Markets, Australian dollar, wake in fright

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The ribald rally in the Australian dollar yesterday has come to abrupt end as markets woke up to crumbling Chinese data, a Crimean referendum and lousy US data.

It’s not entirely clear what triggered what but the outcome was plain as day with stocks taking a 1.5% flogging and long bonds attracting a strong bid with yields down nearly 2%. The thirty year is now just 5 points above the 2014 3.55% low and is forming a bearish descending triangle pattern;

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If it breaks, then the taper is likely too as well.

Supporting that contention, gold added a little to yesterday’s impressive gains:

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Again supportive, the US dollar also slumped (and recovered) but is clearly in a weakening trend:

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The US data flow was awful, reinforcing taper tapering. From Calculated Risk:

RetailYoYFeb2014

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $427.2 billion, an increase of 0.3 percent from the previous month, and 1.5 percent above February 2013. … The December 2013 to January 2014 percent change was revised from -0.4 percent to -0.6 percent.

That’s one chilly winter! Goldman can’t slash its first quarter growth forecasts quickly enough:

BOTTOM LINE: Although February retail sales rose a bit more than expected, negative back revisions more than offset the front-month surprise. Separately, initial and continuing jobless claims both fell more than expected. Import prices rose more than expected in February, but declined on a year-on-year basis. We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.

February retail sales rose 0.3% (vs. consensus +0.2%). Core retail sales?used by the Commerce Department to estimate the personal consumption expenditures (PCE) component of the GDP report?also rose 0.3% (vs. consensus +0.2%). By category, the strongest gains occurred in sporting goods (+2.5%) and non-store retailers (+1.2%), both bouncing back from weakness in January. (Non-store retailers mainly represent online shopping.) However, back-revisions to core retail sales in January (-0.3pp to -0.6%) and December (-0.2pp to +0.1%) were significant and widespread across categories, suggesting a trajectory of consumer spending in Q1 that was weaker than we anticipated.

We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.

But! The Australian dollar wasn’t interested in any renewed QE:

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Nor was copper, which is consolidating its break below below the key $3 level:

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Of course, stocks didn’t want a bar of more stimulus either so a mixed night for markets with weak US data out-weighed by weakening Chinese data, aborting the Aussie moon shot.

13 Responses to “ “Markets, Australian dollar, wake in fright”

  1. The Lorax says:

    Australian dollar holding up rather well I thought, considering how vulnerable it was just a couple of days ago. Taper taper and Chinese stimulus will see it racing towards parity.

    • migtronix says:

      Agreed and NKY225 futures are deeply red again so expect more AUD weakness when Tokyo opens and JPY is strongly bid.

      EDIT: Scratch that futures turning green now, have to wait for Tokyo to open to see which way the carry is going to flow today

    • You’re on the wrong side of history now, Lorax.

    • Gramus says:

      The AUD is a pawn in greater games at the moment and looks like it is being held higher than it would otherwise be. My hypothesis is that PBOC is holding AUD/USD up as part of the overall Yuan depreciation strategy by buying through commercial intermediaries.

      Parity… big call Lorax, but upside potential clearly exists. Was it Goldman who called an immanent reduction in RRR? What would that do for the dollar? Do you still think that they are tightening HaH?

      China is not a market economy and we should not expect it behave as if it was.

      • The Lorax says:

        Please don’t get the idea that I’m happy about any of this, but this game has been played out year after year and it always resolves with more can-kicking. China will stimulate FAI and the taper will reverse as the run of bad US economic data continues.

        Result: AUD to the moon!

      • Gramus says:

        No one is really happy about this situation…. It isn’t a happy story and isn’t going to end well. I just don’t think it will end quite yet.

    • Peter Fraser says:

      There won’t be any stimulus until the inefficient mills have been purged from the system.

      • Gramus says:

        Maybe… Maybe not…

        Whether you get ‘purged’ in China is less about efficiency than relationships and the quality of your political protection.

      • The Lorax says:

        How many years have we been hearing this Peter? I must have read countless articles on steel overcapacity and inefficiencies in the Chinese steel sector, but every year they keep going. Every year China produces more steel to build more stuff they don’t need.

        I’d love to be proven wrong but a few more months of dreadful numbers like this and they’ll panic and kick the can one more time.

      • migtronix says:

        Well they’re all inefficient by western standards so good luck with that.

      • Peter Fraser says:

        @ The Lorax – China stimulates to create jobs but with a falling labour force there is less pressure to stimulate.

        Of course they will stimulate again, but it might take longer than you expect.

  2. Explorer says:

    It (support of inefficient and polluting stell mills) will end sometime. It could be this year. But with the inscrutable Chinese leadership, who would know?