Macro Afternoon

The lack of progress in both the Brexit no-deal and the US China trade talks continues to weigh on risk markets with overnight losses festering into the Asian session today as some Chinese markets return from holiday. In currency land most undollar assets are unchanged but the Aussie dollar is failing against the crosses, notably Kiwi and Yen as markets reweigh a now easing RBA bias.

The Shanghai Composite remains closed but the Hong Kong Hang Seng reopened with a small loss, gapping down considerably before finishing with 0.3% loss to 27890 points. This still keeps it above former resistance, now steady support at the previous false break high at 27300:

US and Eurostoxx futures are drifting down again with the four hourly S&P 500 futures chart showing a very small amount of support just below the psychologically important 2700 point level, but this is looking a bit ominous:

Japanese stock markets have flopped despite only a minor rise in Yen with the Nikkei 225 closing nearly 2% lower at 20333 points. The USDJPY pair remaisn quite subdued and hanging just below the 110 handle after a feint USD rally failed to see it pop above the previous four hourly session highs. This is getting a little too tight so I expect a volatile outbreak soon:

The ASX200 finished on a weaker note, down about 0.3% to close out the week above the 6000 point barrier at 6071 points as all short positions get covered. The Australian dollar has moved further below the 71 handle now and has exceeded my target at the January low. This is considerably oversold now of course but I’m not expecting a big fight back when you see how poorly its also doing on the crosses:

The economic calendar finishes the week with a slew of European industrial production prints and the Canadian unemployment print. Have a good weekend!

Comments

  1. And here comes the next nail in the coffin – like we needed any more – for FutureBoom and the bubble-o-philes.

    https://ab.co/2GwiEfZ

    Work in the construction industry is drying up fast, and there is evidence over a million labourers and tradies are hurting, unable to secure higher pay.

    Apartment construction activity, for example, is now contracting at the fastest pace in six years after a record-breaking boom, according to a widely watched survey conducted by the Australian Industry Group and Housing Industry Association.

    After years of booming employment in the residential construction sector, the latest Performance of Construction Index showed employment at a reading of 44.4 — well below the 50-point level that indicates expansion.

    “They’re going to be worried, they’re anxious in terms of their own budgets and that means that means 55 per cent of the economy is not great,” he said, referring to the importance of consumer spending to GDP — the nation’s economic output.

    That is not what Dr Lowe and his colleagues at the Reserve Bank want to hear as they try to spark inflation and life into an increasingly listless economy.

    • Thanks Geordie.

      It’s kind of weird watching it all unfold as an MB reader. It all seems so bloody obvious yet everyone else is still so shocked.

      • It is, hey, and feeling that you’re still way too optimistic as things get worse faster than you could have ever expected.

      • IMO I think it’s because people have been led to believe it will be this spectacular overnight crash, as opposed to an accelerating grind downwards. Overnight event still well within the realm of possibility and likely with some external shock, but that’s my take on the complacency.

        That and 27 years of equitymate.

      • People’s inability to understand the general behavior of different asset markets just goes to show you how far from investors people buying property are. I’m sure everyone’s expect housing to crash like the stock market. 4% per quarter is well and truly fast enough, people!

      • Mining BoganMEMBER

        I’m glad it started slowly. The idiots in charge misjudged the late inswinger. Didn’t counteract. Hopefully now it’s too late with the tail exposed.

      • I’m still waiting for them to pull a rabbit out of the hat. But things certainly seem to be lining up to deal a crushing blow. This will probably be the deepest recession we have had in recent history.

      • Fear not all …. a good dose of austerity is on the way, all the morally [homo economicus] sinners shall burn ….

        I mean its just worked so bloody goooood everywhere else … best part is watching the mopes self flagellate themselves for believing all the wonky economics [oligarchical spoon feed ideology] in a Pavlovian response …

      • Most people on this blog would approve of austerity.
        Austerity, higher interest rates and lower immigration.

      • Sweeper I would only add its more a case of cheaper stuff than anything else – goods or services relative to their assumed wealth. Then they don’t grok how oligarchs and top financial wealth set love a good bust e.g. pick up assets at fire sale prices, crush labour some more, increased monopolies, increased political ring fencing, calls for more right wing authoritarian [totalitarian] governance …..

        All whilst banging on about free will [tm] – freedom and liberty like good little TINA mini me corporatists ….

      • Oh give it a rest Skip. If it was an elitist conspiracy to snatch cheap assets why would they bother overinflating them to start with? Rich people don’t engineer crashes to get richer. They like boom times best too. It’s just that they have the means to profit in bad times too. It’s simple opportunism, not some overcomplicated conspiracy.

      • Arrow no conspiracy about it … just historical data.

        That’s not to mention the whole boom is baked in by dint of ideological advocacy which enables it. Its like you don’t have a cursory understanding of neoliberalism of something.

        PS. then why has every country that has strong neoliberal tenancies imposed austerity so none of the financial elites take a write down. What part a about PIIGS or the actions in the U.S. is hard to grok.

        PSS. what part about Obama not taking the principle write down that was offered is lost on you. Nor that he is on record of saying – all that stands between you and them is me …. Jamie got presidential cuff links and a nolo contendere plea and stocks and bonuses went through the roof after a 13B fine. Talk about rational agent models …..

      • Inequality always gets worse during recessions.

        Remember the do nothing rich love high unemployment and a recession is the perfect opportunity to cash in and blame the business cycle.

      • I agree Sweep – I just don’t agree the entire cycle is a manipulated conspiracy from start to finish.

      • Arrow its hard to reconcile all the ex ante stuff dominate economics uses to frame debate – regardless of outcomes and then on the other hand say its not an agency problem … I clearly remember the arguments about dollars equal democracy thingy.

        You don’t really need a grand conspiracy theory … just like minded people with the means to advance a shared perspective.

      • I agree Sweep – I just don’t agree the entire cycle is a manipulated conspiracy from start to finish.

        It’s not about it being a conspiracy, it’s about the people running the show having an ideological belief in boom-bust cycles, and making decisions that reflect that belief.

      • drsmithy ….

        “It’s not about it being a conspiracy, it’s about the people running the show having an ideological belief in boom-bust cycles, and making decisions that reflect that belief.”

        I would expand on that and say its about people being indoctrinated or groomed by dominate environmental conditions, I mean hay, its not like historically library’s were the first things to get the torch when conquerors blew threw. Totally bizarre how the anti collectivists became a collective hive mind and blew their intellectual capital up a wall for a few bob … being yes men … I mean completely screwing the pooch on hard institutional architecture because some quasi religious ideology dictates the thought process …. barf …. so much for free will when some roll the boulder over the cave thingy ….

        Sorta like David Friedman who confused his B.A. in physics as a corner stone to wanking on about AnCap ideology … barf ….

      • Skip’s abuse slip is showing again, old habits are hard to break. One of the things that won’t reconcile is how the rich always have agency and the poor do not. Skip has agency, but others do not. We all knew what mess the last boom caused, yet here we are again because its the sugary drinks and processed crap the punters just can’t say no to. And before you launch into another abusive tirade about Bernays et al skip, long before the sugar marketers were publicly exposed there was plenty of information about how bad it was, and even now it has been exposed the fat bogans still wont stop.

        There is a good case to say it’s not lack of agency, it’s lack of self control. Not a conspiracy, just what happens when people demand endless supplies of the ‘good’ stuff, the fact that that are ruthless people there to profit is no conspiracy. Add that to a market, that is most certainly not a free market and there are easy profits. It’s interesting. People wanted freedom, but freedom is only useful with discipline.

        The bust, and austerity is great at transferring wealth to the rich, in the US it was generations of middle class wealth p1ssed away, but here we are with the punters back for another cheese crust pizza and pepsi.

      • aj …

        Trotting out the old abuse meme – trope to start things off is neither a logical statement nor evidence based, pejorative special plea is being kind. Seems largely based on your personal beliefs as extenuated by some reductive ideology – you – decided [agency chortle] to ascribe too. Social psychology and sociology make a mockery of such ill conceived mythos, but, when you have deep pockets that have all the time in the world, too shape it as some are want, and then bang on about watery terms like freedom and liberty when the vast majority are born into or under constant threat because their agency does not scale in a monetized reality.

      • Silly confected language complexity don’t support the case, they are just part of your abuse model. You fought (still fight?) a war against the libertarians, and agency was where you chose to strike, but the case against agency is weak and is failing. The history of personal responsibility and choice flows through human history, it is abused and limited from time to time but is as real and as critical as ever.

        Wars attract those that want to fight. Setting yourself up as a moral agent to justify your abuse? Well you appear to be clever enough to understand what that is…

      • aj …

        Again hard to respond to watery conjecture …

        Taking on rank ideologues that confuse belief with thought or thinking is not just a case of libertarians gone wild, not that it has groundings in corporatism or anything, its about the knowing or unwitting service they provide for their betters – BTW its not like I’m the only one.

        Hate to break it to you but I don’t genuflect at the monument to Locke ….

        PS. Actually the issues I and others have is with the aforementioned and like minded moralistic crusade during the period in question.

        PSS. this might help – https://www.macrobusiness.com.au/2019/02/weekend-reading-9-10-february-2019/#comment-3286099

      • There is a good case to say it’s not lack of agency, it’s lack of self control.

        Incalculable amounts of money are sunk into advertising, and its wartime equivalent, propaganda.

        It’s not done just to keep the arty types employed.

      • Smithy and then one has to consider one of biggest factors of cost to many goods is advertising, dwarfs wages, and R&D ….

      • No-one is suggesting advertising doesn’t work, it works really really well. Just like pokies and modern computer games tap into neurological weaknesses with outstanding success. But this is not a lack of agency, the story of people is the story of those seeking to control the agency of others. It is perhaps a lack of honesty and integrity on the people happy to exploit these weaknesses, and it is a weakness in our social infrastructure that we can’t call it out, and a lack of personal honesty and accountability in the people that are played. Was there ever a more useless human cry after a poor decision than “it wasn’t my fault”.

        We know unequivocally that modern economics and market justifications are a rort, this is now well understood. People are getting back in line not because they believe, but because they can’t say no. The vast number of people stayed in line the first time because they couldn’t say no.

        Skip is here to fight (and to cause harm if he can). The model is predictable. He sets himself up as as a moral agent so that he can then serve out the punishment that the evil deserve. Not sure if he really believes in the moral crusade, but he sure as hell wants the fight.

      • Of course we operate in a political and economic context, as Harari points out in Sapiens even R&D is merely within this context, not on a special moral plane. Agency is not dead, it’s not even sick, in fact it’s the most valuable thing we have.

      • Dear goat some are want to swallow grand theorists and their recklessness about causal connections… shezzz … and then some wonder about say Rand or Spencer et al – not to mention its a “best seller”.

        Aj …. it not like your objectivitism is shining through every thing you say …

      • No-one is suggesting advertising doesn’t work, it works really really well.

        Right. So the people who it works on more than others deserve to just get hung out to dry then ?

      • The only ‘grand theory’ kicking about here is the one that facilitates the fight for someone looking for such an excuse.

        DrS, agency rests in the victim and the actor, and that’s where the real agency lies. The bankers don’t act without agency, the lawyers that feed money to havens don’t act without agency, the real estate agent that scams an old lady doesn’t act without agency.

        Jurisprudence has been here long before a bunch of anti-Randist economic fan-boys sought to claim the death of agency for their cause. Perhaps take the time to look at the Neuremberg trials and the clash of positivist and natural law.

        The failures of Rand et al don’t lie in some end of agency myth.

    • Stone the Crows

      after a record-breaking boom

      Comes a record breaking BUST.

      I can see many angry tradies donning their yellow vests and going just plan berko…….suck it up lads, no sympathy or sorrow, just lots of pent up laughter !

      • Mining BoganMEMBER

        Well yeah Timmeh, but with any luck their angry twincabs will be repossessed, along with the dolphin bothering jetskis and the stupid over-compensating harleys.

        They’ll be reduced to raging on a rusty bicycle. The irony will be lost on them,

      • I have a few building industry contacts, and Drug use is already rife. Perhaps the quality and quantity will go down, but there are people out there who’ve blown a lot of cash up their noses and up their arms. It’s not just being busy that makes them drive so quickly and aggressively😊.
        Like the mining towns in WA- l think Mining Bogan mentioned those years ago.
        I think unemployment is going to expose a lot of people; got a problem,no savings,and now no cashflow.

      • Mining BoganMEMBER

        Yeah, drugs. Many a conversation about what to take and when to avoid triggering the random tests took place. Can’t imagine what it was like in non-mining jobs without testing.

    • All those unemployed software developers post-GFC that were asked by govt to retrain themselves into mining, and then asked to retrain themselves as builders two years later, will now be asked to retrain themselves as software developers again. Of course the IT “skills shortage” visa tap which led to their initial unemployment during the GFC will continue to remain wide open.

      • This is the unspoken part of the housing market. There is no such thing as a career for the young ones, no secure way of paying off a 25 year mortgage, and yet house prices have gone ballistic.

        There will be a few people cracking under that sort of pressure. Last week DFA discussed one post code when domestic violence has skyrocketed and the police have attributed it to mortgage stress.

      • Nobody can afford the repayments on a 25 year mortgage at current prices, that’s why they’re all 30 years and IO was so attractive. Hasn’t that played out well? Lowest rates in 5000 years and everyone is still screwed.

      • Geordie …

        Traditional mortgage loan ratios were established during a period when job quality and longevity supported the maths and risk factors, post divergence of wages and productivity those metrics don’t square with the historical data e.g. 40 somethings have more than 10+ jobs during the traditional period in question. To complicate matters increasing part time and multiple jobs in lieu of the historical case compounds error.

        But then again some are want to focus on the house, primary or income investment and not what underpins it all e.g. good luck with the family formation house when mom and dad are flat out [not to mention daycare and private school] and RE investors wonder why rents become non performing – then all the free market ideologues scratch their heads and wonder why prices are inelastic top down … chortle …. might be the pay to play format with increased privatization of everything means the unwashed spend more time and money facilitating never ending increases in overheads which ultimately lends to increased risk exposure in zip rights casino action or as noted cramming down labour costs where applicable.

        That’s not even scratching the surface of the MBS that have dynamics due to investor demand and bonus culture, but hay, fiduciary duty is the smile on a dogs face.

        You can’t have about 34T in tax havens and say you have a money problem, tax problem on the wealthy, RE problem, considering the dominate economics during said period foamed the runway ….

      • “A good entry level house is just under $500,000 here, you can buy new at just under $600,000.

        Yeah, real affordable. Definitely need to boost supply. Shame about jobs, infrastructure, transport and services…

    • Fear not as Super Shorten will come to the rescue of the construction industry/tradies with Labors plan of building 250,000 homes for the working class poor using $ 6.60 Billion taxpayer dollars.

      Get ready to pay more taxes, if you have a job that is.

      Ooops ….wrong spot.

      • Federal taxes destroy moeny Shylock e.g. sovereign money is issued as a tax credit at onset.

        Not that your handle is a huge tell btw …

    • I often wondered why Macquarie Bank didn’t get a gong at the Royal Commission given their own trail of disasters.

  2. Bank of England slashes growth forecast as global slump hits UK … UK Telegraph

    https://www.telegraph.co.uk/business/2019/02/07/bank-england-slashes-growth-forecast-global-slump-hits-uk/

    Economic growth this year will plunge to its slowest pace since 2009 as the global slump combined with political chaos in the UK hits business investment and encourages families to hold off big spending decisions.

    The Bank of England fears that GDP will rise by just 1.2pc this year, its worst performance since the financial crisis a decade ago.

    The figure is a significant cut to forecasts given that the Bank had predicted growth of 1.7pc this year as recently as November … read more via hyperlink above …

  3. I guess, my devious friends, we don’t want to send enquires to RE agents about skykennels, ending with the below?

    “And finally, I’d like written confirmation that no flammable cladding was used on this building.

    KTHXBAI

    haroldus”

  4. https://aiec.idp.com/uploads/pdf/PDFs%20AIEC%202017/AIEC2017_12E_1232_Neyland_Jacka.pdf

    Worth a read. Australia wants to double the number of international students by 2025.

    Pages 7, 11, 16, 17 and 20 are particularly interesting.

    Enrolments in Australian institutions by international students living in Australia is increasing – up 8% over the period 2014-15
    Enrolments in Australian institutes by international students offshore os decreasing – down 3% 2014-15.
    Are international students pursuing education, or migration?

    Note, most OECD countries allow international students to stay for 1-2 years post-graduation to look for a job. Canada allows 3 years. Australia allows 4 years.

    Think we better order more trains from China

    • ChristopherJMEMBER

      Steve, I don’t think we get anything from this deal, just crush loads our cities and public transport and leads to overcrowding in units – higher prices for everything and education standards etc. We are truly rooted if this comes to pass. We need less students not more.

      HECS was the harbinger of all this and we know who was its architect. A big aussie kant imo

  5. If you look at charts of the AUD it is very hard to see how it is “oversold”. It goes up for one month straight has one significant fall of 1.5% and instantly its oversold?

    • It’s just an algorithm. Use it if you find it useful. I mostly ignore it, barring occasionally paying attention if there is an obvious divergence developing. Look that up if you are interested.

    • The thing is irrespective … fraud and corruption double exponentially via demand pull from Grisham’s law dynamics.

      • Whence neoliberalism became dominate in the mid 70s mainstream economics surpassed the political political economy in setting the social agenda e.g. vote for any mainstream legacy party and get surprised at the same results. Worse yet political party’s stopped thinking in political terms and outsourced it to private sector PR Marketing firms, which favored Bernays methodology and public choice dynamics, and a side of vote gerrymandering to gain and hold market share.

        Lulz hence most can’t even think outside the neoliberal market framework as it defines reality, then some are confused about say Stalin attempting cultural shifts in the near term, he was at least honest about his intentions and why ….

    • Shutting the gate after the horse has bolted I’m afraid. I recall reading that one of the suburbs in Molonglo (or maybe it was one of the stage developments out there) had about 80% of the blocks zoned for mulitple units. And already there a number of large medium rise apartment blocks out there in the middle of nowhere. A clear example of the ACT government attempting to maximise profits from land development regardless of the cost to the community.

      • Better than no action at all. Went for a drive through there and on the way we took a detour through Denman Prospect. What a sh1t hole. Place was full of $1m+ houses crammed on top of each other. One the way back we grabbed a glimpse of Coombs and Wright and we horrified by row upon row of townhouse and multilevel unit complexes with not a tree to be seen anywhere.

  6. Wellie all I can say is the free market posse got just what it wanted …. boom – bust economics … it was written… by some dude with funding strings to oligarchs … golf clap …

  7. Flash crash: Mrs Watanabe and algorithms crashed the Australian dollar
    https://www.afr.com/markets/currencies/flash-crash-mrs-watanabe-and-algorithms-crashed-the-australian-dollar-20190208-h1b0fq
    [At 9:36am on Thursday January 3, financial market traders looked in astonishment at their screens as the Australian dollar plunged a whopping 3 per cent to a 10-year low of US67.15¢ in the space of just two minutes.

    The Aussie’s 7 per cent free fall against the Japanese yen was even more alarming.

    The sharp and temporary drop stunned currency investors, economists and officials at the Reserve Bank of Australia in Sydney, who were left scratching their heads and asking what, or who, crashed the Aussie dollar?]

    • I’m not sure how much of any of that they have evidence for. Their comments reek of speculation and opinion.

  8. Had a thought the other night…If they keep fibbing about the real inflation figures and hecs is indexed to inflation; qe comes in and devalues the currency- that would equal a bit of a win for those like me holding rather large hecs debts ,no?

  9. Howard Schultz, the founder and current major shareholder of the ubiquitous coffee chain, Starbuck’s, wants to be president of the United States. When asked why he wants to run as an independent candidate, Schultz replied with a “glittering generality” common among new age mercantilists who run for political office: “I want to bring the country together.”

    Schultz and those like him who have or are harboring political ambitions want governments to serve the neo-mercantilist elites, not the common folk. The historical precedent for this behavior is the British East India Company, also known as the “Honorable East India Company.” This London-based company controlled a vast monopoly on trade, extending from India and Southeast Asia, China, and Japan to the wharves of Boston in the British colony of Massachusetts Bay in North America.

    The famous “Boston Tea Party” of 1773 was a rebellion by American colonial merchants over the imposition of the Stamp Tax on tea and other goods imported to North America from India by the British East India Company. However, the rebels of Boston were more interested in their bottom line than in political fervor to break from the British Crown. In fact, the thirteen red and white stripes on the flag of the British East India Company, with the British Union Jack in the canton, became the basis for the design of the American flag, with a field of white stars replacing the Union Jack. When Americans fight over respect for “the flag,” few realize that what they are being forced to respect is a modified form of the standard for one of the largest mercantilist contrivances in history. In effect, the British East India Company, which had its own army and navy, ruled over India and British colonies in Malaya, China, Burma, Mauritius, and Reunion. – snip

    https://www.strategic-culture.org/news/2019/02/04/starbucks-and-modern-mercantilism-no-different-than-british-east-india-company.html

    • Yeah because the guy responsible for homogenised coffee is going to bring diverse people and backgrounds together and create prosperity for everyone. Lol…

      • The Traveling Wilbur

        Black coffee. White milk. Homogenised or otherwise, mixed together properly that’s a recipe for taste and harmony.

      • Surely you’ve been into a Starbucks in the US Gav ? The sheer variety of options and adjustments that there are makes your head swim.

        That seems like plenty enough diversity for a diverse place like the US

      • It was more about the scene of that standalone house surrounded by 3rd-world sh1t-hole dogbox towers that wouldn’t have been there only a few years ago.

      • Its simple.

        3 years ago when council decided to acquire, they were ok with it. Council were taking their own sweet time to go through the cogs of the acquisition process. Back then, they were very happy that council is taking its own sweet time, BECAUSE more the delay in acquisition, the higher the price/compensation – as prices were rising you see! But as you might already know, Ryde is currently experiencing a slight -20% negative sideways movement, the problem now is, the more the delay in acquisition, the lower the price/compensation – as prices as in negative-plateau you see.

        So, out comes the old mom crying, dementia dad sleeping, son/daughter comes out crying – all wanting Ryde council to quote the price/compensation asap! Those are real tears, excurtiatingly painful tears …. of losing $20000 every passing week!

      • Virus that’s exactly what I thought. It’s not about having to sell, or move it’s about lower prices haha. Stuff em’. They wanted to flog the lot for dog boxes, they are part of the problem. Not the solution.