Lunatic RBA launches Australian dollar into global trade shock

By in Australian Dollar, Featured Article

| 70 comments

DXY was soft last night as EUR rose and CNY fell:

The Australian dollar was strong:

So was gold:

Oil was muted:

If metals are the bellwhether then bunker:

Miners fell:

EM stocks fell:

Junk was OK:

Treasuries jumped:

And bunds:

Aussie bonds reversed the RBA damage:

Stocks fell sharply:

It was an evening of escalating trade non-deal risk. Trump kicked it off:

  • TRUMP SAYS WE ARE DOING VERY WELL WITH CHINA RIGHT NOW
  • TRUMP SAYS CHINA TRADE DEAL IS DEPENDENT ON WHETHER I WANT TO MAKE IT
  • TRUMP SAYS I HAVE NO DEADLINE ON TRADE
  • TRUMP SAYS PROBABLY BETTER TO WAIT UNTIL AFTER THE ELECTION FOR THE CHINA DEAL
  • TRUMP SAYS WE WILL SEE WHETHER THE CHINA DEAL IS GOING TO BE RIGHT
  • TRUMP SAYS I HAVE NO DEADLINE ON CHINA DEAL AND IT MIGHT BE BETTER TO WAIT UNTIL AFTER NOVEMBER 2020 ELECTION

China retaliated:

The US is going ahead with more tarrif hikes in 11 days, according to Fox. Then Mike Pence stuck the boot in:

U.S. President Donald Trump is willing to wield tariffs and access to the U.S. market as he continues to push for trade deals with China as well as France and other European allies, U.S. Vice President Mike Pence said on Tuesday.

“What President Trump envisions with tariffs is a means to an end, and the end … is free trade,” Pence said in an interview with Fox Business Network.

Trade non-deal odds collapsed:

Taking just about everything down with it.

This may be just negotiating out loud as the deadline approaches or be the end of the road. More likely the latter given Trump doesn’t appear ready to buckle and China is intransigent.

If it all falls apart then obviously there’ll be market fireworks and I do not expect the Australian dollar to hold up despite the Lunatic RBA.

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 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.

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Comments

    • Mega65MEMBER

      Good luck LBS, though I suspect it is us fools who remain in this country that are the ones who need the luck. As Peachy mentions, definitely keep us updated in regards to US vs AUS. And feel free to be mean about it too, I used to love Lord Dudley’s insults when he still posted, lol.

    • GavinMEMBER

      Wife wouldn’t let me move to US, which is fair enough because we’ve been living away from Melbourne for 11-12 years now. But I found myself in agreement with Lord Dudley too when he posted. Thought this country had gone mad. Still agree with him despite buying into the madness. I am actually not sure if Brisbane is as over priced as other parts of the country (given today’s interest rate setting), Sydney is utterly insane, Melbourne not far behind… but Brisbane and perhaps Adelaide when you factor in cost of wages today (and cost to reproduce some of the houses of yesterday’s quality, today) I actually think they may not be far off the mark.. but that’s just me.

      • butt zilla11

        nah guy, Brisbane’s a hole… sh*t’s just as overpriced as anywhere. Places like Browns Plains do $400k av. which is v.silly. they will go back to sub $150k withim the year. Goldies holding up tho (weird off cycle market on the GC), tonnes of syd/melb boomers coming up here to die.

        • GavinMEMBER

          I DO NOT get the Gold Coast, it’s the most plastic fake place in the country. Nice beach, and weather but I actually don’t like too much sun/heat (I burn easily due to Irish ancestry) so I don’t sun bake. Therefore it’s kind of the last place I want to spend loads of time. Plus it’s totally car dependent, not an area that has alternative commuting options.

        • Jumping jack flash

          +1 about the boomers.
          It’s the retirement plan for the discerning Sydney boomer for the moment – cash in all sydney properties, buy the same ppor outright on the GC for half as much. Collect a part pension and live off it, covering any major expenses with super.

      • Trout à la Crème

        Queensland wages are notoriously lower than states like NSW and Vic. But then again how relevant are wages to shelter prices when Australia is the money laundering capital of the world. Brisbane is quickly getting it’s amenity advantage vibrantised, at a greater percentage compared to the existing population according to a MB article a while back. The houses you have posted in and around Melbs look better than Brisbane.

    • AndynycMEMBER

      After living there 15 years and with all of Australia’s problems. I am so happy to be home. The US is just as- if not more so- messed up than here.

      Just don’t get sick – even if you have health insurance.

      • LBS

        I would rather have my freedom from govt and house prices plus cost living that’s affordable. Health ins well depends on who you work for in States. Dont get me started on the health ins and govt waiting lists here. It just comes down to what you are happy with at end of the day. I WONT MISS ALL THE F$%KING SPEED CAMERAS IN MY FACE ALL THE TIME. AUSTRALIA CAN HAVE THAT $H%T. Road safety my A$$ more like revenue raising.

        • AndynycMEMBER

          Freedom from Government line that the right in the US push is a load of bollocks. You will very much get the sense of “get your government hands of my medicare” just like anywhere else. It is more of a cultural aspect then one based on reality. They just want their tax dollars spent on where they live and nowhere else.

          If you are young man then its great. I can’t tell you how much fun I had being an Aussie in New York.

          Kids in the US are very broken and I wouldn’t raise them there. There is a big focus on how much crap you have and everyone is on antidepressants. The property tax system promotes massive inequality and the time I spent working in Brooklyn and having to see the stark reality outside the Marcy projects really put things into perspective.

          The Australian government looked after me when I was booted out of home when i was 14 and the OK Boomers put me through university on Austudy. I now earn good coin and have to spend a butt load on taxes. I say that was a good deal and are very thankful to my countrymen and women who looked after me.

          The version of Liberarianism in the US is the reason why China is now a superpower and the middle of the country is on its knees.

      • LBS

        An Aussie friend put it to me perfect ” The issue is to many people on Australia are dependent on the govt that’s why the govt does the BS they do”. Until the Australian people demand change across the population it will never change plus just get worse. Good luck to you all. I AM OUTTA OF HERE.

        • GavinMEMBER

          I’m partial to the Libertarian idea in many aspects so I tend to agree. Australian’s love BIG DUMB Government running their lives. I was fine with this when I thought Government was doing a good job, but the last 20 years has seen every institution in this country corrupted to its core to the point where I feel better off without Government in my life.

          If I was in Sweden or Scandinavia I think I’d be more ok with Government since I think on the whole there is low levels of corruption and a good social safety net, but we don’t have that here. So the Government can get stuffed, I’m sick of giving them my hard earned money so they can piss it up the wall on Lady Boys in Manilla (for example).

  2. bcnichMEMBER

    I think I’ve made some bold predictions on here and have a very good record
    Stocks may bounce may not, still think stocks are good to own on a nice sell

    What I’m virtually certain of is Australian residential property
    I’m wiling to bet the house on it

    Australian residential property will be down either side of 40 to 60% in 4/5 years,
    I said 20 to 30% lower first and believe that may be by first half of next year 2020
    A few of you disagreed re home loan interest rates rising
    I wrote a few months ago, I think we are going to see Australian bank collapse in H1 next year, require some sort of intervention gov guarantee merger bail in bail out not sure
    I had a chat with Chris Joye on linked in about QE, and said if AUST GOV Bonds are around zero why does RBA need to buy, I think QE will be used to pump equity in the banks, he disagreed.
    I think the 20/30% fall in Aussie property may happen in H1 next year
    Credit to freeze up causing home loan interest rates to rise

    Has everyone watched YEARS AND YEARS on SBS demand, it’s an insight into next decade

    AUSTRALIA is going into a depression from 2020 for the next decade
    it’s going to be very sad and get very ugly

    • GavinMEMBER

      As a recent home owner, I hope you’re wrong. Of course if I was still on the outside I’d be hoping you’re correct. 60% would be an utter disaster (since 60% fall after 60% increase is a very different thing). I am thinking more like 30% off… but I can’t see how interest rates will rise. In ireland rates were low leading up to their crash, in Ireland rates have remained low for 10 years+ since then.. they can’t get them off the canvas. I think it’s more likely the monetary system will implode than houses themselves. And perhaps that’s the problem, money will become utterly worthless (unless you have no liquidity that is).

      In that situation owning assets is best, gold etc.. at this point though I’m keen to see your predictions and if they play out. At least you’ve fronted up and posted what you think. Now we get to see if you’re correct.

    • NikolaMEMBER

      about right. I was one to think that crash will come sooner but Gov always managed to pull another rabbit from their hat. Only thing that I am not sure I can agree with you is Bank collapse – will the Gov allow to get to that point. I would think Gov and Banks talk with each other lot more often than in the past so if a bank comes close to collapsing I think Gov will have ample time to prevent it by masking the actual issue – provide liquidity early and will call it whatever and will say “this is not bail in” like “this is not QE” and MSM will agree while the masses will have no idea what all this means but will approvingly nod their heads pretending they get it.
      and no one will care about few shut-ins on MB that will be screaming murder.

        • tonyddMEMBER

          There many new possible unknowns that what was economic is now part of the geopolitical arsenal. What if the fed doesn’t dump its billions on liquidity strapped banks this coming crisis? If I was the US I would punish Straya for its lack of loyalty and let the economy burn until they were ready to appoint a new leadership.

    • jdliveuk

      Bnitch – all your predictions have been wrong just. You seem to be a preacher of doom just like Roubini.
      Low interest rates makes asset prices go up. Keep it simple and just keep buying.

    • mark777

      Have you read the similarities between Japan and China’s economic run and collapse (and eventual collapse/ the latter).
      Whilst China won’t play by the rules, their fate is sealed none the less, watching them crash will be the best thing to happen to us all.

      I like this paragraph from Wiki
      “The Plaza Accord was signed between Japan, the United Kingdom, France, West Germany, and the United States in 1985, aimed at reducing the imbalance in trade between the countries. At that time, Japan had a huge trade surplus, as the Japanese yen was weaker against U.S. dollar, while the United States suffered from a consistent trade deficit. The reason behind the accord was partially complaints by the States regarding the imbalance in the exchange rate between the yen and the dollar, since most Japanese products imported in the States had higher quality and cheaper prices than the domestic products due to the weaker yen against the dollar”

    • Coming

      This is dumb

      APRA and the government will instruct the banks to lend, and will buy their bonds/rmbs

      What on earth is going to push up interest rates

      The only possibility would be a complete AUD collapse like 20cents

        • Coming

          where in the world has there been a protracted meaningful rise in funding costs?

          aside from countries like zimbabwe argentina venezuela who all had currency crises

          You keep peddling this apocalyptic fantasy but it makes no sense at all

          • bcnichMEMBER

            Coming
            Spend a few hours watching 5 episodes on SBS DEMAND, YEARS AND YEARS
            You’ll get a glimpse into what we face
            Apocalypse is coming, Coming

          • bcnichMEMBER

            The government will save us LOL
            They were saving themselves
            They couldn’t care less about us
            Government won’t be able to save themselves this time
            No one believes them now

          • The Traveling Wilbur

            Welcome to the Peachy club coming. Apparently no one can remember how much bailing happened in 2008/9. And how much mooooar there is that’s been preallocated for bailing-as-needed next time. Mostly by the Aus. tax payer. I know you know. Shame the other proles can’t grasp

            If they do manage to ban cash too, well, no escape possible at all really should it all cave in. Not for most.

    • Jumping jack flash

      It’s all about the debt growth. QE will be used in whatever way is required so the banks will lower their retail interest rates to facilitate more debt creation.

      More immigration will free up wage capacity to steal and grow the debt. Wages will not rise. They can’t and havent for a decade. We have recently passed the statistical tipping point where the increase in executive and small business owner’s wages from wage theft surpasses the low wages paid to the slaves on average.

      Unemployment may begin to rise soon.

      But in response the government may be forced to build something completely useless like high speed rail to employ people.

      But that’s pretty much it.

      Can’t see houses crashing because they’re tied to debt and debt growth. While debt is being created and attached to houses everything is fine. It doesn’t matter what the collateral damage is to keep it going.

      Only if the debt stops growing faster than the interest will we get our debt depression. Or an unforseen [external] shock like a bank falling over triggering a credit crunch and rising IR.

  3. bcnichMEMBER

    And also I’m from melb and in Noosa for a few days, how good is the weather, I think I’m going to move to south east QLD, come back to Melbourne for a couple of months a year, grand final weekend, spring carnival maybe February March stay with family
    Melbourne with 5.5M see you later and I think I’ll have a lot of Melburnian’s following me
    Think people will exit Syd too
    Think meibourne and Syd prices will get hit the hardest by a mile

      • DingwallMEMBER

        Noosa has turned into a Melbourne/Sydney retirement village for the rich …………. in particular those with absolutely no taste and a penchant for botox and plastic surgery, small annoying dogs and dark, leathered skin that looks at least an inch thick…….. it is the ugly capital of Australia now.

    • jimbo

      Wow, big move. I’d be content to have a getaway up the northern end on the water much to Wolfies chagrin. Crap investment though. History sure does rhyme and this has the late 80s written all over it. Off the back of a massive speculative boom, approaching a downturn, growing fear of an Asian takeover (Japs back then), every southerner with a heartbeat starts looking towards SEQ. Many made the move and ended up coming back. The only thing we don’t have is eye watering official inflation – we do have eye watering real inflation though. As for the sunspot link to all this we’re in the exact same phase of the cycle – low point!

    • GavinMEMBER

      I like Bangalow area near Byron Bay, not cheap but nice feel. Humidity though kills vintage cars and I don’t enjoy myself. :). Otherwise I love the area.

      Melbourne is sadly where many jobs are and likely where i’ll be stuck for sometime, but I also like Newcastle and Lake Macquarie and lots of the Central Coast…

  5. Penguin4

    https://m.drive.com.au/news/holden-hits-new-record-low-toyota-hilux-under-attack-car-sales-slow-for-20th-month-in-a-row-122883.html?trackLink=SMH1&utm_source=smh&utm_medium=referral&utm_campaign=tile-2

    A veteran car dealer, who represents multiple Top 10 brands at several sites across metropolitan Sydney, told Drive on condition of anonymity that he believes Australia is in a “consumer recession, but no-one has said the ‘R’ word yet”.

    • GavinMEMBER

      Holden produces crap now, and of course why would their core audience buy cars made in China? If I was a patriot Jim Beam drinking Aussie with a mullet, I wouldn’t buy no car made by ch!nks. I want my true blue Adelaide built Commodore mate. They shot themselves in the foot going offshore.

  8. Stuart Little

    The S&P500 is even faker than the Aussie housing market so it always gives me a thrill, however infrequent, to see it actually fall. It will recoup all losses tomorrow when it is revealed the trade deal is near.

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