Australian dollar rebounds on Trump Xmas gift

DXY and CNY were up and EUR down:

The Australian dollar jumped against DMs:

EMs were even stronger:

Gold gave back:

Oil surged:

Metals firmed:

Miners too:

And EM stocks:

US junk was fine, EM not:

Treasuries were belted but the curve crashed again:

Bunds were bid:

Aussie followed US:

Stocks took off:

It was a Trump Xmas present, via Bloomie:

President Donald Trump bowed to pressure from U.S. businesses and concerns over the economic fallout of his trade war with China, delaying the imposition of new tariffs on a wide variety of consumer products including toys and laptops until December.

Tuesday’s move to at least hit the pause button in his fight with China came as senior officials on both sides had their first phone conversation since Trump threatened the tariffs at the beginning of this month. It also cheered markets that had been growing increasingly concerned over the impact of trade tensions on a slowing global economy.

Trump said the latest conversation with China had been “productive” and that “they would really like to make a deal.” Though he has often denied his tariffs have any impact on consumer prices and insists their cost is being borne by China, he also said the delay had been made “so it won’t be relevant to the Christmas shopping season.”

US data perhaps backed him up a little with decent inflation:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.4% annualized rate) in July. The 16% trimmed-mean Consumer Price Index also rose 0.3% (3.3% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (4.1% annualized rate) in July. The CPI less food and energy also rose 0.3% (3.6% annualized rate) on a seasonally adjusted basis.

All that matters to the Fed is that green line.

Meanwhile, in Europe, the Germans are getting worse:

The ZEW Indicator of Economic Sentiment for Germany plunged 19.6 points from a month earlier to -44.1 in August 2019, the lowest reading since December 2011 and below market expectations of -28.5. The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth. This will most likely put a further strain on the development of German exports and industrial production. Meanwhile, the assessment of the economic situation in Germany worsened considerably by 12.4 points to -13.5 in August. Zew Economic Sentiment Index in Germany averaged 21.62 from 1991 until 2019, reaching an all time high of 89.60 in January of 2000 and a record low of -63.90 in July of 2008.

Europe is in recession. The US still has and inflation pulse. China is slowing fast and its politics fraying. These are hardly bullish signals for the Australian dollar.

One day’s Trump Xmas present doesn’t change a thing. AUD down!

Houses and Holes

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 fouding 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.

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    • Pyjama I don’t think yield inversion has the same meaning now.
      Looks like in Aust and US, players who are defensive are just putting money in the 2 to 5 year bonds.
      5 year Aussie seems to be the flavour but as markets start to crash in Q419, Q120 think you’ll see money go to the 1 & 2 year bonds and less at 30 year, even if there is a severe recession
      Think people will be afraid to put money in 30 year US and 15 year Aussie
      Look at Europe, it’s a disaster in severe recession and rates are more negative at the short end.
      People just want their money back in 1 or 2 years because they know they won’t be getting back in 30 years.
      I think it’s now commonly accepted by all that since QE CB intervention Wall St and Main St have disconnected.
      People aren’t stupid, Central bankers are

      • Disagree, Bnich. Yield curve inverts because the bond market is reacting to the Fed over-tightening (sowing the seeds of recession) and so positions for the inevitable easing. The yields may vary across time, but inversion is telegraphing the same thing it has always telegraphed.

    • The curve inversion itself is actually a sign that the boom is still underway. It’s the steepening post an inversion that warns of recession.

      • True true, Dom. Though it’s more that the steepening is saying that the Fed is now in catch-up mode and is fully easing into the recession. The inversion says that the Fed is behind the curve and the slow down/recession is baked in.

        Inversion is the amber light, steepening the red light.

    • proofreadersMEMBER

      A not-so-theoretical question for when, not if, the RBA happy clappies bless Straya with negative interest rates:

      – will depositors with money on deposit at negative rates at our unquestionably strong banks, get a tax deduction for their negative interest payments?
      – will borrowers who have negative rate mortgages because our unquestionably strong banks have to throw money at our unquestionably strong borrowers (in the country with the world’s second highest household debt – come on Straya, try harder for no. 1), be taxable on the negative interest they receive?

  1. Ah, inflation. Hallelujah. Just what the consumer needs.

    (It’s a sign of a healthy economy. No, really)

    • why is it that nobody at these RBA speeches stands up as asks ….. why is it we have an inflation target other than zero?

      • You’re only asking that because you ‘think’.

        The rest take it as gospel that a reduction in the purchasing power of citizens’ earnings & savings of 2% (precisely) per annum is a good thing. Even a peanut brain should grasp how arbitrary that number is. You buy a copy of the AFR (for too much money) and open the front page to discover inside that some or other RBA committee member is fretting because inflation is ‘only’ 1.9% — potentially terminal for the economy and the very survival of all mankind!

        Modern economics is little more than a freak-show these days, an utter fvcking shambles. And yet, as you say, almost no one questions any of the lunacy.

      • Because zero inflation does not incentivise spending, and people might save instead. Which would be unStrayan.

  2. think we may get a bond sell off for a few weeks maybe, 10 years US, Aussie bond yields higher before falls again.
    They have fallen a long way very quickly.
    Let’s see if more bad news comes out over the next few days.
    Nothing goes down for ever in a straight line.
    Scare a few longs