Australia dollar jumps as virus shock cheers stocks

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was up last night:

The Australian dollar jumped anyway:

Oil was up:

Gol held the break out…just:

Dirt now has a firming trend:

Miners were up:

EM stocks too:

Junk struggled:

Bonds were bought:

Stocks jumped:

Westpac has the wrap:

Event Wrap

US weekly jobless claims rose 1.48m (vs 1.32m expected), but continuing claims slowed at 19.52m (expected 20.0m, prior 20.29m). May advance good trade deficit widened to -USD74.3bn (est. -USD68.1bn, prior -USD69.7bn). Wholesale inventories fell 1.2%m/m in May, and retail inventories fell 6.1%m/m (est. +0.4%m/m and -2.8%m/m respectively). Durable goods orders rebounded 15.8%m/m in May (est. +10.5%m/m), with ex-transport rising +4.0%m/m (est. +2.1%m/m). The third take on 1Q GDP was broadly unchanged (-5.0%q/q annualised, private consumption -6.8%q/q annualised), though core PCE did tick up slightly to 1.7% from prior 1.6%. Kansas City Fed manufacturing index for June rose to +1. Although the volume of orders rose to +6 (prior -25), new orders and employees remained negative (-8 from prior -25, and -6 from prior -13 respectively).

Event Outlook

New Zealand: Although ANZ consumer confidence has picked up on an easing of lockdown restrictions, the level remains low (prior: 97.3).

China: Negative industrial profit growth (prior: -4.3%yr) hints at further stimulus measures being necessary to support state-owned and private business.

Japan: The market expects a marginal weakening in Tokyo CPI from 0.4%yr in May to 0.3%yr this month as prices fall on subdued economic activity and oil price declines.

SingaporeIndustrial production has defied expectations by withstanding the global economic deterioration until now. The market anticipates a fall from grace to -7.1% (prior: 3.6%).

Europe: Recent ECB actions have primed money supply for strong growth. The market expects growth to increase to 8.6%yr in May from 8.3% in April.

US: Income was temporarily boosted by federal payments under the CAREs Act resulting in a strong gain for personal income of 10.5% in April. Both the market and Westpac expect a reversal in May (-6.0% and -4.5% respectively). The opposite is anticipated for personal spending, a robust gain to follow the collapse seen in April under lockdown (-13.6% in April). PCE deflator measures are likely to be flat as oil prices remain soft and economic slack is felt. The final estimate for Uni. Michigan Consumer Sentiment will confirm the uplift reported by the flash estimate for June, as employers restored jobs (prior: 78.9, market f/c: 79.0).

The US recovery has started to slow as the virus runs riot, Apple closed more stores, Florida and Texas “paused” their reopenings:

Let’s not kid ourselves that any of that mattered to the Australian dollar. Only this did:

The depression is worsening so buy MOAR stocks and Australian dollar!

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


    • MountainGuinMEMBER

      With ‘goods ‘ still falling I wonder how bad USA P/E ratios will get once companies update their sales and earnings.

  1. Serge UpwardsMEMBER

    Remember CDO’s those neat little packages full of subprime mortgage loans that bought the world to its knees during the GFC ?
    Well, they have been replaced by CLO’s, chock a block full of dubious subprime business loans. This is another potentially smelly financial turd to add to the growing collection………

    A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs.

    • DominicMEMBER

      I wouldn’t worry about CLO’s too much — the Fed will buy those too when they bust.

      They will fight any and every fire as it flares up.

  2. BrentonMEMBER

    That there ramp at the close. Epic.

    Sea of bad news, but CNBC finds something to grope at for a reason… how about instead of a catalyst, just ‘someone’ smashing the close in vertical fashion.

  3. BrentonMEMBER

    @DLS As an aside, are you able to do a piece on the importance of the unprecedented surge in the Treasury General Account (TGA)?

    A lot of noise about that $1.5 trillion balance and the fact that treasury have committed to running this down to $800 billion. Many are hypothesizing that Mnuchin has set this up as a liquidity slush fund, so as to drown markets going into the election?

    My problem is that I don’t know what the mechanism is for releasing that liquidity upon risk assets. Treasury needs fiscal spending programs to use that cash on?

    • Ivanka LottMEMBER

      It will be spent on keeping the bailout of main street (eg PPP, stimulus checks) going after the expected September expiry and to juice up the markets going into the election. The Trump administration expects the Fed will try not to be political close to the election, so may be more conservative with the money printing until after the election. Whether Trump can get a pre-election stimulus bill of sufficient magnitude to sway voters through congress is another matter.

      • BrentonMEMBER

        Thanks, Ivanka. So pretty much an insurance policy against the Fed pulling back on QE. Can fund their pre-election spending binge, without having to worry about the Fed pulling back on funding issuance and draining liquidity from the system.

    • DominicMEMBER

      In terms of the effect it has on risk assets, when the TGA is raising money it is issuing Treasuries into the market which drains liquidity which is, of course, negative for risk assets (all else being equal). When the slush fund is run down, Gubmint is spending money in the economy, not on risk assets. And you’re right, there’s likely to be a huge cash splash ahead of the election to bribe voters and make the economy appear rosier than it is – the Q3 GDP number in election year is almost always a doozy.

      In terms of ‘draining liquidity’ the TGA boost this year has probably had little negative effect on risk assets because the Fed has counter-acted that drain with huge supply of liquidity i.e. deficits are being directly funded or, said otherwise, MMT has arrived (unofficially).

  4. This second wave is mostly just a continuation of the first wave as the virus slow-burns through the southern states. Deaths will likely trend up again for a second hump but it’s not as bad as the case trends make it look (much more testing done now than in the early days). It’s mostly priced in already.