Australian dollar falls as China moves to crush Hong Kong

See the latest Australian dollar analysis here:

Macro Afternoon

DXY firmed last night:

The Australian dollar fell against all DMs:

I’m not sure what happened to EMs:

Gold fell:

Oil wants higher:

Dirt meh:

Miners meh:

EM stocks meh:

The crazy EM junk bid stalled:

Bonds were bid:

Stocks fell:

Westpac has the wrap:

Event Wrap

COVID-19 update: The global case count, according to the latest data from John Hopkins University, indicates 100k new confirmed cases worldwide on 20 May, vs 96k 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.

US-China tensions persisted. On the eve of the National People’s Congress, responding to the latest round of accusations from President Trump, an NPC spokesman warned that it will never accept lawsuits or unwarranted compensation demands related to the pandemic, and said it will safeguard its sovereignty, security and interests, and threatened countermeasures.

The Markit PMI surveys for May rose slightly more than expected, but continue to signal deep contractions. Markit commented the results indicated slower recovery paths from deep recessions lie ahead.US Manufacturing 39.8, prior 36.1, est. 39.5; Services 36.9, prior 26.7, est. 32.3; Composite 36.4, prior 27.0. Eurozone Manufacturing 39.5, prior 33.4, est. 38.0; Services 28.7, prior 12.0, est. 25.0; Composite 30.5, prior 13.6.UK Manufacturing 40.6, prior 32.6, est. 37.2; Services 27.8, prior 13.4, est. 24.0; Composite 28.9, prior 13.8.

US weekly jobless claims rose 2.4mn, much as expected. However, the release was thrown into confusion when it was reported that Massachusetts may have incorrectly reported both this and last week, causing at least 1m excess in the total each week.
April leading index (-4.4%, est. -5.4%. prior -7.4%) and existing home sales (-17.8%m/m, est. -19.9%m/m, prior -8.5%m/m) were not as weak as market expectations. May Philadelphia Fed business survey was at -43.1, vs expectations of -40 and prior -56.6.

FOMC member Williams underscored that current policy was appropriate but that the Fed could yet provide further support for the economy using existing tools. He also repeated the Fed’s view that negative interest rates were not an appropriate tool. Although opining that the economy would recover through H2 2020, he also cautioned over downside risks and the path out of lockdown.

Event Outlook

New Zealand: Q1 real retail sales are due. Spending levels were broadly flat in January and February ahead of a decline late in the quarter. On balance, Westpac is looking for a 1.6% fall over the three months to March. Given that lockdown conditions only came into effect in late March, spending will be much weaker in the June quarter.

Japan: The market expects that the April CPI will print at a weak 0.2%yr. Japan’s persistent problem of sluggish price growth will only worsen going forward.

UK: April retail sales are poised for their sharpest fall on record (market f/c -15.5%). Meanwhile, public sector borrowing is expected to spike to £49.6bn as government support measures escalate.

Sinocism has the grim news:

The Chinese People’s Political Consultative Conference (CPPCC) opened today in Beijing. The seven Politburo Standing Committee members plus Wang Qishan, and the vice-chairs of the CPPCC all were not wearing masks, while everyone else was.The National People’s Congress (NPC) opens Friday. At a press conference today the NPC spokesman Zhang Yesui confirmed that the NPC will propose a national security law for Hong Kong. This move affirms that Hong Kong as we knew it is gone and rule of law is now rule by law, with the CCP determining what the laws are and how they will be enforced. The legal complexities of how they justify imposing this law from Beijing will not get in the way of the brutal political reality.

The reaction in Hong Kong could be intense, and violent. The two central government leaders Xi installed a few months ago to manage Hong Kong affairs are hardened CCP cadres, and there are already few restraints to the behavior of the Hong Kong security services.

The international reaction will be long on rhetoric, but will there be any real action? The US may revoke some of the special treatment it gives Hong Kong, but Xi and the Party Center may believe they can act with near impunity, especially now when most countries who would oppose this move are distracted and weakened by the pandemic. They are probably right. And it will certainly be popular inside the PRC ex Hong Kong.

This move puts Taiwan’s status in even more stark relief, and may accelerate already significant momentum in DC towards reevaluating some of the limits Washington has placed on its interactions with Taiwan.

Australia needs to get as far from this evil regime as it can as soon as it can.

Obviously it will weigh in the Australian dollar as circumstances deteriorate.

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

Comments

    • Is this another 18 months away (TM) thing?

      Fed is doing a very nice job of keeping asset prices up , and doesn’t look like they’ll stop

      • DominicMEMBER

        There’s a difference between ‘actually‘ being in control and ‘attempting’ to control. Fed liquidity can certainly keep asset prices aloft for a time but it cannot produce profits for companies.

          • BrentonMEMBER

            It’s called a balance sheet recession.

            Asset rich businesses holding debt regularly go out of business due to cashflow problems. They either hunker down and repair their balance sheet or they go out of business. This same phenomenon is happening across entire economies, and when it happens across entire economies, you get Japanifaction.

            35 million people filing jobless claims is what happens when you use the Fed to head off a solvency crisis.

          • That’s where the fiscal side comes in

            And it’s already come in bigly, with more in the pipeline

            MMT genie is out of the bottle

          • DominicMEMBER

            Investors buy shares to earn income. No profits, no income. So investors all sell their income-free shares but you say it’s fine cos the Fed can own 100% of these shares on their balance sheets. But then the shares never trade because the Fed owns the lot. So what’s the point? We can go round in circles here.

            But FYI, by the time we reach such a scenario the Dollar as we know it won’t exist. For obvious reasons.

          • Nah…if you’re right, we’ve all got some internal inconsistencies, and always will.

            Might be better to just ask him how he addresses the apparent inconsistencies…?

          • He thinks a flood of new M2 will only cause a rise in the price of gold and food

            While actual productive assets and land somehow collapse

            I just can’t see how these could coincide aside from a complete societal collapse

            Which I guess isn’t impossible, but hardly the base case

            And even in this scenario, no one is going to trade their houses for worthless fiat

          • DominicMEMBER

            If you think I’m being inconsistent then you are not understanding what I’m saying. Clearly.

  1. Yes we should “suspend” the iron ore, and look for new markets for our products. No more land or asset sales to the evil regime. We need a fresh start. Relying on the CCP to get rich was fun while it lasted, but was wrong.

    • DominicMEMBER

      So then, let’s consider:
      – JK coming to an end in a few months
      – JS reverting to old levels
      – SME support to withdrawn shortly
      – bank mortgage holiday to end soon
      – rental holidays to end soon
      – declining Chinese purchases of Strayan minerals

      Sounds like economic boom times ahead!

      • Nice try Dominic, but surely you realise they will extend JK / JS / SME support / holidays if it means avoiding a big downturn? Our debt to GDP ratio is quite small compared to other countries. Plenty of firepower left if we need it.

        • BrentonMEMBER

          At the moment they’re talking about shortening the length of JobKeeper, never mind extending. LNP are not the government for “dole bludgers”

          Banks are private companies, they are not going to continue to sacrifice profitability just to prolong mortgage holidays indefinitely.

          Same deal with landlords on the rent front.

          What does government debt to GDP look like after you tack on a lazy few hundred billion?

          • They are talking about shortening it because things don’t look so bad. If they did, they would extend.

        • DominicMEMBER

          Your argument is: our cancer is not as advanced as others. The amount of firepower you have is relative to the size and credibility of your economy. We have dirt but no manufacturing base- and heaps of property speculators. Nothing else.

          Japan is still a global manufacturing power house and runs a current account surplus. For example.

          I would add that the Covid debt commitment is already around 50% of our former debt pile. So extend that indefinitely and we’ll be giving Greece a run for their money.

  2. GlendaFMEMBER

    ABC…
    ‘China’s WA Consul General Dong Zhihua unexpectedly returns home the same week crippling tariffs are imposed on Australian barley, but the consulate says the issue is health‑related.’
    Yeah, her health is threatened if she doesn’t do as she’s told and come home!

  3. Ronin8317MEMBER

    Using the word ‘evil’ reminds me of G.W.Bush saying ‘Axis of Evil’. It is merely a label people use to justify war.

    Compare to other regime in the world, China is only the middle of the pack. Saudi Arabia and various regimes in Africa are far worse. The CCP leadership believes that the HK protest is a result of ‘foreign interference’ rather than genuine grievance, which is why they think a crackdown will work. It didn’t work in Tibet. it didn’t work in Xinjiang, and it definitely won’t work in HK.. As Einstein once said, “The definition of insanity is doing the same thing over and over again, but expecting different results”.

    The best way to ensure the collapse of the CCP is not to block trade, but to enable capital outflow from China. China will implode.

  4. The 20th century saw two World Wars and a range of other conflicts that caused the death of some 160 million.

    We are expected to add 2 billion more persons to the world in the next 30 years and link them to a massive Belt and Road system that will feed the rapacious development of Asia where some 61% of the world’s population currently reside. That sphere of influence will be dominated by CCP gangster diplomacy that will use the feeding of the dragon as a lure for opportunist politicians and profiteers who embrace the opportunity like a hungry dog that has spotted a bone on the other side of a busy highway.

    And it works.

    The self-appointed good people of the world like Dan Andrews have attached themselves to the CCP teat with a temporary vision forged in the sort-term politics of the Lucky Country as they play the 3-4 year game. Little does Dan and his ilk appreciate that what is being rolled out in China began even before the Boxer Rebellion. It makes Hong Kong a symbol that cannot be tolerated. Taiwan is another grain of sand in the ideological oyster. Australia is chewing gum.

    The writing is on the wall.

    That nasty nationalism and bullying we see is the pent up anger against the West that has been playing the very long game where the West will be made to be like China, not the other way around. History will show that people like Rudd, Dan, Howard, Paul Keating and the current marketing fraud PM missed the big picture as did all the Western Allies in the 1930s. They too failed in their prime responsibility to stand up to ideological thugs and act from principle to defend a way of life and values that are just slogans to them. Dan Andrews might take a peek down St Kilda road to that Shrine built after one war that lazy politics and BS ensured did not symbolise a lasting peace. Now it actually symbolises that the cost of political delusion and wishful thinking that is eventually quantified in suffering.

    • If China loses this they will do what they have always done over millennia, shut their borders and go internal. China has always played a long game but the US wins with military, currency, technology and command over the Pacific and Atlantic routes. That and they tend not to bully countries which have some resemblance of democracy.

    • ChinajimMEMBER

      I have to respectfully disagree with the idea of continuity between the late Qing and the modern CPC. This is a manufactured shibboleth, a creation of the CPC itself and fairly recent.

      The serious battle for China’s past started after 1989 when the CPC realised it had to ramp up social control mechanisms in light of the near-death of the 1989 protests. What we are now seeing is the result of 30 years of CPC brainwashing of its own people in order to maintain power. It’s about the maintenance and application of raw, brutal power. There is no “thousand year four dimensional chess game” about it, just raw, ruthless power.

      • In my opinion it is not that black and white. The narrative being sold for a good long-while is one of an ideological struggle against the West that has weaponised history and national destiny as the little red book waving has subsided. History presents China as the inventor of virtually everything in order to neutralise the role of the West as the Promethean giver of modern science and technology – to a communist state that once professed to be an agrarian workers utopia. An explanation for the expansion of the military is couched in terms that emphasise China as not being the aggressor, but the victim of aggression (with a lot of truth here too). But ask a mainland Chinese about the Boxers and the Opium wars and they will know the lesson to be how black the imperialist heart to be – also often connected to how Taiwan came into being. Dig deeper and you tend to find an unease with China’s dependence on the West and an emphasis on protection and distrust. Again, Japan’s Manchurian adventures in the 1930s are proof positive to most – and who can reject the historical fact of this?

        It is subtle – so subtle in fact that we end up with propaganda institutes advancing a cultural and political colonisation within our own universities.

    • Goldstandard1MEMBER

      Belt and Road. I get the road part, but is the Belt referring to the BELTING the west will get if they don’t do what the CCP says?

  5. Luca BiasonMEMBER

    Just wondering if we are about to witness the 2020 equivalent of the invasion of Poland. Xi Jinping is an insane power-crazed totalitarian.

    • Ronin8317MEMBER

      China, unlike Germany in the 1930s, haven’t won against a foreign army for 300 years.

      China currently have no force projection capability. The one lonely and sad aircraft carrier they built is made for embellishment rather than actual operation. If China ever tries to invade Taiwan, the US will totally humiliate them.

  6. MB readerMEMBER

    Went to Woollies yesterday to do my shopping. Selected something that I really wanted. I then saw it came from China. It went back on the shelf. Memo to Woollies: cut back on the products from China. Memo to Chinese Ambassador to Australia: it’s a two way street!

  7. Fascist China

    Any idea the CCP have of invading Taiwan should be knocked on the head immediately.

    Taiwan is a open, transparent, democratic sovereign nation with a rule of law.

    It does not belong to the CCP.

    If anyone has a claim to it it’s the Taiwanese Aborigines not the Han.

    Any talk of invading Taiwan must be treated as an act of aggression against any nation on Earth with democratic values.

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