Australian dollar soars on trade war hopium

DXY was firm last night, EUR and CNY soft:

The Australian dollar is suddenly everybody’s favourite currency:

Gold eased:

Oil was mixed:

Metals too:

Miners struggled after a GLEN mine collapse in Congo:

EM stocks are trending higher again:

Junk too:

Treasuries were bid:

And bunds:

And Aussie bonds. Stocks lifted:

Westpac with the wrap:

Event Wrap

US pending home sales rose 1.1% in May, close to expectations, a welcome gain aided by lower interest rates.

US Q1 GDP growth was left unrevised at a 3.1% annualised pace (vs 3.2% expected); consumer spending was nudged lower while business investment was stronger than previously estimated. The lack of any meaningful revisions leaves Q2 GDP growth tracking estimates largely untouched at around 2%.

The European Commission’s economic and business sentiment gauges tumbled to three year lows in June; their main indicator of economic confidence dropped to 103.3 from 105.2, its lowest since August 2016.

German consumer prices accelerated more than expected in June, +0.3%, lifting the annual rate to 1.6%.

Event Outlook

NZconsumer confidence (ANZ) remains in positive territory, helped by record low mortgage rates and a solid jobs maket.

Australia: May private sector credit is expected to show continued sluggish growth of 0.2%.

JapanBOJ summary of opinions from the June meeting is released.

China: Q1 current account follows a Q4 surplus of $58.6bn.

Euro Area: Jun CPI preliminary is expected to show annual core inflation returning to 1.0%yr from 0.8%yr.

US: May personal income is anticipated to rise 0.3% with personal spending up 0.5%. The PCE deflator is expected to show both headline and core inflation at 1.5%.

The G20 Summit in Japan begins today and concludes on Saturday. The meeting between Trump and Xi will be the key focus.

It’s all trade war hopium. Via Bloomie:

Even a temporary truce could still be in doubt: The Wall Street Journal reported Thursday, citing unidentified Chinese officials, that Xi’s terms for a trade truce with Trump will include an insistence that the U.S. lift its ban on the sales of technology to Huawei Technologies Co.

Heading into a meeting at the Group of 20 summit in Japan starting Friday, the world’s largest economic engines have a relationship that’s now more strained and colored by mistrust than it has been at any time during Trump’s presidency. The two sides have had little contact during the stalemate, and plans for this week’s meeting between the leaders have come together in a flurry of last-minute phone calls.

…“China’s core concerns must be addressed properly,” Ministry of Commerce spokesman Gao Feng said at a regular briefing in Beijing Thursday when asked about the three demands laid out by Vice Premier Liu He in May. The U.S. must remove all extra tariffs, set targets for Chinese purchases of goods in line with real demand and ensure that the text of the deal is “balanced” to ensure the “dignity” of both nations, Liu has said.

That is just silly. The CPC is clearly not interested in talks at all. It is aiming to get past El Trumpo to negotiate with Democrats.

Meanwhile, on the ground, things are apparently not good, via Reuters:

More than half Chinese consumers have avoided buying anything made in the United States in support of their country in an escalating trade war, a survey suggests, posing a “significant” risk to U.S. companies.

The poll, conducted by London-based advisory firm Brunswick which surveyed 1,000 Chinese consumers, said 56% of respondents had said they had avoided U.S. products, while 68% said their opinion of American firms had become more negative.

That sounds about as credible as the CPC demands. If we were seeing this then there’d be waves of profit warning in US exposed firms. But it is a standing risk.

Ray Dalio brings some perspective, at the AFR:

“We are approaching a new era in which there is going to be conflicts between China and the US in a number of areas. That issue will affect Australia too.”

Dalio says he is “worried because there’s been a move from a co-operative relationship to a confrontational relationship, (and) that is a big deal”.

“This will go way beyond a trade war. I worry that the ways each side will try to push the other will be rough and encompass all areas.”

Mr Dalio does not envisage a de-escalation in tensions even if there is a change in government in the United States.

“Both Republicans and Democrats in the United States have an anti-China perspective,” he says.

What would improve is coordination with allies.

The Aussie dollar is now hostage to trade war hopes and fears. Trying to predict that in the short run is impossible. Over the long run it remains a clear negative for the economic and forex outlook.

 

Comments

  1. That RBA “interest rate / AUD” pea shooter is not even shooting peas!

    Perhaps a mouse nibbled wet lentil?

    • The Traveling Wilbur

      Padawan. Events are unfolding as has been foreseen. I have ordered the Governers to cut rates to ensure housing is more affordable and to ensure that it is done in such a way as to protect the interests of our overseas landlords from lands of dumpling. The AUD has risen to protect the value of their investments as planned.

      In other news, my secret plans for construction of an orbiting space station from which to host the next Governers meeting of the Reserve Bank are well underway. Completion is expected in 18-months.

      • DingwallMEMBER

        Bah …….. orbiting space stations …. you’ve wasted your money ……. Philip complained last meeting, when they decided to hold the meeting at Susan’s beach “shack”, that the bottles of ’78 Lafite did not travel the 50km at all well. Shaken in a space shuttle and travelling that far is out of the question.

    • Gramus, you appear to have a fundamental misunderstanding about POTUS motives … put aside personal dislike and consider that Trump is the only western leader (let alone US) who has been willing to call out the CCP for what they are and actually do something about it.

      It’s going to get very messy and Australia is set for a ‘meat in the sandwich’ period that we thoroughly deserve.

      Prepare for ‘interesting times’ that, IMHO, are going to be the determining influences for the next 20 years + ….

    • DominicMEMBER

      Blow-off top in Gold/AUD … either gold collapses or the AUD powers on. The RBA is going to have to do something spectacular to bury the currency in the short-medium term. Economy is weak but not dead (yet) and property is enjoying a mild recovery (however short-lived). GDP riding the immigration tsunami.

  2. Stewie GriffinMEMBER

    That sounds about as credible as the CPC demands. If we were seeing this then there’d be waves of profit warning in US exposed firms. But it is a standing risk.

    I think H&H is under-estimating the risk of this – Japan has periodically seen waves of anti-Japanese sentiment sweep through China, from everything related to WW2 to Japans continued claimed ownership of tiny islands, consequently the penetration of Japanese products in Chinese markets is relatively tiny in relation to both Korea and US.

    https://www.cbc.ca/news/world/angry-chinese-protesters-ransack-japanese-businesses-1.1294588

    https://www.theaustralian.com.au/business/business-spectator/news-story/why-japanese-firms-are-leaving-china/f9424ad229ff7bf9d1b2db48ce703e03

    I think there is a very real risk that there will be a wave of profit down grades as a result of slumping Chinese demand for US products, however, this will be tempered by the fact that overall US isn’t nearly as dependent on China for sales as China is for the US.

    IMHO the downgrades will be specifically in regards to those US companies where sales to China are a large part of overall sales, eg Apple, rather than across US markets in general – still it will add to US headwinds.

    The real opportunity imho is Korea which may end up as Asia’s Steven Bradbury.