Australian dollar, forex signal global shock

See the latest Australian dollar analysis here:

Macro Morning

Watching stocks you could be forgiven for thinking that the world is about to boom. It is very diifferent in forex which is signalling the approach of a major bust with safe havens in demand. DXY is approaching a major breakout line as EUR drowns:

Try as it might, the Australian dollar remains squashed by King Dollar:

EMs are also struggling:

Gold is poised for breakout despite the powerful DXY. This is very unusual and signals the potential for a major, atypical global shock:

Oil is trying to be positive:

As are metals:

Miners did OK:

EM stocks not so good:

Junk doesn’t care:

Bonds were bid again:

US markets were closed but European stocks lifted:

Westpac has the wrap:

Event Wrap

No major data to report.

Latest coronavirus statistics show 71,450 cases to date (896 outside China), with 11,429 recoveries (159 outside China) and 1776 deaths (5 outside China).

Event Outlook

The RBA has begun 2020 with a sanguine view of the domestic and global uncertainties clouding the outlook. The Board’s discussion of these factors will be critical to assess when the minutes are released.

In NZ, REINZ housing data is due this week for January. The supply of homes is tight, while low interest rates are supporting demand, resulting in robust price growth.

In Europe, the ZEW survey will offer an assessment of market participants’ confidence.

For the US, the NY Fed’s Empire State manufacturing survey is due as is the NAHB housing market index. On the latter, the labour market and interest rates are clearly supportive of robust housing demand.

Bloomberg sums it up:

Many forecasters came into 2020 expecting that U.S. growth might trail other parts of the world and act as a drag on the American currency. They are now being forced to reassess. Resource-related currencies such as the Norwegian krone and the Australian dollar have tumbled as concern about China has smacked commodity markets and undercut expectations for global growth.

The euro, meanwhile, has slumped to its lowest level against the dollar in almost three years after data showed industrial production in the common-currency region shrinking and the German economy flatlining.

For Ben Emons at Medley Global Advisors, the weak outlook will hinder the European Central Bank’s ability to bring rates back up, and that should provide another support for the dollar against its trans-Atlantic peer.

…“When the Fed shifted gears to easing and cutting rates, all it really did was open the door for everybody else to either cut rates or increase the size of balance sheets, or both,” Das said. “So the interest-rate differential, monetary-policy differential, balance-sheet differential arguments in favor of a weaker dollar haven’t worked either. Those issues are still going to be there for some time to come.”

Add the virus and we’re at a major technical inflection point for major forex markets with the USD poised to break higher not lower.

The US economy remains the best of the bad bunch:

I would not be at all surprised to see the EUR sink to parity in the months ahead. The underlying European economy is stalled:

And the mother of all export shocks is upon it as China remains shuttered. Recession is coming, with exhausted monetary policy and fiscal failure to boot.

Once the RBA is forced to cut, the European-based global growth crisis will see an Australian dollar trap door open.

David Llewellyn-Smith
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Comments

  1. – Look at the US Trade Deficit (seems to be shrinking):
    https://www.calculatedriskblog.com/2020/02/trade-deficit-increased-to-489-billion.html

    – Look at the CASS freight index (also “weakening”):
    https://wolfstreet.com/2020/01/15/us-freight-shipments-plunge-at-fastest-rate-since-2009-hit-2011-level/

    – Ouch & OMG.

    – What worries me the most is the how the US 30 year yield & futures have behaved in the last several years. The yield kept falling while the futures made a lower high. OMG & Ouch.

    • Check out the Michigan value of stock market investments – exploding into the blue yonder. Is this end of times / end of bull market stuff? The top stocks have become ‘safe havens’ and are driving the broader indices.

  2. Wooo Hooo. HNH now spot on

    We are now heading into deep solar minimum April

    There it is guys, the crisis that is staring us in the face (DXY)

    It’s actually DXY that causes the crisis

    USD denominated loans come under huge stress across the world forcing USD even higher

    China also has a lot of USD denominated loans, as China continues to slow forcing EUR further in trouble this becomes a viscous circle btw EUROPE AND CHINA & EM polaxed

    If this plays out & if think good old AUSSIE property will be higher next year you will be sorely disappointed

    This is where the JOYE and co will be wrong this time, they all have their AUST blinkers on

    If this plays out like HNH has now exposed credit spreads like GFC will blow out

    The black swan is about to pop it’s head up RISING INTEREST RATES as USD takes off

    RBA might cut to zero but that’ll do nothing Aussie home loan rates are at their low now, no more cuts, it’s at the margin and the danger is Aussie home loan rates will be higher

    You need to watch EUR cross rates

    EUR GBP
    EUR CHF
    EUR JPY
    EUR USD.

    We are entering the early stages of the great Australian short and possibly the Australian banking crisis

    AUD smashed
    Aussie bonds sold off as money exits AUST
    Interest rates higher
    If this plays out, think ASX will be sold off but limited by falling AUD
    I have to say I agree partly with gold but be very cautious it’ll probably be a false break up

    Guys strap yourselves in as we head into deep solar minimum, this could get very ugly if HNH is correct

    I believe MB will change their 2020 house price forecast to falls by April and will be first to do so

      • The Traveling Wilbur

        Ditto. COVID kinda making that hard to read atm. But, what’s showing there looks like “Meh. Virus?” for now.

    • Not a single thing you have just written there supports an event of Australian property values decreasing, let alone crashing. The only supporting factor you which you believe is “deep solar minimum”. Comeon, mate. Just have a good think about things and let go of what you “want to happen”.

      • Les it doesn’t matter what I want and honestly I’d rather it didn’t, but it is and we need to prepare
        The fckn idiots should have implemented MP, never have started the population ponzi etc
        I don’t want to see this, it affects all of us.

    • happy valleyMEMBER

      @bcnich I hope that you are right as I would like to see Straya get its come uppance (long overdue for all those decades of ever-increasing moral bankruptcy, corruption, incompetence and waste) and especially since happy clappy Scotty from Marketing and Josh Rainbowberg will have to deal with the poisoned chalice (and their spin will no longer work).

      However, I sense that you are hyperventilating a bit and I think that you need to chill out by taking yourself off to one (or more) of Reusa’s relo parties – very therapeutic, apparently.

      • HV it’s going to be multiple times worse than I am writing
        I laugh so much at Reusa’s comments
        I am going to miss him

  3. Start initial preparations to be ready for next Great Depression H2 20
    Just start preparing in a small way all the things we have discussed
    We will be in a full blown global depression this time next year
    Instead of the childish abuse we need to put our heads together

    Notes coins
    Food
    Water
    Pharmaceuticals, you’ll need to stock up
    Any other ideas
    I don’t have a bunker which really concerns me

    • From 18 months away, to now only 12 months away !

      We won’t get a depression because we run fiat currency system now and the bankers have their mandate

      The AUD could well get smashed though

      • Sorry Coming
        You are sending the 18 month memo to the wrong person
        I have never been in the 18 month club
        I said all these things would happen mid 19 with my target April 2020, or Q2 2020

        NO SOUP FOR YOU

        PS Thanks COMING, the AUD “could” get smashed. Great insight

        MB said that at parity and also said AUD would be 45c

        EVERYTHING that HNH predicted in 2013 will be 100% correct, what caught him and many other of the best analysts was QE and fair enough, QE noone knew CB would print $20 Trillion USD.

        HNH is correct just 7 years out, that’s fine, the analysis was all correct MB did in 2013 (if QE didn’t happen) but it did……

        MB you may as well just re post all you 2013 info and go on holidays for 6 months

        Go to Byron and kick back with a cocktail and catch a few waves,

    • The Traveling Wilbur

      Does your independent financial advisor agree with your chosen investment strategies for your response to these future events?

      • TTW
        Fckn Financial Advisers what a joke

        I wrote this just after Xmas.

        The only way to make money this year is to be short everything.

        Is their any short only funds? I can’t find any.

        And this is why property is blowing off, Domain, Ch9 news AFR, the Gubmint property sprinklers are sending FHB to the slaughterhouse to save their ponzi scheme.

    • Goldstandard1MEMBER

      I’m not as apocalyptic as you bcnich, but the current state of affairs does look grim., highest risk I’ve seen since the 90’s.
      The policy makers have manipulated things for so long and kicked the can so far down the economic road (via immigration, corrupt monetary policy, being far to reliant on China and bias tax system) that it seems the next banking crisis will be too big to control. I thought things would correct in 2010 but its now 9 years worse.
      I am no doomer, but I agree, brace for impact and if you have too much debt, correct that now.

  4. On a better note for agriculture the Barwon and Culgoa rivers have water in them for a change, it will be interesting to see how much gets to Bourke. All of Barnaby’s mates storages in Qld are filling as well.

  5. I hate to say it, but the AUD is not going to get smashed any time soon. Nothing credible supports that theory.

    “Once the RBA is forced to cut, the European-based global growth crisis will see an Australian dollar trap door open.”

    The RBA numpties are not and won’t be forced to cut. They already will be. It’s already baked in, decided, committed, expected, guaranteed, etc. No one will really care and it won’t have any effect on anything.

    The “European-based global growth crisis” if anything will strengthen the AUD.

    • agree LES everyone knows we are at the bottom, but the RBA said rates will be low 4EVER lol
      Bit like their 4EVER mining boom

      • happy valleyMEMBER

        When the sh.t hits the fan, the RBA happy clappies will be blindsided as they will be too busy focusing on the $250m refurb they want for their Martin Place ivory tower – choosing the fabrics for the soft furnishings, making sure the executive kitchen is world’s best, etc etc?

        Thank goodness, the state government long ago moved on those embarrassing homeless people camped outside our CB?

        • The sh1t won’t hit the fan until head-numpty Lowe is long retired..most likely to some kind of obscene salaried role at an Australian University where he will be guaranteed to safely,hypocritically and self-righteously hurl excrement at his successors and the government.