Australian dollar whacked by strong US inflation

DXY lifted and EUR fell last night:

AUD sank against DMs:

EMs sank more:

Gold is bogged:

Oil mixed:

Base metals down:

Big miners down:

EM stocks down:

EM junk down:

Treasuries down:

Bunds down:

Italian debt up!

US stocks up, European down:

The big news was US CPI which came in firm at 0.2 on the month and 2.8% year on year:

But check out oil. Remove that and it’s not so hot:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.8% annualized rate) in May. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.1% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.5% annualized rate) in May. The CPI less food and energy rose 0.2% (2.1% annualized rate) on a seasonally adjusted basis.

It’s the Core PCE 1.8% that matters. It’s warm at best.

The Fed is going to want to get ahead of future inflation so will keep tightening. But for someone aiming to run the economy “hot” this is not exactly on fire and opens a risk of disappointment for Fed hawks tomorrow.

Meanwhile, BofAML released its monthly fundie survey and it is all the way with the USA, the only place for EPS growth:

With US stocks the long:

Centered on FAANG:

And the tail risk of corporate debt looming:

The US is booming but not yet overheating. Chinese and European growth is slowing. Emerging markets are trailing those two lower. This set up remains constructive for higher US equities and a lower AUD, potentially delivering excellent late cycle returns to Aussie investors positioned in the US (with a careful eye trained upon Italy!)

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David Llewellyn-Smith is the chief strategist at the MB Fund which is overweight US equities. The first option is to use the MB Fund International Stocks Portfolio which is always 100% long as a part of your own asset allocation mix. The second option is to use an MB Fund tactical allocation in which we choose the asset mix for you, including exclusively international stocks, but with bonds and other assets as well to ensure a more conservative mix.  

The recent performance of both is below:

If these themes interest you then contact us below. 

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. 

Comments

  1. I’ve changed my forecast on US shares
    Think they could go a lot higher still over next 2 years
    Maybe Dow well above 30,000 with other share index too
    Think US yields higher 10 year towards 4%
    I think Italian yields to spike higher as euro falls apart
    That’s the one thing I never understood and kept asking
    How could Italian 10 year be 1.5% as it was and US 2.8 and it’s becuase of ECB os the only one buying and draghi gine next year
    The other thing I couldn’t understand was German 10 year at 0.48% and gundlach says it baffles him
    The reason is if you buy the German 10 year at 0.48% because they haven’t consolidated euro debt which draghi wants to do when the EURO breaks up you’ll get Deutsche Marks and the ECB will be stuck with trillions of Italian Portuguese debt
    I think Euro will take the financial system down = I did think China but think they’ll just slow down and start to convert to a consumer cased economy
    China Xi is consulting with Jeremy Rivkin on digitising China energy grid solar and wind
    In 3/4 years China won’t but much of our raw materials
    Australia will be a place to go on holidays too, study etc

    • What is china going to export that doesn’t require raw materials ?

      If they’re not exporting anything , and they don’t allow capital inflows, then their economy will contract

      If Chinese economy is strong, so is Australia’s

    • Us 10 year has already hit its peak this cycle. The 2 year and 3 month have still got some legs. Keep an eye on the 3 months as it tests new recent hights. It can move real quick and close the spreads if it breaks out and it most likely will

    • I don’t think so. It will be raised to 2%. That will widen negative spread to AU rates to -0.5 which last occurred during the late 90’s to 2000. AUD was 50c US at that time.

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