Risk rebounds, Australian dollar sinks

DXY was up last night as EUR sank. CNY found some support:

The Australian dollar did not lift at all:

EMs were also weak:

Gold was strong:

Oil too on a big US inventory draw:

Metals were mixed:

Big miners bounced:

EM stocks didn’t:

US junk is good, EM not so much:

Treasuries were bid:

The bund curve flattened:

Aussie bonds are stuck:

Stocks rebounded moderately:

It is unusual to see a risk rally and falling Australian dollar but it is well-deserved. The global risk matrix is bearish, with three of our four potential shocks all getting worse overnight despite equities lifting.

The Hard Brexit scenario intensified as BoJo prorogued parliament, at the FT:

Boris Johnson plunged Britain into constitutional uproar on Wednesday when he announced plans to suspend parliament for five weeks, daring opponents of his Brexit strategy to vote down his government in a sharp escalation of tensions in Westminster.

The move, designed to thwart MPs’ efforts to stop a no-deal Brexit on October 31, was described by John Bercow, Speaker of the Commons, as a “constitutional outrage”. Ruth Davidson, the popular pro-European Conservative leader in Scotland, is expected to quit on Thursday, according to people briefed on her plans.

The prime minister asked the Queen to prorogue parliament between the second week of September and October 14 — the longest suspension since 1945. The monarch, who has so far avoided being dragged into the Brexit debate that has divided Britain since the 2016 referendum on EU membership, approved Mr Johnson’s request in a meeting of the privy council, which advises her on political matters.

The second risk, intensifying trade war, was also afoot with Google moving more supply chain out of China, via Nikkei:

Google is moving aggressively to shift production of its Pixel smartphone from China to Vietnam as it seeks to build a low-cost supply chain in Southeast Asia that will serve as a springboard for its growing hardware ambitions.

Working with a partner, Google started work this summer to convert an old Nokia factory in the northern Vietnamese province of Bac Ninh to handle production of Pixel phones, two people familiar with the company’s plans said. This is the same province where Samsung developed its smartphone supply chain a decade ago, so Google will have access to an experienced workforce.

The push to develop a Vietnamese production base reflects the twin pressures of higher Chinese labor costs and the spiraling tariffs resulting from the trade war between Washington and Beijing. The U.S. internet giant intends to eventually move production of most of its American-bound hardware outside of China, including Pixel phones and its popular smart speaker, Google Home, according to the sources.

The third, risk, a crackdown in Hong Kong, got uglier as the CPC regime declared martial law was an option, via SCMP:

The use of any emergency powers at the government’s disposal to end Hong Kong’s escalating protest crisis would have to come in a measured way rather than a blanket crackdown, to protect the city’s status as an international financial centre, a top adviser to the city’s embattled leader said on Wednesday.

However, Executive Council convenor Bernard Chan said that while Chief Executive Carrie Lam Cheng Yuet-ngor’s administration had the option of using the Emergency Regulations Ordinance, the city was nowhere near requiring such a move, which would grant the power to seize property or shut down the internet.

Finally, we did see some reprieve on the last of our for risks with oil lifting on a big US crude draw:

Somewhat offset by rising output:

If output does turn down soon then it will offer some reprieve on this last worry, but we are soon entering oil’s weakest seasonal period as well so the jury is out.

Of course, the AUD has been rightly struggling ever since the release of Construction Work Done yesterday which is setting up for a terrible Q2 and annual GDP print next week, via Credit Suisse:

Far below the RBA’s nowcast of 1.75% growth to June:

Which pulls all of its forecasts down by nearly 1% of GDP.

Given how dovish it is already, one does not need a whole of imagination to picture what that means for rates and the AUD.

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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Comments

  1. https://www.mba.org/2019-press-releases/august/mortgage-applications-decrease-in-latest-mba-weekly-survey-x257920

    At these house prices mortgages are unaffordable at 0% interest rates…….they will have to do more than drop interest rates to save the echo bubble. They will have to pay us to sign up like in Denmark

    https://www.zerohedge.com/news/2019-08-22/orange-county-homebuying-plunges-8-year-low-housing-prices-stall

    Many more absurd things will be done to save this ponzi

    • China PlateMEMBER

      Last time i looked house price appreciation was not a problem except for Perth and I think Darwin

    • Amazing to say it but there are plenty of people around who think that stocks are very sensibly priced at current levels.

      Literally there has been no bigger bubble in history. Many point to the P/E ratios of the Dotcom bubble as proof that that bubble was larger but that PE number was flattered by the sheer quantity of companies in the indexes with no earnings at all. By most other measures this bubble is waaaay bigger.

      • Maybe by the time these idiots are finished the bubble will be some multiple size of what it now is!!!! There is no visible limit to CB/economic theory insanity.

  2. Which pulls all of its forecasts down by nearly 1% of GDP.

    Which also pushes the 90% confidence interval negative (if that haven’t engineered it to never go below some nominal minimum). Nice.

  3. … NEW ZEALAND …

    ANZ Business Outlook Survey says there’s ‘nothing good to say’ about business confidence as it hits the lowest level in over 11 years while increasing numbers of firms intend to reduce staff numbers … David Hargreabes … Interest Co NZ

    https://www.interest.co.nz/business/101436/anz-business-outlook-survey-says-theres-nothing-good-say-about-business-confidence

    Overall business confidence as measured by ANZ’s Business Outlook Survey has plunged to its lowest level since April 2008.

    The ANZ economists have summed it up neatly with their headline for the latest release, which simply says: “Business confidence: Nothing good to say about it”

    And there isn’t.

    The so-called ‘headline’ business confidence fell another 8 points to -52% in the August ANZ Business Outlook, the lowest since April 2008. … read more via hyperlink above …