Australian dollar launches as global stocks thunder higher

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was firm but EUR and CNY soft last night:

The Australian dollar took off:

Though could not keep pace with EMs:

Gold pulled back:

Oil firmed:

Metals were mixed:

Big miners fell:

EM stocks are paused:

Junk rips on:

As the Treasury curve keeps flattening:

And bunds:

And Aussie bonds:

Stocks loved it:

Westpac has the wrap:

Event Wrap

US private payrolls rebounded in the June ADP jobs report, albeit to a still mildly disappointing +102k. The service sector ISM fell more than expected in June, to 55.1 from 56.9, a two-year low, though both the new orders and employment sub-indices remain comfortably above 50. The US May trade balance widened more than expected, to $55.5bn from $51.2bn and factory orders were revised down to show a steeper 0.7% fall in May.

The majority of Eurozone and periphery service PMI’s beat, admittedly low, estimates and so provided a more stable profile for the Final June service and composite PMI’s. However, Markit’s commentary and assessment remains decidedly negative. They project regional 2Q GDP of +0.2%q/q with downside risks ahead suggesting that ECB ought to provide further accommodation.

EC dropped the potential of disciplinary action against Italy with respect to fiscal responsibility over their 2019 budget.

UK’s June CIPS/Markit PMI at 50.2 missed estimates (unchanged at 51.0) and dragged the composite PMI to 49.7 and so in technical contraction. Brexit uncertainty remains a key obstacle for business optimism.

Event Outlook

Australia: May retail sales are expected to rise 0.2% (Westpac +0.1%) with conditions looking to have remained soft during the period.

Euro Area: May real retail sales are anticipated to show the annual pace edge up to 1.6%yr from 1.5%yr.

US: It is the Independence Day public holiday, markets are closed.

There are any number of factors we can point to explain the Aussie dollar strength overnight: soft US data; easing trade war fears; tearaway iron ore prices; ScoMo’s tax cuts getting up. But the truth is it just jumped with other risk currencies as global stocks pour on the buying.

The driver sure isn’t growth. Following the awful manufacturing PMIs worldwide we got lackluster services, via JPM:

The performance of the global service sector remained sluggish in June. Despite uplifts in the rates of expansion of business activity and new orders, growth of both was among the weakest since late-2016. Business optimism was also relatively downbeat, falling to a three-year low and its second-lowest level in the series history. The J.P.Morgan Global Services Business Activity Index – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – was at 51.9 in June, up slightly from May’s 33-month low of 51.6. The strongest rate of output expansion was registered in the financial services sector, followed closely by consumer services, with both seeing mild growth accelerations. The increase in activity at business service providers was comparatively subdued, matching May’s 32-month low growth rate. Ten of the 13 nations for which June services PMI data were available recorded an increase in output. The exceptions were Brazil, India and Russia. Brazil saw its rate of decline ease, whereas India and Russia both fell into contraction following periods of growth. The strongest performers – Ireland, Spain, Germany and France – were all based in Europe. Japan, China and Australia also registered growth at, or above, the global average. Expansions were also seen in the US, the UK and Italy.

The real driver of the global stocks surge is global bond yields which just can’t find a bottom. US yields keep falling as growth slows. But Europe was just as bond bullish on the news that dovish Christine Lagarde will take the helm at the ECB. Indeed, it is all so heated in European bond markets that even the Italian short end inverted negative:

This is a fascistic state, openly hostile to the Europe and its currency, in the process of developing a parallel bond market and currency, with the sole purpose of defaulting on its debt, and you have to pay it to take your money. Risk has become meaningless as yields crash.

Another chart:

The only reason that stocks are thundering higher is that there is no yield left anywhere. While that happens, the Australian dollar just catches the thermal.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. This is to make sure that that tiny bit of the productive economy that has survived in our cities is crushed. We now have the spectacle of rising GDP, booming resource exports and declining standards of living. Tiny houses aka luxury sheds with beds anybody? We’re going places. LOL But look, let’s be reasonable, there’s still a gap between our cities with their brand new cracking, sinking luxury dog boxes and Calcutta, and then of course, there’s another gap until we’re at the level of Lagos, so anybody who complains is an entitled whinger. haha

    • GunnamattaMEMBER

      all on the back of some exaltation! Fronted by a bare faced liar and a government of ideological bigots

      Amen brother

  2. Question – with borrowing becoming so cheap, is it a good time to take up margin lending?

    E.g. borrow $200k at 3%, put into MB fund returning x%

    • The Traveling Wilbur

      Damien: You should seek independent financial advice.
      Reusa: Buy property. Looser.
      Me: That’s what everyone else is doing (essentially).
      skippy: Copy and paste of article on US neo-facism.

    • Depends if you can get a loan at 3%. Even redrawing housing equity is a bit over 3%.
      And then is the MB fund returning over 3% after fees?

      • Can’t you claim the interest payments on the margin loan against tax though? Winning.

    • Yeah using equity, I’m negotiating rate to 3.24% but with future cuts…
      Planning to discuss with financial advisor however my sister was recommended to buy an apartment in Melbourne 3 years ago, so my confidence in them is pretty low

      • A lot of FA’s point people the standard route……. Particularly the one stop shops & bank owned ones. You need confidence in their independent advice or you’ll always be looking over your shoulder….. & even then. Shop around – it might pay in the long run to pay thrice upfront & feel more confident that the advice is sound & suits you. Bounce whatever’s said with Tim or Damien too. Remember no one’s got a guaranteed crystal ball, just, some have sincerity in their eyes & some have dollar signs……..