Australian dollar universally bashed

Advertisement

DXY was down last night as EUR lifted. CNY was flat:

The Australian dollar was universally bashed, including a brief post-GFC low against DXY:

Advertisement

Gold rebounded:

Oil sank:

Metals too:

Advertisement

And big miners:

EM stocks are headed for a retest of the lows:

Advertisement

Junk cracked:

Treasuries were on fire:

Bunds less so:

Advertisement

Aussie bonds boomed:

As stocks were hit hard:

Westpac has the wrap:

Advertisement

Event Wrap

The US ISM manufacturing survey failed to rebound, instead falling to a 10-year low of 47.8 (prior 49.1, est. 50.0). The slide was evident in most areas with a notable side in employment to 46.3 (prior 47.4), and new export orders sliding to 41.0 (prior 43.3), with sluggish new orders of 47.3 (prior 47.2). Notable quotes from the report: “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019”, “Comments from the panel reflect a continuing decrease in business confidence.”

The ISM report contrasted markedly with the earlier Markit final US manufacturing PMI which edged above the flash reading (from 51.0 to 51.1) after threatening 50.0 over recent months. US Aug. construction spending also missed, posting a minor +0.1%m/m, vs est. +0.5%m/m. Private residential spending grew, but non-residential and federal spending fell on the month.

Eurozone final Markit PMI edged above the flash release (45.7 from 45.6) due to a slightly less awful German PMI (41.7, flash 41.4), but other key national PMIs were notably weak and the overall write-up remains one of deteriorating conditions: “Adding to the gloom, jobs are now being cut at the fastest rate since early 2013, which is not only a sign of manufacturers bracing themselves for more trouble ahead, but also adds to the risk that a deteriorating labour market will hit households and the service sector.” Eurozone Sep healine CPI dipped to +0.9%/y (est. unch. at +1.0%y/y), reflecting the generally soft national releases. Core CPI managed to meet the estimate of +1.0%y/y (prior +0.9%y/y). What is clear is that there are no inflationary pressures within the Eurozone.

EU spokesmen (Maelstrom and Skinnari) warned that US was likely to impose tariffs related to Airbus prior to potential talks and that this may occur “within weeks”.

The GDT dairy auction saw little change in prices overall, the headline index up 0.2%, whole milk powder down 0.2%, and skimmed milk powder up 2.7%.

Event Outlook

US ADP private sector employment for Sep is expected to rise 140k.

The AUD hit a new post-GFC low but again was frustrated for better when the US ISM came in cold:

The September PMI® registered 47.8 percent, a decrease of 1.3 percentage points from the August reading of 49.1 percent. The New Orders Index registered 47.3 percent, an increase of 0.1 percentage point from the August reading of 47.2 percent. The Production Index registered 47.3 percent, a 2.2-percentage point decrease compared to the August reading of 49.5 percent. The Employment Index registered 46.3 percent, a decrease of 1.1 percentage points from the August reading of 47.4 percent. The Supplier Deliveries Index registered 51.1 percent, a 0.3-percentage point decrease from the August reading of 51.4 percent. The Inventories Index registered 46.9 percent, a decrease of 3 percentage points from the August reading of 49.9 percent. The Prices Index registered 49.7 percent, a 3.7-percentage point increase from the August reading of 46 percent. The New Export Orders Index registered 41 percent, a 2.3-percentage point decrease from the August reading of 43.3 percent. The Imports Index registered 48.1 percent, a 2.1-percentage point increase from the August reading of 46 percent.

“Comments from the panel reflect a continuing decrease in business confidence. September was the second consecutive month of PMI® contraction, at a faster rate compared to August. Demand contracted, with the New Orders Index contracting at August levels, the Customers’ Inventories Index moving toward ‘about right’ territory and the Backlog of Orders Index contracting for the fifth straight month (and at a faster rate). The New Export Orders Index continued to contract strongly, a negative impact on the New Orders Index.

The global industrial recession has finally caught up with the US. No surprising given the runaway DXY:

Advertisement

The global manufacturing sector deteriorated further in September, but edged closer to stabilisation. This was signalled by the J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – rising for the second month running to 49.7. Although still below the neutral mark of 50.0 that separates improvement from deterioration, it was the highest reading since May.

But, the resulting crash in yields has already begun to lift house prices, via CoreLogic:

CoreLogic® … today released the CoreLogic Home Price Index (HPI™) and HPI Forecast™ for August 2019, which shows home prices rose both year over year and month over month. Home prices increased nationally by 3.6% from August 2018. On a month-over-month basis, prices increased by 0.4% in August 2019. (July 2019 data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results each month.)

Home prices continue to increase on an annual basis with the CoreLogic HPI Forecast indicating annual price growth will increase 5.8% by August 2020. On a month-over-month basis, the forecast calls for home prices to increase by 0.3% from August 2019 to September 2019. The CoreLogic HPI Forecast is a projection of home prices calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

Advertisement

And it is housing markets not industry that generally lead broader US recessions.

That said, if we get a market shock from falling global earnings then the US consumer will likely fold and mild US recession cannot be ruled out.

On that front, oil is remarkably weak given events in Saudi Arabia and raises a goodly prospect of the same deep Q4 correction that has bashed stocks two years running.

Advertisement

Indeed, all four of MB’s end of cycle risks are still in play with Brexit and the trade war unresolved, Hong Kong still getting worse and oil a big risk.

The AUD can still only fall in this environment.

About the author
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 founding 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.