DXY was soft last night:
Which helped the Australian dollar break out to new post-crash highs:
EMs rallied:
Gold is stalled at the break out line:
Oil is firm:
Dirt is breaking higher:
Miners up:
EM stocks broke out:
Junk went mad:
Bonds were bid:
Stocks see nothing ahead but Nirvana:
Westpac has the wrap:
Event Wrap
COVID-19 update: The global case count, according to the latest data from John Hopkins University, indicates 96k new confirmed cases worldwide on 19 May, vs 88k the previous day. Whereas in March daily cases accelerated, in April and May they have trended sideways. Although cases in much of Europe and the US are rolling over, cases in, Brazil and India are accelerating.
FOMC minutes reiterated that while the current stance was seen as “appropriate,” the Committee could “clarify” its forward guidance. Some participants though they could make guidance more explicit by adopting an “outcome-based” (scenarios) approach, a “date-based” approach – specifying a time duration for the policy rate, or clarifying its asset purchase plans. There was also some discussion about yield curve control – treasury purchases could be used to “keep long term rates low”, and a few suggested that the balance sheet could be used to cap short and medium term yields. Interestingly, the Open Market Desk surveys showed respondents “attached almost no probability to the FOMC implementing negative policy rates.”
In a CNBC interview, FOMC member Kaplan doubted the recovery will be strong enough for consumers to feel more confident. He said Fed is probably going to have to do more, but it will also take more fiscal action to grind down the unemployment rate which will probably hit 20% near term.
Event Outlook
Australia: The major event of the day will be RBA Governor Lowe’s participation in the FINSIA webinar “The Regulators: Priorities Updated” (12:30 pm AEST). Following this, Deputy Governor Debelle will participate in a webinar titled “Assessing the Impact of the FX Global Code”.
New Zealand: RBNZ Chief Economist Ha will deliver a webinar on the May Monetary Policy Statement.
US: The May Phily Fed Index is expected to recover slightly from the 40 year low seen in the April update (market f/c -40.0). Initial jobless claims will follow, and whilst the rate of job loss has been moderating, it remains at an elevated level (market f/c 2400k). The April leading index is poised for another soft print of -5.4%, largely driven by the collapse in the labour market. April existing home sales are poised for a 19.9% contraction as the lockdown suppresses turnover. Finally, the FOMC’s Williams (00:00 AEST), Clarida (03:00 AEST) and Chair Powell (04:30 AEST) will speak.
Global: Flash reads for May services and manufacturing PMIs are due for Japan, the UK and the US.
As DXY falls, all markets begin to take on the shape of a classic global reflation. Everything EM takes off as capital floods out of the USD in search of higher returns. Credit spreads compress. Gold and commodities bubble up.
This is the perfect environment for a flying Australian dollar.
The only problem is, this kind of reflation would usually start post-crisis at attractive valuations and, given now is the opposite, you have to believe that the virus is not only dead but gone for any of it to make sense.
Basically, the market is betting heavily that the Fed&Co has beaten it and now everything revolves around equity:
