Australian dollar sags as markets plough into pandemic

See the latest Australian dollar analysis here:

Macro Afternoon

DXY firmed a little last night:

The Australian dollar sagged:

Gold broke support, oil rallied:

Metals flamed out:

Miners took off:

EM stocks tried but failed:

Junk was OK:

Treasuries were sold:

Stocks firmed modestly:

Westpac has the wrap:

Event Wrap

US Markit PMIs rose to multi-year highs, against expectations for a fall. Manufacturing rose to 56.7 (est. 53.0, prior 53.4) – the highest since September 2014, Services rose to a high since March 2015 at 57.7 (est. 55.0, prior 56.9), the Composite index also rising to its highest level since March 2015 at 57.9 (prior 56.3). Markit cited employment (steepest monthly gain since the survey began 2009) as a key driver, along with supply chain issues as new orders also rose.  The Chicago Fed activity survey for October beat estimates, rebounding to 0.83 (est. 0.27, prior revised from 0.27 to 0.32).

Eurozone Markit PMIs disappointed (Composite falling to 45.1, est. 45.6, prior 50.0), weighed down by weakness in Services (41.3, est. 42.0, prior 46.9) and in French PMIs overall (Composite falling to 39.9, prior 47.5). Manufacturing fell less than feared (53.6, est. 53.3. prior 54.8), largely on solid activity in Germany (57.9, est. 56.0, prior 58.2).

AstraZeneca Plc and the University of Oxford followed recent announcements by Moderna and Pfizer in announcing that their Covid-19 vaccine appears to be effective.

Event Outlook

Australia: RBA Deputy Governor Debelle will speak on “Monetary Policy in 2020” at the Australian Business Economists webinar (1:30pm).

US: September data for the FHFA house price index (market f/c: 0.5%) and the S&P/Case-Shiller home price index (market f/c: 0.60%) should reveal ongoing strength in the housing market. Meanwhile, November consumer confidence is expected to decline in the face of rising case counts and waning stimulus (market f/c: 97.9). The Richmond Fed index, which has surpassed pre-COVID highs, is set to moderate (market f/c: 21). Finally, the FOMC’s Bullard (03:00 AEDT) and Williams (04:00 AEDT) will speak.

Exactly as expected in those PMIs. Manufacturing is holding up well amid the global inventory cycle. Services are getting creamed by the virus.

Europe has crushed the curve now:

And its economic plunge has flattened out:

Conversely, the US is still too open to stop the virus:

So it faces further economic downside ahead:

 

I can’t see markets and the Australian dollar breaking free of current ranges until the US virus peaks.

David Llewellyn-Smith
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