Australian dollar sags with global stocks

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was soft last night:

The Australian dollar universally sagged:

Gold was firm:

Oil too:

Dirt fell:

And miners:

EM stocks rolled:

Junk lifted as the Fed began to buy:

Bonds were bid:

Stocks were bashed:

Westpac has the wrap:

Event Wrap

COVID-19 update: The global case count, according to the latest data from John Hopkins University, indicates 76k new confirmed cases worldwide on 11 May, vs 78k the previous day and vs 99k at the peak on 12 April. Whereas in March daily cases accelerated, in April they have trended sideways.

US head of infectious diseases, Fauci, warned in testimony to a Senate hearing that an easing of restrictions too early leading to serious consequences.

US headline CPI fell by 0.8%m/m, as expected, for an annual pace of +0.3%y/y, (vs est. +0.4%y/y). The core measure, ex-food and energy, fell by a record -0.4%m/m (vs. est. -0.2%) for an annual pace of +1.4%y/y (est. +1.7%y/y).

The US NFIB small business survey for April fell by less than expected, at 90.9 (vs est. 83.0, prior 96.4). Although own business prospects reflected record lows for sales expectations, the outlook for the economy was surprisingly positive over the coming six months.

Fed speakers (BullardKaplanKashakariHarker, and Mester) were consistent in their messages, keeping policy low for a long period but resistant towards a negative interest rate. They also stressed the importance of seeing a return to activity post lockdown, although Harker did warn of the risks of early exits.

BoE Dep. Gov. Broadbent underscored the MPC’s preparedness to provide further support as needed with all tools at their disposal under review, including, on questioning, negative interest rates.

Event Outlook

Australia: The day will open with the May Westpac-MI Consumer Sentiment Index. In the April update, sentiment plunged to 75.6, recording the largest monthly fall in the 47 year history of the survey. Developments over the last month have been mixed. On the positive side, the Australian coronavirus count has been lower than feared and restrictions will be eased earlier than expected. However, news around the economy has confirmed the heavy impact on activity and jobs. Following this, the Q1 Wage Price Index will be released. Westpac is looking for a weak print of 0.5% in Q1 to be followed by a material slowdown as the coronavirus shock plays through.

New Zealand: The major event of the day will be the RBNZ policy decision. With the OCR on hold at 0.25%, the focus will be on the QE program which Westpac expects will be increased to $60bn. Markets will also be interested in forward guidance on the OCR, the RBNZ in March committing to no changes before March.

Euro Area: April industrial production will be released. The market is looking for the largest monthly fall on record at -12.5%.

UK: The market expects a 2.6% contraction in the preliminary read of Q1 GDP. Despite the sharp fall (the likes of which have not been seen since 1974), the UK has thus far fared better than the continental majors.

US: The PPI will round out the day. The market expects that factory price deflation will continue with a print of -0.5% in April.

The only chart that matters for the AUD remains this one:

Follow the stocks!

David Llewellyn-Smith


  1. DominicMEMBER

    The UK has thus far fared better than their continental peers.

    Lol. Who remembers all those warnings of economic Armageddon if the UK dared leave the EU.

    Another win for ‘experts’

  2. Budgee SmugglerMEMBER

    Morning David, will the bond buying program that has commenced continue to hold up markets in the US and how much of the already announced stimulus has been spent/invested? Thanks

    • Budgee Smuggler, we would all love to know the answer to the first part of your question.
      When qe1 began in late 2008, the market did rally, but there is no god given law that just because the central bank increases base money (and hence reserves), stocks will automatically rally.
      Around 2008, the inflation rate was low but the economy did not experience deflation (I am a bit hazy on this, but I think that is right).
      It will be interesting this time because qe will be occurring as the economy heads into deflation.
      Debt and deflation won’t do the economy any good, so it will be interesting to see how stock markets go.

        • Stocks are a bubble, people are buying because they believe stocks are going up, not because of any fundamentals.

          By definition a bubble.

          • don’t really think that’s true at all

            Companies have revenue/earnings, and pay dividends (or may pay dividends in the future)

            In a world of eternal zero or negative interest rates, any PE ratio is rational

          • That presumes companies are profitable and thus yield more than zero return.

            A very unsafe assumption. Bankruptcies are just getting started. The reason interest rates can be zero and people still buy bonds is that you get safety ie return of capital. You don’t get that buying stocks just as companies start going bust.

            It’s a bubble. People are buying because everyone else is buying. Prices will keep rising! This time it’s different! “Don’t miss out”. They think you gotta get on the train and that’s it.


          • Partially true – stock prices are forward looking which is why I said “may pay dividends in the future”

            The lockdown will cease and activity will return, but the increased M2 is forever

          • Money printer has to compensate for the lost expansion of money, ie the debt written off, the debt paid down, and the new debt not taken out because economic activity is contracting.

            The money printer is not operating in isolation.

          • you only have to look at an M2 chart to see they have that more than covered

          • For now. The debt problems haven’t really hit yet.

            Also not all of the M2 growth is going into stonks.

            I don’t dispute that there’s a shed load of money printing going on.

            I do question the idea that this means stocks must and can only go up. It’s punter thinking.

    • DingwallMEMBER

      they aren’t stupid

      Yeah those gun-toting, three-toothed, bearded guys and gals venting their anger on street corners looked real smart.

    • I don’t know if Australians will stay home though. I’m already seeing a large increase of traffic on the roads, and it seems most people think the virus is overblown. I guess the real test will be when the government support runs out or is pulled.
      Just heard yesterday from a friend who does the accounts for a JB Hifi store. Apparently, their revenue is 3 times more than usual over the last few months vs previous years.

      • Thank M65. I believe it. It’s been an opportunity for people to get a new phone or buy a new digital SLR, tv, laptop, whatever while the lockdown / working from home has been on. People buy items like this in uncertain times. Also, dollars that may have been originally destined for travel/holidays etc. are flowing to consumer discretionary retail in my opinion. I include Bunnings, Officeworks, in that group also. It may come as a surprise to some but people generally don’t like saving money.. if it accumulates they need to spend it and overseas holidays and the like are out of the question now.

      • Lots of entitled types are travelling to the South Coast from Canberra & Vic for weekends, mingling & no distancing, have been since Easter. Cops are doing SFA! A lot of Retailers who you’d think would be turning a blind eye don’t even want them here, stories of a few taut moments. Consensus if we had our way would be to blockade all roads in so we could go about our thing unimpeded. This from a tourist/retirement town that needs external support.

  3. alwaysanonMEMBER

    You keep having these dramatic headlines every day that get me excited (have some USD to move across) but then I see that it is still ~0.64-0.65…

  4. SanchezMEMBER

    Any more news as to why Baltic Dry has collapsed again so soon?
    This from SCMP
    “The Baltic Dry Index, a daily measurement of the costs of shipping raw materials like iron ore, coal, cement and steel, has plunged in recent weeks as the global economy wobbles, a sign of weaker industrial activity in an index which is viewed as a key early indicator for manufacturing and consumption.”
    This is the headline from that story
    “Coronavirus: evidence of demand shock wave to China’s economy piles up, as South Korean exports collapse”

    and wow

  5. I wonder when the correlation will decline? I can’t think of anything other than maybe commodities bailing or China really shafting Oz?

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