Australian dollar tumbles as stocks launch

See the latest Australian dollar analysis here:

Only the property crash can sink Australian dollar now

DXY was strong last night:

So the Australian dollar was weak:

EMs were even weaker:

Gold is trapped at the break out line:

Oil gained:

Dirt too:

Miners were mixed:

EM stocks flamed out:

Junk did better:

Bonds sold:

Stocks have recovered half their recent losses:

Wrap from Westpac:

Event Wrap

There were reports that Florida’s COVID infection rate had risen to 3.6% from a 7-day average of 2.5%, Texas hospitalisations had risen 8.3% (highest in 2 weeks), and Beijing had imposed activity restrictions (closing schools and stopping travel to Beijing).

Fed Chair Powell maintained a positive and accommodative tone. Following his testimony, Powell responded that yield curve control had not been decided upon and was at the early stages of being evaluated by the FOMC. Uncertainty about the recovery ensured the Fed’s accommodative stance whilst remaining flexible.

US retail sales headline bounced sharply in May, +17.7%m/m (vs est. +8.4%m/m, prior revised to -14.7%m/m from -16.4%m/m. The control group rose +11.0%m/m (est. 5.2%m/m, prior revised to -12.4%m/m from -15.3%m/m) and ex-auto and gas rose +13.4%m/m (est. +5.4%m/m, prior revised t -14.4%m/m from -16.2%m/m). Following April’s record fall, May’s record rebound still leaves sales substantially below 2019 levels.

May industrial production only rebounded +1.4%m/m (vs est. +3.0%m/m, prior revised to -12.5%m/m from -11.2%m/m), with capacity utilisation remaining low at 64.8% (prior revised to 64.0% from 64.9%). The NAHB homebuilder confidence survey rose more than anticipated to 58 (est. 45. prior 37). Although the NAHB economist cited concerns over employment and virus risks, he noted increased demand for single family, low density suburban homes.

Eurozone ZEW June survey posted large increases in economic expectations, although current conditions remained weak. Expectations rose for Germany to 63.4 (est. 60.0, prior 51.0) and Eurozone to 58.6 (prior 46.0), while current conditions languished at -83.1 (prior -93.5) and -89.2 (prior -95.0) respectively.

Event Outlook

Australia: The Westpac-MI Leading Index slumped to -5.16% in April, a rate comparable to the lows seen during the GFC and in prior recessions. The May reading is likely to see a further deterioration given many components of the index are still extremely weak and as the headline measure from the survey is a 6-month annualised changed – heavily impacted by the severe declines of March and April.

New Zealand: The annual current account deficit narrowed to -3.0% GDP in Q4 last year. Westpac expects it to narrow further to -2.7% of GDP as goods exports rise slightly and imports decline sharply.

Europe/UKInflation will remain absent in both the Euro area and UK in May. Consensuses estimates sit at -0.1% and 0.0% respectively.

Canada: The May CPI is likely to be weak given expectations of a 40% contraction in economic growth. The market predicts a flat result for inflation of 0.0% from -0.2% in April.

US: A rebound in housing starts and permits for May looks promising with the market forecasting large gains in both (starts – market f/c 23.5%, prior: -30.2%; permits – market f/c: 17.3%, prior: -20.8%). FOMC Chair Powell will complete two days of testimony in Washington (02:00 AEST) and Mester (06:00 AEST) will also speak.

There was much excitement in stocks owing to the US retail report but it was not very good at all, down 4% in May year on year:

We can expect some kind of pent-up demand in the US’ mighty consumer but it’s going to get killed by the ongoing virus spread in short order:

It has already landed on eating out:

Jay Powell tried to warn as much last night. All stocks heard was MOAR stimulus, which is the equity market’s singular refrain for now.

It was left to forex to price risk as virus cases rose and China and India mulled war. The USD rose and the AUD got a rare break from rising with stocks:

They still appear joined at the hip.

David Llewellyn-Smith
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  1. DominicMEMBER

    You have to laugh – on the wireless this morning the ‘finance’ reporter found every ‘fundamental’ reason to justify the stellar performance of stocks but not once mentioned the trillions of dollars of liquidity that the Fed has pumped into markets!

    It just goes to show that the MSM has no interest in sharing with its audience facts and maybe some useful knowledge — it’s all about narrative.

    • The Traveling Wilbur

      Yes. A very specific one.

      When I was a lad, I used to think about the actions of politicians (and how they were reflected in the media) in terms of ‘how will this affect the statistically average Joe and Jolene’, while always trying to think of them as real people, with real, impacted by policy change, lives.

      Now it’s much simpler: policy change ‘success’ can be measured simply by how many more ads Hardly Normal place on Channel 7.

      • GlendaFMEMBER

        Speaking of ‘hardly normal’ (haven’t heard that one for a loooong time…)
        I accidentally wandered into one of his stores recently after a loooong time refusing to do so.
        And I was shocked, maybe its me who has changed in terms of quality/style, but their products were rubbish, both lacking in any quality and cetainly no class or style.
        Is this a reflection on what people want or on what Jerry’s profit margins will allow him to carry?

        • DingwallMEMBER

          He has Domain as the “more upmarket” Hardly Normal. With either store, their target audience is not the discerning (lol) customer.

        • Jumping jack flash

          Its just the great debt deflation coupled with globalisation.
          Most of HN stuff is Indonesian, the same as you find anywhere.

          Joe and Jolene have a new massive, massive mortgage and stumble into HN with a couple of dollars to pay every month on a 48 month interest free credit card for a houseload of new furniture. This is all they can afford.

          Jerry’s not stupid.

          • The90kwbeastMEMBER

            I find HN really appeals to the cashed up bogans buying overpriced everything on flexirent

    • Ronin8317MEMBER

      Any MSM reporter telling the truth will become up employed before their segment is aired.

  2. DingwallMEMBER

    It’s all a bit late……………Powell says he “doesn’t want to run through the market ‘like an elephant’” while, in his head, reliving
    riding the elephant in white armor through the streets shouting “brrrrrrrrrrrrrr”

    The guy should be taking a kicking from all sides (except the Robinhooders, Blackrock,,Hertz and the bots of course).

    • Ronin8317MEMBER

      While the Fed is a part of it, the market in general have stopped looking at metrics like profit and debt, and go on price signal alone. For instance : AfterPay : went down 80% at one point, now it is worth more than Cochlear.

      • DingwallMEMBER

        Afterpay has been batsh!t crazy……….I wonder if Afterpay and Robinhood have some sort of “relationship”

      • But Afterpay make high technology medical devices which improve the quality of life of patients while Cochlear preys on people’s desires to buy things they can’t afford.

  3. Just got off the phone taking to a Colleague in the US…Maryland on the east coast.. His entire company has been working from home since March and it doesn’t look like changing soon. About 300 new cases per day statewide if I heard him right.

    It’s not good on the ground over there, despite the nonsense of the “markets”.