Australian dollar rocket ready for launch

See the latest Australian dollar analysis here:

Macro Afternoon

DXY kept falling last night and is at obvious support. Vice versa for EUR:

The Australian dollar eased anyway:

Oil and gold were stable:

Metals were strong:

Miners fell:

EM stocks a little as well:

Junk was OK:

Treasuries bid:

With the return of virus fears, value rotation reversed:

Westpac has the wrap:

Event Wrap

US Oct. retail sales rose 0.3%m/m (vs. est. +0.5%m/m), with ex-food and energy rising only 0.2%m/m (est. +0.6%m/m). The Sep. readings were revised lower to a still strong headline pace of +1.6%m/m from +1.9%m/m, ex-food and energy revised to +1.2%m/m from 1.5%m/m. The pullback to the slowest pace of growth in six months is disappointing, especially in the run up to the holiday/festive season. 4Q sales data is likely to be distorted due to the rise of COVID cases and restrictions and the lack of renewed support packages. Industrial production rose 1.1%m/m (est. +1.0%m/m) in Oct., with gains broad based, and the fall in Sep. revised to -0.4%m/m from -0.6%m/m. Capacity utilisation rose to 72.8% (est. 72.3%, prior revised to 72.0% from 71.5%). The NAHB homebuilder sentiment survey rose yet again to another record high (three in a row) of 90 (vs. est. unchanged at 85). The survey cited record low mortgage rates and the shift to suburban house buying as the drivers of the 17% annual rise in home sales.

Event Outlook

Australia: RBA Governor Lowe will participate on the panel at The Australian’s 2020 Strategic Forum (9:00am). The Westpac-MI Leading Index rose to -0.48% in September, consistent with the Australian economy moving out of recession. The October release will include several positive component updates, including strength across the ASX200, the Westpac-MI Consumer Expectations Index, commodity prices and dwelling approvals. Following this, Westpac is expecting the Q3 wage cost index to edge up 0.1%. The recent rise in underutilisation is set to put further downward pressure on wages in coming months.

Euro Area: Westpac anticipates a 0.2% increase in the final print of the October CPI. Annual price growth remains in deflationary territory at -0.3%yr, with services inflation particularly sluggish.

US: September total net TIC flows should continue to reflect the robust demand for US Treasuries. October data for housing starts will be boosted by low rates and families seeking more space (WBC f/c: 2.5%), while elevated building permits point to a strong pipeline (WBC f/c: 2.0%). The FOMC’s Williams (04:15 AEDT) and Bullard (05:20 AEDT) will speak.

The US virus powers on:

Especially in Trumpland (former in the Mid-West):

Because folks refuse to close the economy enough to slow the contagion:

Yet all this means is that the lockdowns don’t come until hospitals are overwhelmed and then authorities have no choice, as is happening now in the Mid-West. It is an epic failure of reason in policy and a people.

Meanwhile, in Europe, the lockdowns have come and cases are tumbling along with the eocnomy

So, Europe will come of it out earlier and better off in the end.

At this stage, it is clear that markets are poised to smash DXY and inflate everything commodities and EM. This will include the AUD.

It is being held back by the Atlantic virus shock which will get much worse in the irrational US yet but will improve in Europe from here. A recovery in Europe in Q1, 21 will be aided by a flattened virus curve and vaccines:

The US will be starting from a MUCH higher virus base and its recovery will be slower.

This sets us up for the DXY smashing and AUD spike that markets are positioned for.

David Llewellyn-Smith
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Comments

  1. Why do you think Europe will come out of it much earlier than the US?
    Europe will slow the spread and flatten the curve but as soon as they take the foot off the virus will roar back to life. Nothing wrong with flattening the curve. It makes sense. But where is the evidence to support a earlier end to the virus in Europe than the US?
    If anything the Spanish flu evidence suggests the let it rip approach finishes things earlier albeit at a very high cost.
    It’s a beast to control when you have big populations with shared borders.

    • Europe has been in a significantly worse situation than the US for a very long time – people love pointing the finger at Trump – but Europe has been smashing the US on deaths and infections by a huge margin.

      Their willingness to obey social distancing measures is also completely shattered outside the most progressive Scandi nations – even France and Germany have lost the people.

      Europe is far worse than being presented here.

      I would also suggest a collapse in European and US demand due to Covid and a 15% collapse in Chinese demand for our exports and a 100% collapse for our apartments and tourists / students is having a significant effect.

      RBA plunge protection team can be seen in the consistent sizes of the purchases of the AUD consistently propping it up and almost always going back to the same long term level (somewhere around where our peg used to be prior to being floated)

      ….

      Because a complete collapse in demand for the AUD and terms of trade is of course a sign of booming AUD….lols.

      Its all rigged now.

      • happy valleyMEMBER

        “RBA plunge protection team”

        The mini-me team – at the same time a joke but also feral.

        What next from the sheltered workshop? -5% pa interest rate to get the AUD down.

        Like every other CBer, Captain Glenn and you have helped destroy the Strayan financial system in pursuit of the housing price and population wage slavery ponzi – for what?

        Some years ago, there was possibly some basis for some respect for the RBA, but those days are gone and never to return.

      • “somewhere around where our peg used to be prior to being floated”
        Which begs the question: What was the point of Floating? Has, it worked as envisioned? Are we better off today with a deregulated economy than we were before; some of us sure are, but most?
        The next question then becomes: “Should we refix the A$, and to what?”

      • When you write a narrative and post counter evidence appears, rather than just admit you are wrong, create another narrative that infers the prior narrative to be valid.

  2. No vaccines will be deployed in Q1 of any meaningful magnitude.

    Testing has produced a 95% efficacy rate with multiple deaths in the most promising pfizer – approval will take several months after testing is complete around January – so approval late March if all things go well. From there production ramp up will take 4-6 weeks – so first roll outs on a mass scale will be April May.

    In my personal view there will be massive resistance due to the financial interests behind certain vaccines and how regulatory approval has been managed – there are already HUGE conspiracy theories circulating and they will make the Anti-Covid – global warming denialists look like Carl Sagan.

  3. chuckmuscleMEMBER

    “This sets us up for the DXY smashing and AUD spike that markets are positioned for.” Because markets have never disappointed positioning? Look at the BofA survey, fundies are long EM, small cap, value, banks and a steeper yield curve. It’s as if the Covid clean-out actually happened and we are into a whole new cycle set for years of reflation.
    What ever happened to buying when everyone is fearful and selling when everyone is greedy? We’ve seen +12% returns in 2 weeks and extremely long reflation positioning.

  4. Although it is looking unlikely right now due to a couple of no votes and a few R senators quarantining due to COVID but watch whether Judy Sheldon gets a seat on the Fed Board. If she gets in Trump will have 4 board members out of 7. Although Sheldon is probably the most extreme there is a reasonable chance the Fed may not be as accommodative during a Biden administration meaning a stronger USD/weaker stock market. Trump had no qualms using his twitter cudgel on Jay Powell when the stock market tanked enough however Biden will likely look to ‘stay out of the fray’.

    • happy valleyMEMBER

      Whoever is on the Fed board will do what’s in their mates’ and their interests – and there’s only one answer to that: booming asset prices, whatever it takes.

    • Judy Sheldon may be one of the hawks on an monetary panel but she’ll be out-numbered by the rest. All doves.

      Also, Trump put the screws on Jay Powell because he wasn’t accommodative enough! Which flies in the face of that Judy Shelton appointment. Mega money printing is coming (again) in 2021. You can put your house on it.

      • All changes when a Dem is pres. You know just like McConnell didn’t really care about deficits and debt when Trump was in and cared about it a lot when Obama was in and is starting to care about it again now that Biden will be the next pres.

        • True enough but the Senate/Congress and Supreme Court dynamic is fundamentally different to the FOMC. You only need a basic majority on the FOMC to agree policy and the vast majority on that committee are doves and cut from the same scholastic cloth. Shelton aside (perhaps), they are all dyed-in-the-wool Keynesians. Once Trump is out of the picture the Dems and the Fed will be all over MMT again.

  5. Point BreakMEMBER

    The next 3 weeks are going to be very interesting on both sides of the Atlantic. Peak cases, peak bitcoin, peak stock market, peak insanity. It’s like the financial equivalent of Apocalypse Now. Maybe Grantham is right, maybe we are nearing the top of this ‘Real McCoy’ bubble.

    • It’s funny because folks like becker for example and others have been making those sorts of calls world war three, nuke Iran etc and yet it still hasn’t happened. You just wait though right, any moment now.

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