Australian dollar blasts through 0.70 cents on “Powell put”

DXY fell again last night as EUR rose and CNY was soft:

The Australian dollar blasted through 0.7 cents and against DMs:

Not so much EMs:

Gold firmed:

Oil struggled:

Metals too:

Big miners lifted:

EM stocks too:

US junk roared back but not EM:

Treasuries pulled back:

Bunds were bid:

Stocks took off:

The key event of the evening was a little comment from Fed Governor Jay Powell:

I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. My comments today, like this conference, will focus on longer-run issues that will remain even as the issues of the moment evolve.

it’s time to rethink long-run strategies…[ZIRP] has become the preeminent monetary policy challenge of our time…perhaps it is time to retire the term ‘unconventional’ when referring to tools that were used in the crisis. We know that tools like these are likely to be needed in some form in the future…the next time policy rates hit the lower bound – and there will be a next time – it will not be a surprise.

He’s learning. Rate cuts and more QE is coming. The “Powell put” returns withe a vengeance.

That said, global growth is sliding fast. The JPM global PMI is now in contraction:

Global PMI surveys signalled that manufacturing downshifted into contraction during May. Business conditions deteriorated to the greatest extent in over six-and-a-half years, as production volumes stagnated and new orders declined at the fastest pace since October 2012.

The trend in international trade continued to weigh on the sector, with new export business contracting for the ninth month running. Business optimism fell for the second month in a row and to its lowest level since future activity data were first collected in July 2012.

The J.P.Morgan Global Manufacturing PMI™ – a composite index1 produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – posted 49.8 in May, down from 50.4 in April, its lowest level since October 2012. Later-than-usual release dates meant manufacturing PMI data for Colombia, Ireland and Thailand were not available to include in the May 2019 global readings.

Downturns continued in the intermediate and investment goods industries, which both saw output and new orders fall further during May. Although the consumer goods sector fared better in comparison, with production and new business rising, rates of expansion eased.

National PMI data signalled deteriorating business conditions in several major industrial regions including the euro area, Japan, the UK, Canada, South Korea and Taiwan. PMI readings for the US, China and Brazil were only a few ticks above the benchmark 50.0 no-change mark. The downshift in growth in the US was the main driver of the slowdown in global manufacturing, as the US PMI slipped to its lowest level in almost a decade (September 2009).

That kind of speaks for itself. So the Fed outlook is now for easing with market pricing well ahead of economists:

And the vital EUR/USD yield spread now favouring the latter:

As the EUR rises the AUD will too, ipso facto. I’m afraid to say that the Lunatic RBA missed its window on the currency.

I can’t see it getting overly far. Housing markets and the economy are going to spring out their slump like a nonagenarian in a swamp. The ASX is priced for a perfection that is falling apart all around us. There’s little fiscal support coming. The ScoMo rebound is all hot air. Other central banks will follow the US with more easing, most particularly China, weighing on CNY.

But in the short term, the Australian dollar looks set to rally into whatever rough beast this way comes. At least until it arrives.

Comments

    • PetervmMEMBER

      Exactly what sort of connection to you have with the “ordinary people” ?

      • proofreadersMEMBER

        None, but he’s just saying that if the dollar is higher, it will be cheaper for ordinary people to buy vibrancy when overseas.

      • DominicMEMBER

        Perhaps he understands that it would be better for ordinary people to be paid in a dollar that buys them more rather than less

        Sorta helps when you’re hungry and have bills to pay

      • boyracerMEMBER

        Exactly what sort of connection to you have with the “ordinary people” ?

        My guess would be fleeting and messy.

    • Fell – rose – soft …. the various stages of arousal … some liken it to investor sediment …

  1. Glad I didn’t rush out and buy a TV yesterday afternoon after the RBA cut the target rate and before the AUD plummeted.

    It might be cheaper by the weekend.

    Trying to manage the exchange rate with the target rate is not only not in the RBA charter.

    It is a pea shooter compared to the big boys double barrel,

    If you want a lower exchange rate regulate some of the capital flows holding it up.

    1. Restrict our banks borrowing offshore

    2. Restrict govt bond sales to foreigners

    3. Restrict the sale of Australian assets to foreigners

    4. Encourage Australians to invest offshore.

    Not hard and actually likely to work.

    It’s what our successful trading partners do.

      • Well the fact that everyone in Anglo/Australian economics refuses to talk about it is definitely a barrier.

        But nothing could be easier.

        Regulation is unseen and not understood so it is perfect.

        That is why all the trade manipulators use regulation to achieve the exact opposite of what they give lip service to.

        Regulating the offshore borrowing by the banks is easy. Just give them limits and let them work within them,

        Bond sales easy. Just start with a few tranches of registered owner bonds and restrict ownership to locals, preferably mom and pop.

        FIRB does their job.

        Treat repatriated profits generously will get capital flowing outwards.

        Job done.

      • @Pfh007 your naivete is dangerous.
        Sure Capital regulation is possible but the beauty in having unregulated Capital is that it remains somewhat transparent. In regulated capital markets we might slow down the flow of capital for a few Q’s but the capital flow system will adjust far quicker than the real economy that your attempting to stimulate. This takes a fairly Transparent Capital system and turns it into a murky opaque mess.
        Now ask yourself who really profits from this change in the Transparency of Capital flow?
        Is it the real economy that’s left to deal with the dramatically reduced liquidity of the AUD or is it the banks (and other types of money movers) ?
        If you’ve never traded goods on the Black-Market than maybe the answer isn’t obvious, so you’ll need to trust me on this point. Illiquid capital markets definitely do not benefit local manufactures, they also don’t benefit local consumers the biggest beneficiaries are the Traders that are directly or indirectly bypassing our self imposed credit restrictions.

      • Fisho,

        Your reductionism is far more dangerous.

        Regulating unproductive capital flows is not about shutting down the capital markets nor about fixing the exchange rate.

        I know on/off switches are your special subject but that is not what I am talking about.

        There is no such thing as a pure floating exchange rate.

        Every floating exchange rate is dirty but what dirt and how much is what makes the difference.

        We have a dirty float…..it is just denied……and it is definitely unproductive and dysfunctional.

      • @Pfh007
        I suspect that we differ in our approach to / understanding of the Demand side of Capital flow.
        It is undeniable that Australian Capital Demands out strip our ability (willingness) to create and provision our own Capital. This demand won’t disappear just because you make the Capital process more difficult all that will likely happen is a Liquidity crises.
        For me this raises the question: Will a liquidity crises benefit Australia or simply reshape our economy as an exact replica of Argentina…If you’ve never been there than trust me on this point, things aren’t better in Argentina, just more F’ed up in every conceivable way.
        Now if by some magical method you succeed in reducing Australia’s demand for external capital you’ll need to be ready to support GDP with very aggressive spending through Fiscal policy or you are guaranteeing to plunge Australia into a Depression that’ll make the Great Depression look like child’s play.
        Nobody (certainly no young worker) benefits from a Depression. Sure it could produce the kind of economic Reset that Australia needs but at what cost, and exactly who will really pay this cost? I’ve got a feeling our mega millionaire OAP’s on the pension will just laugh it off …however I don’t think my kids will be so lucky.

      • fisho,

        Clanging the doom bell doesn’t make your argument any stronger though I appreciate that hysteria is an effective rhetorical technique in these caffeinated times.

        If you are concerned that our capital markets are so fragile that they will collapse at any time then proceed with care.

        Start with a very simple first step.

        1. A complete ban on non-permanent residents buying ANY existing property.

        If they want to buy a house limit them to a new house.

        I don’t recall the capital markets collapsing when the existing limited restrictions were imposed. If you suddenly felt a whiff of Argentina that may reflect your choice of restaurant.

        Then for the next step – restrict foreign ownership of agricultural land to a 45% interest or even a complete restriction.

        Hold you breath though because it just might cause the capital to freeze

        Or perhaps it will not.

        A few tranches of Aussie Bonds that are only available to citizens and whose ownership is registered.

        Goodness was that an armadillo wandering down George Street.

        Everything that I have proposed can be introduced gradually to help the twitchy and anxious adjust.

        You will be fine and you can still eat fine BBQ ribs without catching a plane.

  2. Powell and Scomo won’t be able to stop what’s coming in next 12 months regardless of what they say or do, nature is too powerful for all of us.
    Humans haven’t yet worked out a way to stop Tsunamis, Tidal waves, Earth Quakes, Volcanic Eruptions and Cyclones
    The next 12 months will be like Powell and Scomo standing in front of that tank in Tiananmen Square.
    CB have only made the next downturn much bigger than we would otherwise would have had.
    I know MB doesn’t include below link in their analysis but these and more play a huge part in human behaviour that has a big effect on markets

    https://solarscience.msfc.nasa.gov/images/ssn_predict_l.gif

    Look at solar cycle 23 low and high
    GFC and Nasdaq peak
    Solar cycle 24 bottoms out in Q1 20 Jan Feb March
    We are going down very hard into H2 19, Q1 20
    I believe worse than GFC.
    Solar Cycle 25 starts it’s upturn around Q2 2020
    This link is from NASA
    Let’s see what happens from now onwards

    • HadronCollision

      You are saying the financial markets (as a proxy for human behaviour) are inextricably linked to the solar cycle, at least from 1995.

      Is my understanding correct?

      • Harry Dent also argues this. Doesn’t really explain why, just argues that it is so, based on observation.

        I haven’t really looked into it or even seen any arguments for why it apparently correlates. I would be interested, but in the same way I am interested in the Loch Ness Monster… 😉

      • https://en.m.wikipedia.org/wiki/Solar_cycle

        NASA has records back to 1600/1700 I believe around that time

        Notice on the link the highs are getting lower, I believe this year since around Xmas time there have been periods where there are NO sunspots at all on the sun, we are headed into a very big low, into Q1 20, NASA can only estimate, and the estimates for solar Cycle 25, the cycle is going to turn to higher highs from 2020 onwards

        These cycles have very high correlation with Volcanic activity, Earth Quakes etc

        Australia is moving towards US west coast and I believe there have been larger than usual movements in Mariana Trench, and much more activity around ring of fire

        This has also affected, the magnetic poles that earth rotates on, there has been some very frightening shifts in earth axis in last 12 months or so.

        NASA has also said global warming is BS, they said earths temp oscillates and they’ve said weather is affected by sun and physics

        https://www.nasa.gov/feature/goddard/2018/nasa-spacecraft-discovers-new-magnetic-process-in-turbulent-space/

        Would you really believe AL BS GORE, have a look how much AUST just gave Al Gore

        NASA has a lot of info

        Yes I believe it plays a huge part, how many years has universe and earth been around, we are just pxxx ants of a very powerful system

        Ps ask doctors that work in hospitals if full moons do anything and moon can move ocean and aren’t we mostly made of water ????

        Look at civil unrest shootings etc, everyone is going mental

        CB think they can get rid of business cycles and global warmists think they can change earths temp

        This is not going to end well

      • NASA hasn’t said Global warming is BS. Read https://climate.nasa.gov/ to see what their current education on climate actually is. PS The Planet is roughly spherical too, and sorry to have to tell you this but the tooth fairy isn’t real.

      • Careful of cognitive bias bnich.. As i was reading yer solar-cycle correlation/causation bit i was thinking of all the hippies around me that think that a full-moon influences peoples behaviour (when pressed, “it’s something to do with ions in yer brain, innit”). Then you referred to it. It’s a nonsense. A cultural meme we pass on to one-another.

        https://www.washingtonpost.com/news/speaking-of-science/wp/2016/10/24/dear-science-does-a-full-moon-really-change-human-behavior/?utm_term=.da9536bd1728
        https://www.abc.net.au/science/articles/2012/03/27/3464601.htm

      • Cog Bias can work both ways Fud – just find the appropriate article – https://www.accuweather.com/en/weather-news/do-full-moons-and-supermoons-really-affect-human-animal-behavior/61402994

        I don’t know if it’s rubbish or not, I can say I perceived that the bikies I used to work with were noticeably more off the air & the traffic was more aggro on full moons – I used to pick the moon by their behavior, not the other way around.. Slim anecdata I know, but it makes me less quick to dismiss.

    • Arrow I had a drink with Harry Dent when he was in Melb last month, he does now have sunspot minimisation in his cycles

      • What ever some very reputable scientists have said that global warming is BS, NASA probably just said that to keep their funding, 3ris you can believe what ever you want. As I said a few times, we are all guessing and it’s always good to have an open mind in life about any info that is available. Regardless of the exact details, I believe these factors play a part and to what extent I am not sure.
        I think I have a reasonable track record of my predictions, guesses or forecasts or what ever you’d like to call them which are documented on this site.
        I called global recession before most and before US 10 year got hammered (I didn’t think 10 year US bond yield would fall like that) but I think Aussie 10 year is going to 0% and probably negative.
        I think we are headed in the next Great Depression, I think we are in first stages and we are are in the early stages of the greatest financial crisis since 1930’s
        Let’s be fair and review in 12 months from now and If I am wrong I will admit so and you can take me to Fed Square or Martin Place and stone me, prefer if stones weren’t so big

      • And have you taken a look at the correlation between the average global temperature and the number of pirate ships?
        You could see that as the number of pirates in the world has decreased over the past 130 years, global warming has gotten steadily worse. In fact, this makes it entirely clear that if you truly want to stop global warming, the most impactful thing to do is: become a buccaneer. But, you see (well YOU couldn’t, but normal people can): correlations is NOT causation!

    • 3ris,
      I was thinking if I am wrong, i’ll go to Fed square and hang a sign on me saying “i Believe in the Tooth Fairy” How’s that??
      I had a bet with a colleague (Indian) 2 years and said property prices would be 10/15% lower by June 19 and loser had to sit at lunch at a restaurant in their jocks.

      • What a wackjob, the peak to trough temperature forcing from solar cycles are at their maximum less than one-quarter of CO2 forcing. 2019 is on track for second warmest on record. NASA has been at the forefront of climate science since the 1980’s.

  3. BrentonMEMBER

    A strengthening euro should help European exporters to get back off the canvas. Now with the Powell Put back in play, Mr Tariff Man can confidently drive the boot into those same European autos, right at the moment of their greatest need.

    • Brenton
      I think Stronger Euro, makes European exports more expensive, also increases EU deflation
      This whole thing is just become one viscous cycle
      Seems like we are in one of those huge garden mazes and every pathway is a dead end and we can’t find our way out and as we get more lost and trapped we start to panic

      • BrentonMEMBER

        Agree mate, was being sarcastic.

        Stronger euro will crush the eu.

        Tariffs on top will really bring out the colour in populist eyes… a distinct bright red, almost the colour of fresh blood or unhinged rage.

  4. Yes – the AUD actually did go above US70c for about 42 minutes – 5 hours ago.

  5. Crikey, it seems hard to hedge all this madness….at least for a pleb like me.

    I will see if I can just not trade anything this week! Will be good for me, I think…