US recession fears push Australian dollar higher

See the latest Australian dollar analysis here:

Only the property crash can sink Australian dollar now

DXY eased last night and EUR rebounded:

AUD jumped across the board:

With gold:

Oil was stable:

Metals fell:

Miners lifted:

EM stocks too:

Junk tumbled:

Despite crashing US yields:

Bunds were bid too:

Stock held on:

Westpac has the wrap:

Event Wrap

The Chicago Fed’s National Activity index – a composite index of 85 indicators that track US growth – came in at -0.29 in February, topping estimates but signaling subdued growth conditions in the new year.

The Dallas Fed’s manufacturing activity index eased to 8.3 in March from 13.1, a touch below estimates. The detail shows new orders falling to two-year lows.

GermanIFO business survey for March beat forecasts, posting gains from last month across all three categories: business climate 99.6, est. 98.5, prior 98.7; expectations 95.6, est. 94.0, prior 94.0; current assessment 103.8, est. 102.9, prior 103.6.

Brexit: EU published their preparations for a “no-deal” Brexit which the EU see as rising in potential. PM May announced to Parliament that she does not have sufficient support for her twice defeated deal and so will hold off from tabling it for another vote but still sees it as the best option and proposes to push for further support to table the deal once more. The UK tonight will vote on whether Parliament will take control of the Parliamentary timetable, away from the Government, in order to determine what will be debated in order to seek Brexit solutions/proposals.

Event Outlook

NZ: Feb’s trade balance is expected to be -$200m, a smaller deficit than Jan’s -$914m, as exports rise and imports fall.

AustraliaRBA Assistant Governor (Economic) Ellis speaks at the HIA Industry Outlook, Sydney 7:30 am.

Euro AreaGerman and French consumer confidence is released.

US: Mar Conference Board consumer confidence is anticipated to edge up to 132.0 from 131.4. Feb housing starts and building permits are released. Jan FHFA house prices and S&P/CS home price index are expected to show moderate growth in home prices. Fedspeak involves Rosengren and Evans in Hong Kong, Harker at an ECB/Bundesbank event, and Daly discusses managing inflation in the current environment.

Bloody strange market action. The US economy and outlook is much better than the Australian yet markets have now priced a full rate cut into the short end of the yield curve in the US versus none in Australia.

Do bond markets seriously content that the risk of rate cuts is higher in the US than Australia?  More from Westpac:

How much further can they go? Does this tell us anything about timing of a cut? There are 2 questions on my mind as we enter the new trading week at or near all-time lows in yields. First, now that 3yr bond yields are trading significantly below cash, what does that usually mean for the timing of the first rate cut, and second, has the RBA ever disappointed the market when this much has been factored-in? The charts at right and middle attempt to provide some insights into the first of these questions. Ahead of each phase of the easing cycle that began back in late 2011, 3yr bonds have spent time below cash, in some cases significantly so. The middle chart shows that as the easing cycle has extended to record low cash rates, the degree to which 3yr bond yields moved below cash has fallen. That is not unexpected. As can be seen the range in 2016 was -30bp to +8bp and the first time 3yr yields when below the prevailing cash rate was 4 months before the delivery of the rate cut. In prior periods, however, it was as short as 70 days. We have currently been negative for around a week, so there is still some time to go and our assessment suggests that there is as much as 15-20bp of 3yr outperformance possible. That will be determined by how extended the easing cycle is expected to be (right chart). History shows that when the rate cut is delivered the market has tended to underestimate how far the RBA could ease (although August 2016 was an exception). We do not think that will be the case this time, as we expect that the market will not quickly factor-in significantly higher rates.

Meanwhile, globally, Europe is still worse than the US as well:

EMs are too, led by China:

And the US has already eased:

With success:

Yet this:

Markets appear distorted around views of central bankers rather than focused on respective economies. They’ve gone all-in on the politics of a dovish Fed that has no reason to cut and are still far behind the reality of a dying Aussie economy owing to a lunatic RBA.

In due course I expect this situation to be mugged by reality with more downside for the AUD and upside to Aussie bonds.

David Llewellyn-Smith


  1. GunnamattaMEMBER

    The RBA would surely be looking for a plausible moment/excuse to change tune. I would have thought a new government would give them some scope.

    Either that or they really are living in complete lala land

  2. one day US recession fear pushes US dollar higher than the next day US recession fear pushes US dollar down – it’s all just one giant casino

    • proofreadersMEMBER

      Not a casino – just whatever the screen jockeys want, to make their poultice for the day. Fundamentals – pfft with that nonsense. Just ask HnH: MMT = manna from heaven?

  3. Re what you wrote above HNh re AUST V US slowdown
    The same thing happened in 2008 around
    Global markets were showing very strong signs of serious slow down
    And RBA was talking about a rate rise still
    This is well before MB time
    I don’t think I had any decent eco analysis in AUST and I thought are these guys at the RBA deluded or completely incompetent
    RBA flipped to serious cuts but was a few months well after
    I think RBA is going to turn very quickly
    I think it means they are idiots at the rba and the 2;10 year aus gov bond may Invert sooner than people think
    I think AUST is really slowing and economy house prices etc are starting to go off a cliff
    Serious slowdown May to July with serious house price falls July to Dec this year and possible recession 2nd half
    I also think US can’t be immune from a global slow down
    Think next move in US will turn to a cut
    The moves in bond yields are huge and AUST 10 year looks like it’s headed under 1.5% quickly


    • GunnamattaMEMBER

      The only thing holding us off a real bona fide recession at the moment is the population ponzi throwing extra bums onto extra seats and calling it economic growth.

      I still reckon it would be tough to get an actual recession, but our policy makers are really pushing that envelope.

      • Gunna
        Is a recession really 2 qtrs negative growth as we learned in year 12 economics
        There are many other factors that say we are in real recession
        The one thing I never considered were that many of these apartments buildings being constructed would just stop half built that MB wrote
        In hindsight it makes sense
        I drove and walked Melb seeing cranes everywhere thinking who are going to buy all these 1000s and 1000s of units
        Foreigners can’t secure finance or get cash out of their country
        Local buyers won’t get finance and their homes will be 30% lower on Val
        Looks like the disaster we discussed end of 20 is end of 19

      • If the rug is pulled from under the immigrants employment opportunities, as we could well see if consumption collapses, coming here with little money hoping to get by on casual and cash work isn’t going to work.

        The population Ponzi will about face at the worst possible time, exacerbating the shock and the smash to demand will see an even harder entry into recession.

        I’ve no idea if going home will be the best choice for many of those already here, but if they do in any significant number (can’t get employer sponsorship for example) then it gets worse again. Empty thrashed dog box, anyone?

      • lot of immigrants get their jobs on building sites. I live in an area that is still being built and I’d say 90% of the people doing the bricklaying, gybrock, roofs etc.. are immigrants. If building industry slows we will be in serious trouble as high % of the immigrants we take don’t bring much cash and need jobs to pay rents or buy a house. From what I can see our building industry is slowing down and will not be able to create new jobs moving forward.
        I share same view as bcnich. My view is once Syd falls go through 15% listings will start to raise and FONGO will start to kick in. My call is real panic to start from around Aug when sellers will be accepting 20% lower offers on their already discounted price.
        Keeping an eye on job numbers.. Some big job loses are coming soon as number of large corporations are planning to kick some big restructures and would like to take as many people out as possible by 30th June.

  4. AUD up on days that gold is up.
    Higher gold is good for Aust.
    Much higher gold means we’re rich again.

  5. That middle chart suggests potentially July as the first cut

    Based on these charts, buying AU Bonds and selling US bonds seems like a good play atm.

    • Lama
      I’d be careful going short US bonds but definitely looks like the yield diff btw AUS 10 and US 10 is going to widen to around 1% thereabouts over next few months
      So play to stay long Aussie bonds at long end and just sit tight
      I think you are right that RBA should cut but you need to adjust your forecast for the imbecile factor which adds a month at least
      Think WBC said AUG NOV but i agree very possible earlier

      • I think they will wait for April Budget (which will promise some stimulus) and then the ALP’s emergency Budget in about July (more stimulus) and they will be too late and then have to cut harder.

        No inside info here, just guessing. But RBA doesn’t want to cut and so will find excuses to delay. And when they do cut they would prefer to blame overseas developments.

      • My thinking too, A2. With the caveat that we don’t have a shocker unemployment print beforehand.

      • Agreed, Arrow. They’ll not cut before the election as it will crucify the Coalition, and they’ll be somewhat stuck shortly after it as the “new” government gets its act together.