Australian dollar plunges as markets liquidate

See the latest Australian dollar analysis here:

Macro Afternoon

DXY took a breather last night as markets were hit by the Fed bazooka:

The Australian dollar plunged on anyway:

Gold is liquidating but so far the damage is minimal:

Oil is going to $10:

Base metals joined the rout:

Miners fell but not as much as many:

EM stocks broke:

Along with junk:

Treasuries held on the Fed bazooka:

But bunds sold:

And the market is going to test the RBA version, as expected:

Stocks OMG, daily moves of 10% plus now:

Westpac has the wrap:

Event Wrap

Coronavirus update: Latest WHO data, via the Situation Reports, shows 153,517 cases confirmed as at 15 March, with 27 new cases in China and 10955 new cases outside China. The latter continues to accelerate, the largest increase in cases coming from Italy, Iran, Spain, France and Germany. Unofficial sources such as Worldometer show cases confirmed to date total 179,700 as at 16 March.

G-7 released a joint statement on their “whatever is necessary” measures to support global trade, investment and jobs whilst coordinating health research to combat coronavirus.
IMF declared a USD1trn funding/loan facility was available to assist in fighting COVID-19. They also underscored the need for synchronised fiscal stimulus is growing “by the hour”.

In the first US survey since COVID-19 started to accelerate, the Empire NY Fed Survey for March fell a record 34.4 points to -21.5 (prior +12.9). New orders fell to -9.3 from +22.1 and employees fell to -1.5 from +6.6.

Event Outlook

In Australia, the Q1 AusChamber-Westpac business survey is due. This will provide a timely update on conditions in the manufacturing sector amidst a disruptive start to the new year and a continuing downturn in the homebuilding sector. Following this, the RBA minutes for the March meeting will be published, providing additional colour around COVID-19 risks and how policy can respond.

Singapore’s February non-oil domestic exports are expected to print at a weak -7.1%yr as shutdowns across the region weigh on trade.

Turning to Europe, the market will be watching the March ZEW survey of expectations to gauge the shock from the virus.

In the UK, the Jan ILO unemployment rate is expected to hold steady at 3.8%. The labour market has remained strong in the UK despite growing uncertainties. This read predates the spread of COVID-19 in Europe.

Several releases are due in the US. The first will be February retail sales, which Westpac expects will increase by 0.3% – COVID-19 disruption in the latter part of the month should be offset by earlier precautionary spending. February industrial production will follow; the market expects this will grow by 0.4% ahead of COVID-19’s spread. January JOLTS job openings also predate the spread of the virus, and should be broadly flat in the month. Finally, the March NAHB housing market index is also expected to hold at 74 – whilst homebuilding has strong economic support, the virus presents a considerable risk.

The Australian dollar did OK last night considering the broader liquidation. The market looks ready to test the RBA’s QE commitment with Aussie spread remaing wider than elsewhere. “Show me the money” it might be called. So until then the AUD might hold up.

I hope the RBA will adopt yield curve control given it implies unlimited bond purchases. That would hit the AUD hardest and also pressure spreads the most. Which probably means they won’t do it! Jokes aside, it is the method they have mooted.

So, more downside ahead for the Australian dollar.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Damn silver!! Gold/silver ratio at its all-time high – could today’s ratio be the first time in the entire human history?

    • Probably. Definitely a good moment to switch – expect that ratio to swing hard over the next few years.

      • Some serious liquidation going on, gotta be margin call central now. Suicide rate gonna spike

          • It’s all going on in the futures market right now – meanwhile in the US bullion coin sales are going through the roof. Silver Eagles basically ran out the other day. The last time retail owned a lot of bullion was 2011-2013 but that’s been slowly liquidated over ensuing years. I’m not sure there are too many speculative holders of coins right now – I reckon we’re about to hit the next wave.

          • Thanks as always for your patient explanation, Dom.

            I see there are plenty of maples, eagles, Eurekas, Krugerrands avail locally..

          • last time i saw something like this, prices dropped and there was no physical metal available anywhere for months..

          • I think locally there’ll be a delay in getting back on the bullion bandwagon – many bought at the top of the market last time and lost. That said, there is a hardcore of HODLers. I met a guy at a mining conference who was telling me his best mate worked on the ships and spent most of his spare cash buying gold coins and burying them all round his property somewhere on the Sunny Coast – plenty of types like that around. Hopefully he’s kept a map!

      • I will be extra-cautious whenever something happens for the first time in the entire human history, because this time *can* truly be different for once.

        Of course, such an event rarely occurs. Today is indeed special!! (I may say the same thing tomorrow if the ratio further blows out)

    • So surprised with silver. Its also an industrial metal so my guess is that industrial demand has taken a hit.

      • Yes. Silver much more complicated than gold, and less public acceptance as the ultimate store of value. Hmm.

        Has antibacterial properties though, which could be very handy!

        • lol yeah i thought about the anti-bacterial pros but I don’t think thats enough to give it a kick.
          Silver does tend to rocket off though without too much notice

      • Banana ManMEMBER

        Industrial demand drop and liquidation as well, I feel. But yes, first time in history the ratio has been this way. I believe Isaac Newton was put in charge of the correct ratio; from memory 15:1 (Apparrently he screwed this up, and it should have been 16:1; silver flowed on from internationally and almost cleaned them out of Gold. Goes to show that even the smartest folks can get it really, really wrong.)

        I’ve heard speculation that CV can’t survive on silver (unverified), so it would be a better method of exchange than plastic money.

  2. Oil has fallen a very long way very quickly, think $15 is correct but think we may hold this mid 25 level for close to $40 again
    AUD has fallen a long way, maybe try in 6050 but I think we aren’t far away from a bounce higher
    Depends on DXY, If we stay in this 9799 range AUD is a little oversold now
    Actually everything is looking oversold

    • How can you judge it to be oversold?
      In the immediate term there will literally be no productive activity, and worse for countries that depend on trade. People and businesses are going be without (food & cashflow) if this lasts past April.

    • Diogenes the CynicMEMBER

      At some point oil has to be worth a punt. The issue is which stocks to buy – they need to have gold standard balance sheets to survive the near term bloodbath. Exxon downgraded last night!

      • Beach at 1.18, down 59% from its high on 1 Jan (that’s 2020)
        OSH at 2.79, off 61% from its Sept 2018 highs and $8.12 1 Jan.
        Someone mentioned Senex, that’s 0.18
        Woodside has dropped 47% since mid Jan….

        someone smarter than me can comment on the risk reward from here…someone said something about STO (?and WPL) being exposed to GLNG risk there…

        OSH and BPT?

        Someone else said this is a generational buying opp – 5x return 2 years. We shall see

        disc: I know nothing about oil markets and less so the value of these shares here – just data

      • For those with large cash piles you could do worse than your toe in right now.

        Dip your toe – as opposed to pile on. Any of the stocks, frankly: I own STO and Beach but really have no strong feelings on the companies either way. Just avoid highly levered balance sheets. Leverage is a knife that’s cutting in the wrong direction right now.

        • isnt santos the most indebted of all the major australian oil comapnies?

          I read woodside has the least debt, but I would love to be informed by someone who has done more indepth research

          • My understanding (from a former employee at Santos) is that they’d reduced their debt substantially – which may still leave them the most indebted of the players – but at least gives them some breathing space. That said, I wouldn’t pin my hat to that claim – total debt/equity is 57 which I would say is high for an oil producer, but manageable. Looks like they are going to dial back their Capex dramatically in the short-term which is sensible given the uncertainty – Josh won’t be happy, but hey ..

        • my view is that Russia will not cut as Putin probably thinks Oil is on its way out so let’s pump as we can over the next 5 years. Prices will eventually go higher from here but may not hit 5 handle again. The only reason why I am not looking into any of those companies.
          Lot more interested into food like AAC and CSS and metals like Cu, Ni, Au, Zn.

          • Bright eyed Bushy Tailed W0ke

            Yes mate get most for it why you can it be near worthless in 5to7 years

    • Yep – what’s not being factored in is the now-obvious tsunami of printed money. Printed money cannot make an economy run well but if you produce enough of it you can counteract the demand shock and prop up prices in nominal terms.

      Deficit spending will have a similar impact. So, add monetary fiscal response and you’ll probably have oil and gold performing relatively well going forward – even if both have a final puke in the short-term.

      • False.

        Oil will not perform well – Exxon just got downgraded and is effectively junk.

        They have HUGE debt and now zero earnings – mark to market they are looking at HUGE insolvencies across the board in energy – you are totally dreaming.

        The world has shut down mate – no sports, no travel, no tourism, no consumption, nothing – printing money will do nothing but cause inflation – absolutely zero.

        • I don’t think you read what I said: if you print enough money the extent of the demand shock becomes irrelevant — that’s as obvious as saying: when you wake up in the morning you may see some sunshine.

          How much less fuel is currently being sold in this country right now? 10%? 15%?

          Are all those extra Coles and Woolies trucks fueled on fresh air? How are those 5000 additional Coles casuals getting to work – bicycle? Demand is going to crater but not as much as you think and neither for as long as you think.

          You buy when there’s blood on the streets, not after the recovery has begun – a 60% discount to the peak price is not a bad place to start.

    • Virgin has announced there will most likely be ZERO flights in may – Exxon has just been downgraded to junk (last year highest market cap company on earth) -…………………………………………….. “oversold”.

        • It was rated higher than the US government mate. Its considered junk – yes – they are verging on insolvent if things don’t change in the next few weeks – you think that is going to happen ? Virgin just announced they will have no planes flying in may.

          China’s back up – they get their oil from Iran and Russia – the irony.

        • drsmithyMEMBER

          Are you high? AA isn’t junk.

          As I said the other day, Itchy Balm and his various noms de plume (thanks harry!) have been known to exaggerate on occasion.

        • All I’m being offered is a refund to the cash bank – not to the original method of payment.
          Awaiting a response from “guest relations” as I incorrectly purchased the wrong fair type.
          Let’s see what their response is. Still waiting since last Friday…

  3. Feel sorry for the mum and dad punters but they voted f9r this shite and its their kids kids that will be paying off the debt

    • 22 year old has no time for Morrison, laughs his ass off a theoretical and rational behaviour economists (he’s studying behavioral economist – case proven) and loves the #boomerdoomer.

    • Well , not exactly
      Plenty did, yeah
      But also, oligopoly and lack of proportional voting….

      (Lord, I almost sound as incomprehensible as skip – good natured jibe, skip)

    • Yes, but they won’t understand that they voted for endless bubble policies — they think that owning a million dollar home and a $100k vehicle on an average salary is all perfectly normal.

      • Well, sort of, but not really.

        Some, sure, yes

        But I think plenty (maybe this is bias towards my own idealogy/leanings or because MB is right, as are you commenters) didn’t explicitly want this

        Apart from the 100k cars, plenty don’t have a choice
        2 jobs to afford a house – some just want a roof over their heads. Some don’t want to rent. Some can’t. Whatever.

        My point is the political system offers no alternative. I can sit and vote for Flux, Shooters, Animal Justice in upper and lower houses – to almost no avail

        However, maybe this is a turning point where we can re-evaluate

        Mind, I’m not offering excuses…just reasons.

        • It may be a long shot but I think we could be on the verge of a generational change in attitudes toward the debt-fuelled age of consumption. Fingers crossed.

    • Kids cannot pay off the debt without jobs. What if the debt has to be written off? What if our generation starts demanding a reset? The 1% won’t like it, but fcuk those guys.

  4. Maciek FinchMEMBER

    is this code for “no you can’t have your cash right now but it will be along shortly” apparantly we are not destroying them, just putting out of circulation for a few months.

    11 hours ago – The Reserve Bank of Australia has begun quarantining banknotes as part of national efforts to limit the spread of coronavirus. … As well as isolation measures, China and Korea have used ultraviolet light to disinfect banknotes in a bid to help slow the spread of the virus.

  5. Mining BoganMEMBER

    Blokes at work are still meh, it will recover by xmas.

    We still haven’t seen total panic yet.

    • xmas is 9 months away. I also think the market will have recovered by then, but 9 months is a long time to live without oxygen.

      • It took ten years to recover from the last crash – and there was no collapse in demand. Sooooo – no.

        This pandemic wont have properly started for 2 more months. Thats what people simply do not get.

        • Unlikely, but honestly who knows? If some cure is rushed out shortly everything could be awesome again?

    • Same here – they reckon market will bounce back up almost next day……..reality is some way off

    • Its will START to recover last qtr of the year. Market might never reach a new high for decades.

    • Ronin8317MEMBER

      Pray and hold is reality denial investing. Those punter will refuse to sell when it starts dropping, then panic sell when prices hits rock bottom.

  6. Guy at work said oil can’t go under $26-$29, as that’s the cost to produce, for me, countries are desperate for selling volume, it’s going to push prices lower on shrinking demand

    • Russia has a break even at $20 and have said they can last 18 months at that price point.

    • Longer term such logic makes sense but short-term, when you’re desperate for cash, you need to sell for what whatever price you can get. Aside from food, nobody wants general goods — they want liquidity. Cash remains king for now.

    • Well You can always stop producing. With demand crashing some will. The cheapest will keep producing.

      What’s the cheapest cost to produce? I’m no expert but google says Saudi at $2.80…

      • C.M.BurnsMEMBER

        actually, you can’t just stop producing. Oil production is not something that you can turn on or off quickly or cheaply.

        in fact, the latest Macrovoices podcast, they were discussing what happens when the world runs out of storage space for oil. Demand craters but supply continues. Most oil producing nations have vast oil reserve capabilities but they will fill up quickly with such an imbalance between demand and supply

        • That may be true but the US frackers will be eviscerated in short order once the price gets low enough – they simply won’t be able to roll over their funding for starters. The large state-owned entities in Russia and Saudi are a different prospect.

          The cure for low prices is … low prices. The laws of economics cannot be suspended – even by ambitious policymakers.

          • C.M.BurnsMEMBER

            agreed Dom. But given the foreign policy freedom that the US has enjoyed since Shale oil became a thing, does Trump and the US view the industry as strategically important (either geopolitically, or even domestic-politically in an election year) and bail out the producers. Save a truck load of jobs, keep the cheap oil coming to american voters.. it could happen

        • Yep, it’ll be interesting to see – Trump has never shied away from throwing money at things, so yes, maybe he makes a case that it strategically important, but they have plenty of other oil assets outside of the fracking industry. Rather than be a net exporter they just go back to being a net importer and some of the larger fracking players survive. Who knows ..

  7. SnappedUpSavvyMEMBER

    what happens to ETF’s when theres no more sellers like BBOZ or BEAR, looks like the depth is drying up bigtime