Australian dollar holds as virus runs amok

See the latest Australian dollar analysis here:

Macro Afternoon

DXY was up last night:

The Australian dollar was roughly flat:

Gold fell:

Oil rose:

Metals fell:

Miners were mixed:

EMs stocks stalled:

Junk too:

US yields backed up some more:

Stocks firmed:

Wesptac has the wrap:

Event Wrap

US September home sales surged 9.4% to an annualised 6.54m homes (est. 6.30m) on the back of record low mortgage rates and a surge in demand for single family homes. Weekly initial jobless claims slipped to 787k (est. 870k) and continuing claims fell from 9.397m to 8.373m (est. 9.625m) – the lowest level since March when claims began to surge. The Sep. Kansas Fed survey rose to 13 (est. unchanged at 11).

Eurozone Oct. consumer confidence was close to expectations at -15.5 (est. -15, prior -13.9). German Oct. GfK consumer confidence pulled back in line with expectations to -3.1 (est. -3.0, prior -1.7). French Oct. business survey data held firm at 90 (est. unch. at 92) despite the rise in COVID restrictions.

UK Oct. CBI business trends was firmer than expected at -34 (est. -50, prior -48), with optimism lifting to 0 (est. -17, prior -1). Though acknowledging the better outlook, CBI officials voiced concern over rising COVID restrictions and stuttering EU/UK trade talks.

Event Outlook

NZ: Westpac expects a 0.9% rise in the CPI in Q3 as a result of higher fuel prices and seasonal influences. This would see annual inflation lift slightly to 1.6%yr.

Japan: TheSep CPI will be impacted by the government travel discount roll-off and weak oil prices (prior: 0.2%yr, market f/c: 0%yr). Travel restrictions and business closures have kept both the manufacturing and service PMIs in contractionary territory at 47.7 and 46.9 respectively, though ahead a recovery in South-East Asia should support demand.

Eurozone: The Markit manufacturing and service PMIs for the Eurozone and Germany will be released, with initial signs of a virus resurgence and government restrictions to weigh on business sentiment all around.

UK: British consumers remain cautious amid a second wave of infections. The recovery in retail sales is expected to lose momentum in September and to the end of the year (prior: 0.8%, market f/c: 0.2%). Manufacturing and service activity is also set to decline in October, with services to bear the brunt of tighter restrictions (manufacturing – prior: 54.1, market f/c: 53.1 – services – prior: 56.1, market f/c: 53.9).

US: The ongoing spread of COVID has had a minimal impact on the Markit PMIs which are expected to remain expansionary in October (manufacturing – prior: 53.2, market f/c: 53.5 – services – prior and market f/c: 54.6).

The final Presidential debate from Nashville, Tennessee will begin at 12:00 AEST/21:00 EST.

There are some days when one has to question the sanity of the market. US stimulus theater is ongoing. There is none coming. At the same time, what is coming is the virus, and lot’s of it:

And the death march has roared back right on cue:

Led by spiking hospitalisations that are going to get much worse:

The US economy has begun to roll over and it will get worse as the virus runs riot all over again in winter and the private sector shuts:

Even as the economy loses fiscal stimulus for the next five months.

Yet we have the bond market pricing in a pick-up in inflation based upon an election we haven’t had leading to a bid for banks that will be forced to pick up the tab and this:

I’m all for discounting the future but sometimes you’ve just got look out the window at the people keeling over in the street.

There has to be a risk of a second-round rude awakening for markets.

David Llewellyn-Smith
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Comments

    • The debt monetization is on an unprecedented scale so, yes, shorting the market is going to be a less sensible option going forward. Unless, of course, central banks suddenly adopt a tighter policy stance. But pigs will fly before this happens.

      • US, Australia are finally almost a YEAR later following the EU and two years after Asia rolling out a digital crypto currency.

        All the debt will be rolled over and effectively extinguished and we will reset. Private debts will all remain while sovereigns will have a new parallel currency to roll out their plans with.

        Effectively we will establish a Berlin Wall between the state and institutions with free access to sovereign digital currencies and those weighed down by traditional monetary debt.

        US dollar hegemony will not last through till the end of 2021. Doesn’t matter who wins – another $3 probably $4 Trillion will be injected over the next 12 months and thats completely unsustainable as a currency position – will collapse. They have already unleashed $3 Trillion in their bailouts and purchases.

  1. >The US economy has begun to roll over and it will get worse as the virus runs riot all over again in winter and the private sector shuts:>

    And this will be Australia’s fate too if the virus takes off in Melbourne again. I sincerely hope Dan Andrews can withstand the insane and totally corrupt pressure being placed on him by Murdoch and the LNP.

    • In terms of the stock market, it makes no difference whether you lock down or “let it rip”. Either way it only goes up.

      In terms of everything else, locking down forever as the Dan fans would have it is an egregious violation of human rights.

      • FUDINTHENUDMEMBER

        Hmm the worse the economy gets re:covid the more the Fed will do to “stabilise” things which will goose assets. The more the Fed eases the more other CBs will follow. Assets and pseudo-assets (bitcoin!) goosed to the moon! And this little virus has a looooong way to go.

        All that will work until the fed loses control.

        Cash IS trash.

        Locking down “forever” is being a bit over the top. Melbs will loosen up this weekend and everyone can start going back to their smashed avo, lattes and craft beer and whatnot with a lower anxiety of catching Ben Lee’s disease.

  2. I’m on the ground in Europe and the fear of COVID has been replaced by the cold fear of further lockdowns and the resultant job losses. The misery and disruption politicians have unleashed hasn’t been seen in many countries here since WW2 or the breakup of the Soviet Union.