• Matthew Fotheringham

Fire, Gauchos and Airstrikes - 3 Things - 01/03/20

Happy Friday!

We are back!!! We took a week off last week to eat our bodyweights in turducken, but are back for the new year after finally recovering from our NYE hangovers.

Did You Know...

46% of people have lied about liking a gift... We have a sneaky suspicion that the number is closer to 100% in reality.


Aussies Fighting Fires On All Fronts

Australian PM Scott Morrison is feeling the heat as record-setting temperatures of 43°C (109.4°F) are seeing Australia enter their 4th week of deadly wildfires. Many residents are furious at the lack of government aid and general stance on climate change. Insurers have received claims worth A$240m ($165m) since October, well in excess of claims in the past few years. '

What's going right for Australia at the moment.

The US-China trade war for one. The hugely valuable export to China of industrial commodities such as iron ore and coal – the basis for Josh Frydenburg’s forthcoming budget surplus – has continued. Some markets have even been boosted. Exports of liquified natural gas have rocketed thanks to 25% tariffs on US exports to China. 

E.g. there are more Chinese buyers for Australian cotton, fruit and nuts since tariffs were placed on US produce. The value of almond exports to China increased by 107% in 2018–19.

More interestingly, Damien Klassen, of the investment company Nucleus Wealth said;

“Australia has also been managing a delicate political process, how to profit from China by selling commodities but maintain a close relationship with the rest of the democratic world. We will likely be forced to choose one or the other. My expectation is that Australia will choose democracy over profits... We’re at a point where we have to decide who we are going to side with.”

AUD has been steadily gaining against the USD for the past month but has taken a little hit over the holiday break. AUD/USD is currently nestled right up against the key support level of 0.70.


Argentina's New Government - New Horse, Same Gaucho?

With a third of its population living below the poverty line, Argentines chose center-left candidate  Alberto Fernandez to replace the reformist Mr. Macri in late October. The vote was decisive - winning 48% of the vote was sufficient to avoid a run-off election. 

With Christina Kirchner as his running mate, some voters, the IMF and other creditors fear a return to her ruinous policies when she was president from 2007-2015. Where she nationalized private pension funds, energy firms, fiddled with official government statistics (The IMF formally censuring Argentina for inaccuracy) and was indicted on multiple corruption charges.

Under her administration, Argentina defaulted on its sovereign debt for the 8th time - this default was the largest in history and prevented Argentina from selling its bonds abroad for many years. Many fear this will be repeated in this new administration.

ARS has fallen from 20/USD to 60/USD (-300%) in the last two years. With Argentina’s deposit rate at 37.7%, one year forward rates approach 50%, making FX hedging problematic.


It's Getting Tetchy In The Middle East

Tensions in the Middle East hit boiling point as another set of Trump issued strikes were carried out early Friday morning. This strike killed Iranian general Qassem Suleimani who was reportedly responsible for killing 100’s of US soldiers.

Here is a timeline of events: 

  • Dec 27th - A US contractor died (6 more people wounded) when more than 30 rockets hit an Iraqi military base in Kirkuk. 

  • Dec 29th - Trump retaliated with an airstrike aimed at weapons caches and command control centers at five sites associated with the Kataib Hezbollah killing 25 and injuring over 50.

  • Dec 31st - 100’s of protesters stormed the US embassy in Baghdad setting fire to one of the outbuildings in a demonstration to the attacks. Nobody was harmed.

  • January 3rd - Drone strike kills Suleimani.

Iraq's prime minister denounced the "violation of Iraqi sovereignty", while Iran's foreign ministry said the US strikes were a "clear example of terrorism". Iran’s supreme leader, Ali Khamenei, ordered three days of mourning and vowed that the US would face “severe revenge” for the killing. The US embassy has advised all US citizens in Iraq to leave the country immediately.

Due to its safe-haven status USD has strengthened significantly against its major counterparts over the week. Gaining 1.4% on the GBP and nearly 1% on the EUR. US stocks look set to take a step back from a strong start to the year and Oil prices jumped dramatically (3.51%) on the news.

In Other News


This Weeks Economic Data Calendar


Keeping An Eye On Next Week

Tues Jan 7th

  • US ISM Non-Manufacturing


Thurs Jan 9th


Fri Jan 10th

  • USD non-farm payroll

  • CAD Unemployment rate.

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Increased pressure on bank balance sheets has seen a dramatic rise in alternative lending and opened up a swathe of global opportunities. Choosing to focus on domestic sources - leaders may be limiting their firm's ability to find the best deals... READ MORE

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Currency Heat Map

Below is the heat map for the first week in December, showing the relative volatility between currencies. The redder the color, the higher the volatility.

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