Australian dollar rocked by valuequake

See the latest Australian dollar analysis here:

Macro Afternoon

DXY is stalled perhaps in part by the European virus which hardly makes a EUR bid exciting:

The Australian dollar likewise

Gold bounced:

Oil took off. There’s a glut but the market wants more:

Metals were firm:

Miners have reversed spectacularly:

EMs fell:

Junk is fine:

As US yields back-up some more:

Which did not help stocks as the tech, growth and momentum bubble deflates:

Westpac has the wrap:

Event Wrap

US NFIB small business confidence survey held steady at 104.0 (vs. est. 104.1), remaining above the average for 2019 (103.0).

Eurozone ZEW investor confidence survey weakened slightly. The benchmark German expectations index slipped to 39.0 (est. 44.3, prior 56.1), with current conditions falling to -64.3 (est. -63.5, prior -59.5). The Eurozone expectations component pulled back to 32.8 (prior 52.3), with current conditions almost unchanged at -76.4 (prior -76.6).

Other national level data in Europe was mixed, albeit dated. French 3Q unemployment was high at 9%, (vs. est. 7.5%), but Sep. industrial production was solid at +1.4%m/m (vs. est. +0.7%m/m). Italian Sep. industrial production fell -5.6%m/m (vs. est. -2.0%m/m).

UK labour data was solid. September’s unemployment rate was in line, rising to 4.8% (3m/yoy) from 4.5% in August, with the 3m/3m decline in employment at -164k – slightly more than the est. of -150k (prior -153k).

Event Outlook

Australia: The Westpac-MI Consumer Sentiment Survey surged 11.9% in October, driven by the well-received Federal Budget, ongoing success containing the pandemic locally, and increasing expectations of further RBA easing. Domestic developments have been mostly positive ahead of the November update, but outbreaks offshore have worsened materially.

To get an idea of how radical was yesterday’s market moves as growth swung to value get a load of this:

From Alphaville:

Here’s a chart from Wolfe Research which shows just how extreme this reversal has been. It deals with the price moves from Monday’s trading session, and breaks down all listed US companies listed by industry groups before placing each of them into various baskets, measuring things including dividend yield, book-to-market and return on equity. It then charts the way in which the equities of those companies falling into each basket performed over the course of yesterday. As you can see, book-to-market (ie companies that are cheap relative to their book value) and high dividend yield stocks crushed it. High expected growth and momentum stocks got pummelled (open in a new tab to make it large): In fact, the moves were pretty damn bonkers: Based on historical data, the book-to-market enjoyed a 12x standard deviation rally, while price momentum and short-term growth factors suffered from 20x and 25x sigma sell-offs, respectively, on November 9.

The market continued with it today. But there’s a big problem. It’s called the virus. Europe is stalling big time:

And the US is next:

With no or minimal fiscal support:

When the hospitals are overwhelmed and the mortality rate skyrockets, the US private sector is going to lock down in defiance of Trump’s revenge on the American people.

Don’t get me wrong, the vaccine wave is real and coming later in 2021 but there’s another tsunami already crashing into the shore and it does not favour value.

The Australian dollar is unlikely to rise while that is the case.

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


  1. Jumping jack flash

    I cant really see how the US wont lock down under Biden and then they too can experience that unreserved joy that comes with it.

    Not saying that lockdowns are bad, or good, its just that they are the COVID strategy du jour and the US seemed to be crying out for somebody to “do something”, if you believe the media.

    • It will lock down before Biden takes office. It’ll hit 200k a day before the end of the week.

        • That would be a refreshing change — can you imagine people thinking for themselves rather than waiting for the Gubmint to issue them with instructions 😉

          • Agreed that a private-led lockdown, if required, is better.

            But it’s a double-edged sword: private interests frequently wait too long for such a a reaction, and things can end up being worse; a coordinated response, endorsed by the citizenry, can actually be more effective in many cases.

            That being said, I must admit I was really impressed and surprised with just how well, and early, NSW citizens chose to lock down near the beginning of the pandemic – we pretty much led the nation, and then the NSW premier followed on. Credit where it’s due, but I think that’s not normal.

          • That would be a refreshing change — can you imagine people thinking for themselves rather than waiting for the Gubmint to issue them with instructions

            Laws aren’t there for people who do the right thing.

          • This has nothing to do with the law, it’s about people exercising common sense in the absence of a Gubmint edict

    • I don’t think they will lock down like VIC, as I don’t think their culture can handle it (even if it might be good or them).

      I can see things like masks being ‘strongly encouraged’, but not a whole lot more. I could be wrong.

      • There’s not really any workable mechanism for a federal lockdown and trying to impose one would be… chaotic… to say the least.

        But at least there could be some well supported and consistent federal guidelines and recommendations, possibly a nationwide contact tracing program, and support to mitigate the consequences.

        The condoning of various conspiracy theories and undermining of institutions would also go, but I think those lands are irrevocably razed and salted.

  2. Ukraine fnMEMBER

    All good for gold to get back to recent high’s as the vaccine euphoria wanes and C19 cases rise and probable US lockdown eminent in some states.

  3. Received my increase in take-home pay, thanks tax cuts, keep them coming, I expect more, and the government can just earn revenue through selling Oz Assets, they have unlimited assets you know.

  4. Mr Biden promised that nothing much would change and he is delivering……he has already gutted most of his Covid election promises

    North Dakota hospitals already staggering under the load…….the places leading the charge now don’t have the health facilities that New York et al had

  5. Those Sweden Q4 numbers look good. Deaths per day in the single digits for the most part some days closer to zero.