Australian dollar at new decade low as trade war worsens

See the latest Australian dollar analysis here:

Macro Afternoon

DXY broke to new highs lats night as CNY and EUR sank to new lows:

The Australian dollar hit a new decadal closing low against DMs:

It was mixed against EMs:

Oil was hit:

Gold lifted despite a powering DXY:

Base metals were weak:

Big miners lifted:

So did EM stocks on hopes of Chinese stimulus:

EM junk is the leading indicator and it is crashing:

Bonds were bid:

Except Strayan:

The was closed. Europe stocks eked out gains:

The key was this from Bloomie:

Chinese and U.S. officials are struggling to agree on the schedule for a planned meeting this month to continue trade talks after Washington rejected Beijing’s request to delay tariffs that took effect over the weekend, according to people familiar with the discussions.

Despite efforts by President Donald Trump to soothe financial markets and portray the talks as making progress, the world’s two biggest economic powers have yet to agree on basic terms of re-engagement, with mistrust on both sides.

The date for a visit of Chinese officials to the U.S. capital hasn’t been set, though that’s not necessarily a sign it still won’t happen, said the people, who asked not to be identified because the discussions are private. U.S. equity futures fell on the news, touching their lows for the day.

And this as well:

China will maintain “reasonably ample” liquidity and “reasonable growth” in aggregate financing as it implements a prudent monetary policy, the State Council’s financial stability and development committee says at a conference chaired by Vice Premier Liu He.

  • Various risks are “controllable” overall as the economy is stable and financial system is stable and healthy, a statement about the State Council meeting says
  • China will encourage banks to replenish capital using more innovative tools and improve support of the real economy, especially for smaller companies
  • China will increase counter-cyclical adjustments in economic policy
  • The statement reiterates a proactive fiscal policy

A little more support from fiscal but we don’t know what and it is still unlikely to be large enough to make any difference if China wants to pressure Trump via the channel of economic weakness, not to mention its own slowing growth as manufacturing recedes and realty slows. All a bit of a nothing burger to my mind.

Meanwhile, the trade war dynamics are unchanged. Chinese weakness persists:

And has been exported to Europe:

With the US trailing but doing better:

And that, in turn, has led to a strong DXY which is now weighing heavily on EM capital markets, made worse by the falling CNY.

Inverted yield curves everywhere are telling us what comes next:

Stocks never believe in recessions until they hit like a cold salmon slapped right across their face. Then they break and the consumer is smashed.

More downside ahead for the Australian dollar, at first a grind, then a capitulation.

David Llewellyn-Smith
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    • Josh capitulating on the budget surplus will be entertaining as it will come after the RBA has cut close to zero.

        • This is PRECISELY what happens in almost every single commodity focused second tier economy like Australia. Its probably the most predictable, reliable, repetitious economic fundamental there is – but almost always ignored or forgotten.

          There is a post on the front page today about low stocks impacting business as they run it down – no mention of currency which is the main driver of this. Costs are sky rocketing by the day – buying new stuff will impact them, selling existing is all profit.

          Inflation is by far, without any question what so ever the most destructive force in any economy – people seem to forget that as we have entered this multi-decade long period of low inflation. Almost ALL our economic instruments, levels, regulations and goals are revolved around managing inflation above all other economic conditions.

          Now that it is no longer impacting people – people seem to think its no longer a big deal, it doesn’t matter, who cares.

          When inflation bites – interest rates will be used to try and curb it. There are two ways it can occur – wage inflation (stimulus), traded inflation.

          Traded inflation is coming – a dollar at sub 50 cents will ensure that.

          When milk goes from $1 a liter to $2 and everything else in the economy doubles because we are now 100% reliant on imported fuel – watch things tank real fast.

  1. Polar bcnich BearMEMBER

    Can someone tell me, is Aust GDP figures out today or is it just the Gov Exp component?

  2. pyjamasbeforechristMEMBER

    ‘Bonds were bid:’

    I think you’ll find that’s Friday night. Treasuries were closed from trading due to US holiday.

    • Yeah – its opened – aaaaand Coyote goes straight over the cliff.

      Whoa – just checked again – second candle straight down – this is nuts.

  3. The Traveling Wilbur

    Timmeh has been looking at the poo again. *shakes head*

    We should christen it the South Pacific Floater (SPF) or something. Poo has the conotation that it’s eventually going to go away (eg down said S Bend). I’m sure that confuses many (after they’ve observed it for a while). Open to suggestions.

  4. Ok I will ask a silly question:
    What form does a liquidity crises take when a country that has run a Current Account Deficit for almost 50 years suddenly finds itself printing a CA surplus?

    I suspect the great unravel has begun.
    So what’s the next step, logically it’s a return to 70’s style stagflation, but I suspect today’s labour lacks the social cohesion to effectively strike (withdraw their collective labour) for any cause, so we’re more likely to get wage deflation as the “cure” for Price inflation.
    In the end it’ll be all about sustaining liquidity.
    What real options does the average Aussie have if their labour has zero global value? It’s an interesting question because half of zero is still zero, so adjusting the exchange rate really doesn’t help.

    • Unions are going bananas in the US – absolutely booming – including a huge flourishing IT and Tech union movement using apps.

      May well come here – who knows. Might be too many from non-Union backgrounds (Chinese etc not being racist just factual).


    • Just realised the crashing AUD will be driving the collapse in stock piles – HUGE hit to the bottom line – either it gets passed on in inflation or profits are cut.

      Incoming tradeable inflation. Incoming interest rate – waaaaaaaaaaaaaaaait – waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaait – HIKES !!!