America first, Australian dollar last

DXY  was firm Friday night. EUR too but CNY reversed sharply:

AUD fell back against DMs:

But was stronger than EMs:

CFTC positioning was out for the fist time in six weeks and showed another pullback in AUD shorts to -31k shifting into Xmas. The missing reports will be dropped out over the next four weeks. My bet is we’ll be headed back to a more neutral position. If so it’ll be good news for bears:

Gold flamed out:

Oil was strong as the US rig count fell:

Base metals have become reflation believers:

Big miners are well ahead:

EM stocks reversed:

And junk:

Along with  hosed Treasuries:

But bunds rallied:

Stocks were stable:

The big data releases for the night were US payrolls and the ISM, both of which were impressive. The ISM jumped on new orders (charts from Calculated Risk):

The January PMI® registered 56.6 percent, an increase of 2.3 percentage points from the December reading of 54.3 percent. The New Orders Index registered 58.2 percent, an increase of 6.9 percentage points from the December reading of 51.3 percent. The Production Index registered 60.5 percent, 6.4-percentage point increase compared to the December reading of 54.1 percent. The Employment Index registered 55.5 percent, a decrease of 0.5 percentage point from the December reading of 56 percent. The Supplier Deliveries Index registered 56.2 percent, a 2.8 percentage point decrease from the December reading of 59 percent. The Inventories Index registered 52.8 percent, an increase of 1.6 percentage points from the December reading of 51.2 percent. The Prices Index registered 49.6 percent, a 5.3-percentage point decrease from the December reading of 54.9 percent, indicating lower raw materials prices for the first time in nearly three years.

And employment jumped period:

Total nonfarm payroll employment increased by 304,000 in January, and the unemployment rate edged up to 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing.

… Both the unemployment rate, at 4.0 percent, and the number of unemployed persons, at 6.5 million, edged up in January. The impact of the partial federal government shutdown contributed to the uptick in these measures. Among the unemployed, the number who reported being on temporary layoff increased by 175,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey.

…The change in total nonfarm payroll employment for November was revised up from +176,000 to +196,000, and the change for December was revised down from +312,000 to +222,000. With these revisions, employment gains in November and December combined were 70,000 less than previously reported.

…In January, average hourly earnings for all employees on private nonfarm payrolls rose by 3 cents to $27.56, following a 10-cent gain in December. Over the year, average hourly earnings have increased by 85 cents, or 3.2 percent.

Very impressive headline numbers given the shutdown:

Strong employment growth:

A rising participation rate:

Which lifted the unemployment rate:

The shutdown showed up in part time:

And wages growth eased:

This is not a market to take lightly this year. It is strong. Another month or two like that Fed hikes will return for mid-year.

It was enough to stall the Australian dollar advance without really kicking it too hard. The reason the US dollar didn’t take off is the Fed’s new “patience” narrative. However, the other overnight data in Europe shows that DXY is going to come under further external upwards pressure soon via a weakening EUR. The zone’s PMI was toast:

Inflation is weakening fast at 1.4% with the oil shock though core lifted a touch to 1.1%:

Forexlive summed it up nicely:

Is the ECB reaching the end of its rope by brushing aside weaker growth on ‘temporary factors’?  After a whole year of hearing it, is it time to retire that narrative?


If the central bank decides to revise its rate guidance in March, that’s when you know that they are no longer able to keep brushing aside the slowdown in the Eurozone economy as being ‘temporary’.
The latest signs aren’t looking good as Italy is posting recession-like growth while Germany’s factory activity slumps into contraction territory. And when you see a hawk like Weidmann start turning against the narrative, it just feels like the central bank and lawmakers have to start accepting reality at this point.
The ECB has continuously brushed aside the slowdown on “one-off factors”, but it is a narrative that is growing stale and markets aren’t buying it anymore. Inflation expectations in the Eurozone has fallen to two-year lows while rate hike expectations have been scaled back and in my view they are in no position to normalise policy at all this year.
After Germany’s latest retail sales slump, which the German stats office is blaming on “a growing preference for gift vouchers”, it shows that policymakers and lawmakers aren’t ready to change their language just yet.
But the longer this drags on and the more that the trend continues to point towards a further slowdown, the ECB is surely running out of reasons already to keep avoiding the reality of the situation.

Yep. The ECB is the only central bank that is dumber and slower moving than the RBA. Its outlook is getting worse not better, via Credit Suisse comes the leading financial conditions index:

The ECB will have to flip dovish.

As we have been saying over and again, the US remains the growth leader and will all year despite slowing. The current move to EMs, commodities and risk assets like the Australian dollar is premature to say the least.

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. The fund is positioned to benefit from a falling Australian dollar and rising bond values so he is definitely talking his book.

If these themes are of interest to you for your direct investment or super then contact us below:


  1. US unemployment 3.7% (Obama 10.4% at peak)
    Dow up 40% since Trump was elected.
    Powerful USd.
    US global power restored.
    Alliances with North Asia & the Pacific now restored after the long dark era of Obama weakness & the failure of his Asian pivot.
    The big event in the next month to watch with implications to all Australians – will be the Donald Trump US China ‘Trade Balance Remediation Deal’

    China is crumbling from within, its One Belt Road & One Belt Seaway plan totally corrupted & failing.
    First it was passive resistance and now it’s being actively undermined in the neighboring countries – rejecting China’s imperialism.

    The ‘One China’ policy has failed, no Taiwan unification, no ownership of the South China Sea.
    The US navy sails thru, China is mute.

    China’s little mad dog North Korea, China backed & fed as a nuclear threat – now neutered.
    China & Kim confronted & Kim crawling to beg a peace deal.

    China has become a pariah globally.
    Hated by its neighbours.
    Riven by internal conflicts.
    3 major rebellions within China. Their eastern seaboard cities seething with unrest, their western provinces virtually in martial law lockdown.

    And pending a US Tariffs on 25% of their exports.
    19 million Chinese workers and up to 105 million Chinese dependents live off those exports – with US punitive tarriffs about to take effect after a temporary extension.

    China has no other market to dump that capacity into.

    North Asia, South East Asia, India et al – are all lined up to greedily exploit the situation to replace China as an ‘fairer trade’ exporter to the US.

    Donald Trump & the US holds all the cards.


    Will the despot Chinese communist regime ‘do the deal’ with Donald Trump in restoring the US China trade balance?
    Obviously. It will be blood on the streets in China and a communist party overthrow if they don’t.

    But what’s the deal?
    What does the US have to export that China needs ?

    Chinese imports in order of value.

    And where does China get those imports from today?
    Plant – North & South East Asia, Europe,
    Vehicles – North Asia, Europe,
    Gas – Qatar, South Asia, Australia, Russia, other
    Ores & minerals – Australia, Brazil, South Asia
    Food – South Asia, Australia, New Zealand
    IP/tech/ bio tech (mostly stolen) US, Europe.
    Services, North Asia, Europe, Australia.

    In any China US trade deal, Australian commodity & services exports to China are very exposed.

    US gas 19% cheaper than Australian or Qatar gas.
    US coal & ores cheaper than Australian equivalents. US food cheaper than Australian or NZ shipped.
    Australia has little IP or value add services apart from the Chinese migrant guestworker trafficking under the guise of foreign student’ or ‘tourist visitors’ working illegally – both of which are massive economic & social liability to Australia anyway.
    A Donald Trump US / China ‘trade balance’ deal will be at the expense of current exporters & trade providers to the China.
    And we will be one of those impacted.

    An Australia flooded with gas we can’t export.
    Coal & iron ore nobody now wants.
    And nearly one million* Chinese Hokou misfits & rejects dumped into Australia, expelled or fleeing China to be our social burden.

    *Chinese Mainland Communists in Australia.
    •396,000 PR remaining China first communist
    •122,000 citizen grants, earlier wave
    •236,000 as TR all visa groups, students/other/NZ scv
    •193,000 as Tourist / Visitors many working illegally

    Almost all unskilled. Many are aged & a health and welfare burden. Most are Hukou ‘illegals’ – rejects who were expelled or assisted to Australia as part of the China 5 year plan Hukou Tier One Cities cleansing program.

    Many need to be repatriated back to China, with Australian border & visa controls put in place to stop any further import of these Chinese Hukou illegals under the guise of foreign student or tourist visitors.

      • Ha ha, let’s see.
        It would actually be ‘unhinged’ to think nothing is going to change. Australia serenely carrying on exporting to China whilst under the US defence shield, and the China embargo / tariffs of US goods & China US trade imbalance blows out to half a trillion.

        Something has to snap.

        The inevitability is China will buckle to import more US goods & restrict its IP theft & currency manipulation.

        Their US exports are over one fifth of all China’s exports & a quarter of its GDP growth.
        No other market to dump into.
        22 million Workers & 120 million dependents.
        It’s blood on the streets if China doesnt fold & the US goes hard. And the US will, having very successfully demonised China & pulled together an anti China global alliance to apply full tarriffs, IP & other trade restrictions. Including telling Australia to toe the line.

        And what does China need to import?
        As listed.
        And what does the US have to export?
        As listed.
        And at who’s expense? (Current supplier)
        As listed. Australia being one of the list.

        Also Donald Trump may just do a macro deal which has even bigger implications.

        Japan, South Korea,Taiwan aren’t going to continue to get a free ride in US protection (from China), without some quid pro quo in them also importing more from the US.

        And what exactly does Japan, Taiwan, South import and from who?
        It’s much the same list.
        Did you know US gas with the Chinese tarriff is 19% cheaper than Qatar or Australia gas. The US will overtake Australia then Qatar as the world’s major producer within 5 years. Who’s gas is swapped out?
        US Plant, Coal, Ores, base & refined metals, food, and even vehicles, all better, cheaper.

        Do China, Japan, South Korea, Taiwan have any particular loyalty to Australia in trade?
        They will align their imports to their major export market.
        And in Japan, Taiwan & South Korea’s case their protector.

        So given the inevitability of a US & China / North Asia Trade Rebalancing Deal
        Which is not that the US imports less, but that China & North Asia import hundreds of billions more in US goods, and bulk gas & ore commodities….
        Then who do you think would be displaced out of that?

  2. The Traveling Wilbur

    No doubt Germany’s Chancellor will in the years to come look back on these events and announce them as: “the gift-card giving inspired growth contraction we had to have”.

    Or, as it’s you know, Germany, “‎Geschenkkarte über alles time”.