Australian dollar loses its luster

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DXY rebounded then faded last week. Same for EUR:

The Australian dollar lost its luster:

I warned you gold is volatile. I would equate this correction with 2003 as the world emerged from the tech wreck and gold popped then dropped as it entered the next phase of the great Greenspan bubble:

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Oil has no chance:

Copper is worrying:

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Big miners got whacked:

EM stocks did better:

Junk got flogged:

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As US yields popped:

Stocks are more or less unchanged at the highs:

The only chart that matters faded materially last week:

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Despite a week of fireworks, nothing has changed. Russia forced its citizens to take a vaccine that may kill them all in six weeks. We’re still a long way from a widely available vaccine so long as leaders are rational about it. A dangerous assumption these days, most certainly, but if the pandemic has taught us anything, it is that handing ammunition to anti-vaxxer loons is a VERY bad idea.

This is more fakeflation in my book. There is no reason here to back up yields and trigger stock plus forex rotation:

  • China is lukewarm at best and investing heavily in more deflation.
  • Europe is decent but wrestling with a resurgent virus and it is always deflationary.
  • The US remains the consumer of last resort and it is completely stuffed by the virus, with an unresolved fiscal cliff approaching in two weeks::
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What we are likely seeing at the moment (provided the fakeflation holds) is a correction in overheated markets. And it may take a while. The ship is leaning heavily towards the fakeflation winners of a weak DXY:

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And strong EUR:

So the market has some wood to chop before it can push through these overheated positions.

The Australian dollar will mark time as well, if so.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.