (-5.0%).
2. Dollar Tree (#dollart)
Discount store operator, Dollar Tree, is showing a mixed bag of results ahead of its earnings announcement today. The company has been showing impressive sales growth and productivity data in its consumables and discretionary divisions. However, these numbers have been watered down by higher domestic freight, wage and diesel costs which are likely to hurt margins going forward. The consensus EPS estimate is $1.92 (+1.60) on sales of $6.2bn (-2.8%).