DXY was belted Friday night as EUR launched on:
The Australian dollar built on its RBA stupidity premium against all but EUR:
Gold reached the breakout point:
Oil crashed as OPEC turned to bickering:
Base metals were mixed:
Miners crashed:
EM gapped:
Ominously, junk broke:
All bonds were bid:
Stocks were bashed again:
Both are going to see their economies progressivly shut down over the next month, probably until June/July. China will try to help as it gets to its knees but fail as its exports collapse.
This is going to deliver an immense growth shock that drives the global economy directly into recession. Not just below 2%, as is the common definition, below zero, as in the GFC.
We can take an educated guess what this will do to markets, including forex. As global corporation cash flows and supply chains crater, some are going to go bust. Which ones nobody knows. Because of this uncertainty, corporate credit markets are already frozen all the way up to investment grade, precipitating the very crash that they are seeking to avoid.
This will turn the global virus crisis into a global financial crisis, driving an unemployment spike into the heart of already prostrate mega-economies.
That is why central banks with brains are already cutting like mad. It is why governments with brains are compiling large stimulus plans. Alas, both will probably fail. The shock is too atypical and too great.
Which leaves those countries without brains even deeper in the brown. Australia is one of those, where the RBA is fixated with a 25bps pop-gun instead of loading up a QE howitzer. Is it any wonder with the kind of advice it is getting, via AFR:
At the height of the last recession in 1991, former Reserve Bank board member Bob Gregory vividly remembers walking down Elizabeth Street, Melbourne, and seeing the devastation.
“The shops were all empty. People had lost their jobs but there were salesmen out on the street asking you to buy things,” Gregory says.
“I think in terms of an accounting definition we will be in a recession again because of this coronavirus – that’s a certainty – but I don’t think it’s going to be anything like the last one.”
How marvellous, eh, Bob! Snort. Pip, pip!
What does the convergence of a combined once per century pandemic, global recession and six month shut down of the Australian economy equal then? Not some comfy stroll down Elizabeth Street. That is if you still have the use of your legs and other major organs.
As usual the RBA has completely missed its moment and fallen widly behind the global curve. Aussie bond yields are stuck as global sovereign spreads are crushed everywhere else. And so the Australian dollar is suddenly riding high through the volatility.
Yes, for the first time in years, just in time for the one hundred year shock, the RBA has engineered a restart of the carry trade into the AUD with spreads about to turn positive:
Bravo! A new low in RBA obtuseness reached.
Have no fear. I don’t think that the AUD will rise very far. Australia’s disastrous Winter double-shock will more likely see it collapse.
But it would be nice if, for once, the RBA got ahead of the curve to position the currency as a mitigating force, rather than waiting for the economy to dive and drag the AUD down with it for the recovery only.
David Llewellyn-Smith is Chief Strategist at the MB Fund which is very conservatively positioned for coronavirus risks including a falling Australian dollar.
