Saxo Bank: China, rates, Australian dollar to tank

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From Saxo Bank’s chief economist Steen Jakobsen via the AFR:

One, don’t be surprised if the Reserve Bank of Australia cuts the official cash rate to 1.75 per cent…

Two, there’s more chance of him being selected to play football for Denmark than the official cash rate rising.

Three, the Australian dollar might have a run up to US95¢ or US96¢ in the short term but by the end of the year it will be closer to US80¢.

Four, stand by for some clarifying comments from the governor of the RBA Glenn Stevens following his remarks last week on the ­Australian dollar.

Five, the Dow Jones could fall as much as 30 per cent from its peak.

Six, China will grow at 5 per cent not 7 per cent and, finally, the US Federal Reserve will soon be forced to taper its own tapering program.

…“I think people are mistaking low interest rates for a recovery…If you look at history this has happened before in other countries but if the recovery means you have the ­lowest productivity and the highest unemployment in 10 years then it’s not really a recovery. You like to call yourselves the lucky ones, I like to call you the isolated ones. I think Australia is very much in its own world in terms of the monetary cycle and you’re probably the only housing market in the world that’s going up right now. Certainly the only one where the government and central bank support the housing market…I see the unions want pay rises, when productivity is very low…it shows inflexibility to understand how the world has become global.”

QED, although we’re not the only rising market right now, nor the only market where government supports prices. As always, the issue with any structural denouement is the timing . My view is China will grow at 7% this year but that’ll be the last time, the odds of more rate cuts are very good but less so for this year, the dollar will go lower than 80 cents but not until next year, the Fed will probably get through tapering but never raise rates and the Dow will get hammered 30-40% when China capitulates to the inevitable. That will be the end of this global business cycle (I’ve a special report on this in the pipeline).

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.