Australian dollar pressured as virus returns with a vengeance

See the latest Australian dollar analysis here:

RBA has indeed joined the global currency war and thank god for it

DXY eased Friday night:

Australian dollar was weak anyway:

Gold too:

And oil:

Metals are schizoid:

Miners are trending lower:

EM stocks popped:

Junk too:

Treasuries were sold:

As stocks fell a bit:

There was the usual fiscal scuttlebutt to be ignored in the US. It’s not coming. What is is more virus and lot’s of it. Cases are surging:

Hospitalisations have turned decisively and deaths are next with a 2-3 week lag (meaning next week or so):

By the election, we’ll be at all new highs:

By inauguration, I expect it will be an outright crisis again.

Europe is getting worse fast as well though deaths are much lower:

Even so, local lockdowns are spreading across the continent. Ireland is mulling total lockdown.

On both sides of the Atlantic, the economic damage is about to turn more severe again as governments put in limits and the private sector retrenches as deaths climb, and there’s no more fiscal coming for 4-5 months.  Bunds are bid out the wazoo:

The ECB is dreamin’:

Then there is the US election itself which, despite the “blue wave” is unlikely to resolve quickly though hopefully peacefully, via Goldman:

Even more so for the senate which is vital to the outlook for fiscal stimulus:

The Fed will be needed if markets break, as they probably should, via Goldman:

  • First, the FOMC could adjust the composition or pace of asset purchases.  Several Fed officials have expressed at least lukewarm support for this option, while a couple have been skeptical.
  • Second, the FOMC could extend or adjust its new credit market facilities. Goldman expects Fed and Treasury officials to extend the facilities even if the economy performs well, but Hatzius sees little room for doing more with them.
  • Third, the Fed and Treasury could ease terms on the Main Street Lending Program to aid small businesses. While some Fed officials are sympathetic to this, but Treasury support appears doubtful.

We previously argued that the unanimous opposition of FOMC participants to negative rates made this step very unlikely.  At this point, we think any window of possibility that existed has likely closed because labor market conditions have improved surprisingly quickly and are probably no longer dire enough to persuade Fed officials to rethink an option that they clearly dislike.

Of course, after March or so we get vaccines and (probably) Biden stimulus (though also stronger shutdowns and tax hikes) so the equity market may just look over the valley.

But that gap is widening into a virus and political gulf and the Australian dollar is in danger of tumbling into it.

David Llewellyn-Smith

Comments

  1. Much water to go under the bridge before vaccine is available and it is not a fete comple.Remember being in medical school and being told chemotherapy was the answer to cancer and here we are today.In addition the biotech industry have a habit of not telling the truth.Then we have the willingness of a jaded populous which lacks in trust and whether they will take the vaccine.

    • A bloke called Derek Lowe writes a blog called In the Pipeline.
      I think he is medically trained, and works specially in the area of vaccine production.
      Well worth a look.
      He’s written recent articles on vaccine types, current research in Covid vaccines, and general problems with vaccine production from storage problems( some need to be stored below 70 below zero), roll out issues and even ampule etc production.
      Really well worth a read.
      The end result as I read it is it’s all going to slower than politicians would like, safety testing is problematic, efficacy is problematic, many vaccines require multiple doses( not interchangeable between vaccines, produce solid side effects, and will require gold standard record keeping and flow up.
      Good luck with all that I would think.

    • This guy’s got a fair idea on vaccines.

      ‘In the last 25 years, pharma companies worldwide have developed seven “truly new” vaccines, Frazier said, and Merck was responsible for four of them. Scientists have been working on an HIV vaccine for decades to no avail, he added.

      On the scientific front, Frazier brought up the fact that it typically takes several years or longer to develop vaccines. Merck won approval for its mumps vaccine after four years of research and development, a record, and it took five and a half years to score an approval for Merck’s Ebola vaccine.

      What worries me the most is that the public is so hungry, is so desperate to go back to normalcy, that they are pushing us to move things faster and faster,” Frazier said. “Ultimately, if you are going to use a vaccine in billions of people, you’d better know what that vaccine does.’

      https://www.fiercepharma.com/vaccines/merck-ceo-frazier-says-covid-19-vaccine-hype-a-grave-disservice-to-public

      • Yes and WHO shows that remadivir, interferon and hydroxocloroquine don’t work, Eli Lilly, J&J and AstraZeneca all have their drugs on some sort of suspension.

        Worries me we could see a vaccine panic.

          • I holidayed through Northern Italy last September, flying back through Changi in early October. Got back to NZ and came down with the worse flu I’ve ever had. Dry cough so much it left me gasping for air, intense lower chest pain so I couldn’t sleep. Went to the Dr and they tested me and said it was ‘viral pneumonia’ and sent me home to rest. Gave it to my father and he ended up in hospital. It was God awful… When I read stories saying this thing was circulating in China and places like N Italy in August-September last year, I can’t help wondering…

          • PaperRooDogMEMBER

            Yes, I think I got the same one (if not covid) when we returned from Europe for Xmas, but got the worst flu & unusual symptoms but I couldn’t get tested here in Aus back then. My sister had same symptoms eg stabbing pain in chest & tested negative for covid, but who knows if the test was accurate. Luckily we didn’t get it as bad as you. Will forever wonder if it was covid

    • It’s amusing to watch a majority of the population have blind Faith in science when it suits their narrative/politics while being able to totally disregard solid scientific reality that will likely crush them

  2. It’s amusing to watch a majority of the population have blind Faith in science when it suits their narrative/politics while being able to totally disregard solid scientific reality that will likely crush them

  3. The three flu pandemics of the 20th century followed the same pattern (1918-19, 1957-58, 1968-69). They peaked in two consecutive winters before herd immunity was achieved. It is amazing that, with all our modern technology, we are still following the same path. If there were a coordinated response in the beginning we could have nipped it in the bud, but human nature and lack of organization screwed it up.

    • The biggest problem with idealism is human nature. If only everybody did the right thing then the world would be perfect. There is no use in creating rules and models that require 100% adherence to be effective. Among all the people I know I still don’t know anyone that has followed our Victoria lockdown rules perfectly. Everyone is now a criminal at large. Luckily we didn’t need 100% compliance to achieve to goal of reduced case numbers. But then maybe a different approach would have been preferable in the first place? Oh well, Dan has the polls and the science on his side apparently (at least the media minus Sky).

  4. I’m still thinking the opposite to DLS on many points. Admittedly he is probably smarter than me though.

    1/ Trump for the win.
    2/ No effective vaccine in mass production before the end of 2021 (if ever)
    3/ plenty of monetary stimulus on its way and stonks to the moon.
    4/ this time next year the COVID will be “just another flu” to avoid catching.

    Based on nothing but my hunches. This does not constitute investment advice. Caveat emptor.

      • No order intended but even I’ve lost a little faith in point 1. Neither candidate is worth getting out of bed for. I do feel that the massive anti trump vibes in the media are the vocal minority though, meaning there is possibly a large cohort of silent (media ignored?) voters ready to put a tick next to El Trumpo’s name. Contested election outcome almost a certain.

        • It’s because the US media are heavily skewed to the Dems. Outside of Fox, name one other mainstream conservative news outlet.

          It means we are treated to a deluge of anti-Trumpism which skews perceptions of what the result will be.

          • Given the complete and utter dominance of Fox News, how is the number of alternatives relevant ?

            From memory they have something like twice the viewers of the next largest entity.

    • To your points:
      1. The markets are currently suggesting that Trump will win.
      2. An effective vaccine is not around the corner
      3. Monetary stimulus will be a permanent feature from now until it destroys the current monetary system – and yes stonks to the moon.
      4. Not sure – but possible.

    • FUDINTHENUDMEMBER

      1. Dems will win and also possibly the senate. But Trump will carry on for the 2 months until inaugeration, questioning results, throwing his wreckingball around which will buffet markets
      2. Agree on the vaccine. There will not be a silver bullet, and even if a “sentinel” vaccine is found (unlikely), vaccine rollout to achieve a reasonable level of coverage will take months/years and be in fits and starts.
      3. Govts/cnetral banks will trow everything at it to fill the gap. But at some point (might be s&p 10,000) stocks will get annihlilated.
      4. Still too much dry tinder (un-infected populations) to rip through. Unsure about long-term immunity. I’d give this a couple more years to normalize.

      • If Biden wins…and Biden said he’ll whack higher taxes on the rich and on capital gains…wouldn’t it be prudent – when he wins – to sell out of stocks that made you a motza before Dec 31 and avoid the potential capital gains tax? Especially in a market that has forward earnings at miles below current prices? Where does the stock market go in the face of such selling?

        Given junk/covenant-lite/lien loans in the US are currently recovering about 15c in the dollar – way lower than in the GFC – so who in their right mind wants to be owning high yield junk credit when we haven’t even had the recession yet?

        Eviction moratoriums and rent holidays end in the US on Dec 31, as do a host of government support payments. What does that daisy chain unwind end up doing to all the renters other than throw most of them in the street – not to mention the income statements and balance sheets of the owners of said properties?

        As for Straya, when Cormyn at the CBA is idiotic enough to boast that cash in transaction accounts grew at an unprecedented rate in the last few months, therefore all is good, without even acknowledging that was all jobkeeper/seeker payments landing, and they’re about to now diminish and evaporate PDQ.

        This is all going to get very ugly both in terms of mental health and crime as people can’t afford to eat or keep a roof over their head.

Leave a reply

You must be logged in to post a comment. Log in now