Trade doubts sink Australian dollar

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DXY was weak last night as EUR and CNY firmed:

AUD was nonetheless down the board:

Gold was firm:

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Oil stable:

Metals lifted:

So did miners, expect BHP and RIO which fell on Vale’s good news:

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EM stocks are poised for breakout on dovish Fed:

EM junk is already there:

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Treasuries and bunds fell:

Stocks firmed a touch:

Westpac has the wrap:

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Event Wrap

US January factory orders were revised to show a smaller +0.1% increase from 0.3% but encouragingly the detail was more resilient; core capital goods orders and shipments both went unrevised at +0.8%.

UK labour market data showed continuing improvement with unemployment dropping to 3.9%, the lowest since early 1975 while wages growth remains solid. The German ZEW investor confidence survey improved in March, building further on basing signals from late last year; the six month ahead expectations sub-index rose to -3.6 versus consensus at -11, its highest levels in a year.

Event Outlook

NZ: The annual current account deficit in Q4 is expected to widen further from 3.6% to 3.9% of GDP. That would match 2012’s deficit which was the widest since the GFC. Higher oil prices and lower dairy prices were at play in 2018, although these have since reversed.

Australia: Westpac-MI Leading Index is released.

UK: Feb CPI is expected to show annual inflation at 1.8% with core inflation well contained at 1.9%.

US: The FOMC policy meeting is universally expected to leave the federal funds rate on hold. The dot plot will be in focus with respect to likely changes to FOMC member’s expectations for hikes in 2019 (median was previously two) and the neutral rate (median was previously 2.75%).

There was also the German ZEW which had an improved outlook, via FT:

The Zew survey’s indicator of economic sentiment climbed further than analysts had expected to a level of minus 3.6 points, still well below the long-term average of 22.2, from minus 13.4 a month earlier. Economists in a Reuters poll had forecast minus 11.

The closely watched poll from the Mannheim-based research house, which delves into the state of the eurozone’s largest economy, revealed that current conditions were at 11.1, compared with a poll of analysts that predicted 11.7. The previous month had been at 15.0.

But the Aussie dollar still couldn’t lift because of trade deal doubts, via Bloomie:

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Some U.S. negotiators are concerned that China is pushing back against American demands in trade talks, according to people familiar with the negotiations, even as President Donald Trump sounded optimistic about reaching a deal that could boost his reelection chances.

Chinese officials have shifted their stance because after agreeing to changes to their intellectual-property policies, they haven’t received assurances from the Trump administration that tariffs imposed on their exports would be lifted, two of the people said on condition of anonymity.

Beijing has also stepped back from its initial promises over data protection of pharmaceuticals, didn’t offer details on plans to improve patent linkages, and refused to give ground on data-service issues, one person familiar with the U.S.’s views said. Beijing is trying to bring in wording that would ensure rules in the trade agreement have to comply with Chinese laws, the person added.

The battler was also not helped by a market now in the process of capitulating on the lunatic RBA, with yields spreads also at new wides:

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As housing comes apart, lower is still the base case for the AUD.

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.