Macro Afternoon

See the latest Australian dollar analysis here:

Macro Afternoon

Kayaking in the Cook Islands, 2019: Photo by H. Becker

Risk appetites are back with generally good sessions across the regions stock markets with the latest RBA meeting – a hold – not exciting animal spirits that much in currency land. Bitcoin is only $400 or so off its record high from 2017, staying well above $19000, while the weaker USD is finally helping gold a little, pushing back off its recent extreme lows but still very weak at the $1784USD per ounce level:

The Shanghai Composite is rallying again before its long lunchbreak, up over 1.1% to be back above 3400 points while in Hong Kong the Hang Seng Index is taking back its previous losses to gain 0.8% to 26565 points. Japanese stock markets are bouncing back quickly, with the Nikkei 225 lifting over 1.2% to 26758 points while the USDJPY pair has continued its nascent swing trade higher, almost back to the 104.40 level:

The ASX200 has also absorbed the RBA meeting no-news with a 1% gain to almost take back the previous session loss, but still below the 6600 point level, while the Australian dollar also put on its own bounce, albeit relatively a lot smaller with a 30 pip move higher off last nights lows to the 73.60 level post meeting:

Eurostoxx and S&P futures are surging, up more than 1% with the four hourly chart of the S&P500 showing the consolidation overnight now turning into a breakout opportunity above the 3650 point level as the key psychological 3600 support zone remains intact:

The economic calendar continues tonight with German unemployment and Euro flash inflation figures, followed by US ISM manufacturing.

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Comments

    • Haven’t read the piece yet but was pleasantly surprised to see it was by Junglist, good game was great when he was hosting.

      Edit: good but depressing reading. Rehashes exactly how I felt at the time

    • ErmingtonPlumbingMEMBER

      From that link,

      “In 2013, Australia reached a fork in the road. One side, Kevin Rudd’s governing ALP, had a truly world-class proposal for the future of the country’s internet. The other, Tony Abbott’s LNP Coalition, did not.

      And our mainstream media fucked it up colossally. Not just Murdoch, all of it.

      While our mobile internet is exemplary, currently 5th fastest in the world, Australia’s broadband network continued to slide further down the global rankings, hitting a low of 68th in January this year. Now more of us have some form of fibre, at least some of the way to our homes, that trend has turned around and we’re sitting pretty at 60th – well behind Trinidad & Tobago, but high-five for beating Kazakhstan.”

      Sigh.

      • Shooting for mediocrity continues … recently scummo said that for Aussie businesses to become innovative does not require us to be innovative ourselves, it is perfectly fine if we purchase innovation from overseas. Houses and holes.

    • Great article thanks for posting. I remember it well at the time, the most obvious act of infrastructure vandalism ever. MB was so wrong, sadly taking the LNPs bs hook line and sinker.

    • If media in 2013 felt like a collective madness, it’s nothing compared to 2020. Black is white. Down is up. Political reporting is indistinguishable from sports, anyone can say anything, the fact-checkers need fact-checkers, and as long as we’re tearing each other apart in a culture war, we don’t notice the massive upward transfers of wealth and selling of natural resources.

      Well ain’t that the truth.

    • It’ll smash our economy. The massive increase in our per capita GDP since around 2003 is due primarily to the export boom to China.

      Chinese exports saved our butts after the GFC while much of the world was in the biggest recession since the ’30s.

      If you’re leveraged to the gills and need that new SUV every three years you might be in strife, but I live well within my means and can withstand any economic shock.

      People will just have to learn to live with less.

        • ErmingtonPlumbingMEMBER

          Well I’ve got a mortgage but it’s less than what I’d pay in rent for the same.
          I say bring it on too.

      • Arthur Schopenhauer

        All Australians look set to become Melbournites. Its not so bad. The country will be fine.

      • No iron ore revenues ceteris paribus means a massive hit to Rio, BHP, Fortescue revenues. Flow on effects to AUD, WA jobs, Wa & Fed govt revenues. But lower currency makes manufacturing here more attractive and imports much more expensive. So we will have a sharp adjustment for a year or two, making the COVID recession into a proper recession. We would be in much more trouble if the currency does not fall, as the weight of the adjustment would then fall on domestic economic activity. The Feds would be running mega deficits for a while longer. So yes it will be painful for a while … but not unaffordable.

        • The bit you are missing (my view) is that manufacturing will not be coming back. Not without protections from the Gov. Even if we move our factories out of China, they will be moved to Vietnam or other hub that globalist will pick as China B.
          And in this scenario we will see massive inflation as AUD sinks to 40c.

          • Lower end assembly-line production won’t be back, thats correct. But the higher end and more value added manufacturing is likely to return and thrive because thats where we can compete globally.

          • ErmingtonPlumbingMEMBER

            Protections and tariffs are what is needed.
            Along with all Public transport being Govie owne and using Australia made rolling stock.

          • Arthur Schopenhauer

            There would be a lot of plant to buy, and a supply chain to build. A 10 year project even with a bi-partisan emergency plan and Reserve Bank support.

            @shotgun Hi end manufacturing needs a low end supply chain to thrive. Germany, Japan & the US still have less sophisticated manufacturing. It’s a myth a country can do High value manufacturing without low end manufacturing.

            Look at where the majority of basic hardware in Bunnings is made. Not here. The same place Li-battery drill and laser levels are made.

          • The Traveling Wilbur

            Well lookie lookie. Mexicans calling for Australia to do what Pluckaduck has already announced – Queensland to build trains for QR.

            It’s a Human Rights thingy.
            No, really. It is.

      • your point VP is [unfortunately] so blindingly obvious that the, IMHO, clear majority don’t want to see it.

        We lived through the nauseating ‘Australian exceptionalism’ phase in the immediate aftermath of the GFC which has been consigned to the bins of history, ‘nothing to see here folks’ responses which type of thinking is now playing out as everyone gives a self congratulatory pat each backs for the ‘defeat’ of the pandemic so we can now all get back to ‘normal life’ as if nothing has changed …..

        Live within your means, reject pointless consumerism for the mirage it is and prepare for the chaos coming at us. While I get the ‘delusion and hopium’ so evident in current attitudes and understand how most people don’t/can’t deal with changes and threats, there comes a point where such thinking is ultimately self destructive (think European Jews denying the reality of the Nazis up to and including while being herded into the ghettoes and cattle cars) …

        it’s going to take a little while but anyone who believes that SHTF is a ‘right wing conspiracy’ or some type other denialist fantasy is heading for a very uncomfortable future …

        • ErmingtonPlumbingMEMBER

          I wonder if China ever does try and test Americas resolve to defend their allies all the way up to full Nuclear confrontation, if they might carry out this test not just with reclaiming Taiwan but go the full hog and try and conquer Australia at the same time.
          Maybe they could get Indonesia on board by offering them Western Australia like the Nazis and the Soviets divvied up Poland.
          Nuking 5 of our cities would take out half the population and no doubt the other half could be matched into the ovens by the 14 million Chinese the CCP could settle here.
          That’d only be 1% of their population.
          I mean if ya Gunna go toe to toe with all your Nukes why not aim higher than just gaining little old Taiwan.
          They’ve got the population and the manufacturing capacity to possibly pull it off.
          Especially in a decade or twos time.
          Didn’t Chairman Mao say China could afford to lose 400 million people in a war with the West or Russia?

          • boomengineeringMEMBER

            Went to Nambucca, Macksville and Scotts Head today. Decided not to drive up and back home in the same day so staying at the Old Bar Bowling Club .motel. Bit steep at $160 for just my lonesome.

          • Arthur Schopenhauer

            US Military doctrine has a nuclear war lasting 30 minutes start to finish. Nuclear War means an all out War.

        • It’s not obvious at all. Excessive trade with China has re-oriented exports to lower value adding, has shifted the workforce to low skilled industries and has made us a less productive economy.

          The economy has sailed along despite this largely due to comparatively good governance and effective management by the RBA. We are fortunate to have leaders like Dan Andrews.

          • Indeed. The obvious answer to all this China sabre rattling is more Andrewsian Belt and Road action coupled with some slap happy quarantine arrangements with plausible inbuilt deniability.

          • ErmingtonPlumbingMEMBER

            @Sweeper
            Do you support the Andrews Governments purchase of Chinese trains for Vic Rail.

      • chuckmuscleMEMBER

        Ok then, obviously MP doesn’t understand the global balance of payments system and the implications. Thanks

      • Australian per capita GDP growth averaged about 3% in the mid to late 90s before the mining boom, about 2% in the first half of the 2000s, 1% in the second half and has been trending down ever since.

        It is very hard to make the argument that the mining boom has led to a long period increase in Australian per capita GDP.
        In fact it is very hard to make the argument that trade with China has been a net positive for any Western country since they joined the WTO in 2000.

        “Chinese exports saved our butts after the GFC while much of the world was in the biggest recession since the ’30s”

        Lets note firstly that China caused the GFC through their insane policy of rigging their exchange rate and running a CAS of 12% of GDP in 2007.

        In terms of the response, the IMF noted that Rudd’s fiscal stimulus was the primary reason we avoided recession. The positive effect of the boost in the ToT was also offset by the appreciation in the real exchange rate which hurt the economy on the East Coast.

        Pettis is correct. The argument that this will hurt Australia is massively overstated. Lower expected returns means less foreign investment… and.. why do we need foreign capital when interest rates are zero and the RBA is pinning down the three year note. It’s a stupid argument.

        • There has been no foreign investment into Australia. There has been looting of Australia by foreigners and selling-out to foreigners by Australians.

          The type of “investment” here in Australia is the same type of foreign “investment” Hotler made in Poland circa 1940.

          The average Australian has got no benefit from this so-called investment, because it is not true investment. It is not good and should be stopped.

          • The total real foreign investment is equal to the CAD.
            But then if we didn’t run the CAD we would have enough saving to meet local investment demand

        • Lmmao the GFC was due to endemic corruption in the U.S. which took about two years to metastasize after the first few shops blew up on ridiculous over leveraged LTCM like models culminated in a overnight rollover driven liquidity full stop.

          Then to cap off what might been a recession level event mercenary shorts drove the whole global shock E.g. like one of those old psychological test where everyone shocks each other … BTW the U.S. made a choice a long time ago when it pushed [forced] to become reserve currency that it would both have to maintain deficits and bleed jobs off shore …

          The Idea that China is in anyway responsible for the outcomes of over 40 years of neoliberalism is a joke …

          • Do you not recall Greenspan’s conundrum?

            Yes finance was out of control, however they would never have had the real estate bubble at the same time as Bush’s deficits which other things being equal should have forced up long term rates were it not for China’s policy of hoarding Treasuries and siphoning US demand.
            The poor regulation amplified the crisis caused by a real estate bubble caused by saving glut caused by a rigged exchange rate.

          • “BTW the U.S. made a choice a long time ago when it pushed [forced] to become reserve currency that it would both have to maintain deficits and bleed jobs off shore”

            Not really. Technically reserve currency status didn’t have to mean US trade deficits and weak demand.
            The US could have provided the reserves (borrowed short term via currency) and used the proceeds to invest in long term assets overseas without impacting the trade account.
            What happened was countries like China (and Japan in the 80s, Germany etc) hoarded reserves which led to the trade deficits meaning the reserves were provided on the trade account.

    • We are in the most aggressive posture we have been in with China since the Vietnam War. Our money printing is out of control. We are allegedly on the nose with the international student trade. Tourism has been destroyed. The fires are returning.

      Yet our dollar is stuck at 0.74.

      The whole China trade thing is way, way overblown. Good riddance to them.

      We’ll pick up with India where we leave off with China, and the loyalty issues of the local Indian population will be much better aligned with our values anyway. As irritating as the elderly death stares are, I would sooner that than the CCP sponsored violence we saw at UQ.

      I would never have believed it, but Australia is going to come out of COVID much much better than anyone predicted.

      Which sort of explains the house prices ….

      • The rest of the world is printing money, we’ve been untouched by the virus, we’re exporting a lot of iron ore to China.

          • What student “exports” bring to the country is based on bogus maths.

            More was spent overseas by Australian tourists than spend inside Australian by foreign tourists. Tourism has been a net drain.

      • India? Not a chance. That corrupt povo sh1thole is in no way going take over where China left off.

    • The Traveling Wilbur

      Ho&Ho covered this earlier. Succinctly.

      China will continue buying IO. From somewhere.
      That extra IO used to have other buyers.
      Australian suppliers will end up selling to those buyers.
      Possibly at a discount to the price those buyers previously paid.

      It won’t be Ormageddon was his final message.

      • Even StevenMEMBER

        I don’t need HnH to tell me that (no disrespect to his good brain). But anyone with a decent level of logic / commonsense can see that is true. I am incredulous at the number of supposedly intelligent people who think the sky is falling from this.

        UNLESS, China is prepared to cut off its nose to spite its face (by not building roads, by not consuming wine, by not consuming lobster etc etc) there is nothing terrible they can inflict upon us other than marginally lower prices for our exports.

        • ++ also I thought the world was headed for a food shortage. I’m sure there are other markets for Australia n exports. But not the seafood, I suggest that is banned from export and kept local.

      • all true Wilbur … BUT … unsustainable BS economy can only last so long. Buggered if I know how long but our current ‘Indian summer’ good times can’t, and will not, last. Live in the present, no probs maaate.

        Look a little past the end of collective noses, study a bit of history and if, having done that, you’re not preparing for a very different future with much reduced lifestyle options and choices … hey it’s up to everyone to make their choices and everyone must be equally prepared to live with the consequences ….

    • I don’t think there were any. Few of us had different idea on how to decouple from China but I don’t think anyone claimed we should bend over for China.

        • maybe an article I did not read.
          I started avoiding some China articles as I don’t agree with David’s position on how to deal with China. Too late now but there will be unnecessary suffering. We could have done this with lot less pain.

          • SnappedUpSavvyMEMBER

            Don’t think you have much experience with chyna, they don’t do subtle or diplomatic they lose face and then shyt the bed which to be honest leaves me wondering where this will end up, one good thing is that chinamen hate the idea of hard power they really not up to it

      • This twitter fracas presents an opportunity – recommend to the Chinese twitterati/Global Times etc that they should stop sending their foreign students here and stop purchasing Aussie property. That will really punish Scott Morrison!

        • Not a fan of people that live in binary worlds savvy …. not that some have been engaged in war for decades now with zip to show for it whilst MIC and security state foot print were expanded like never before.

          Go talk to LatAm countries ….

          Pinochet over your bed – ?????

  1. Banana ManMEMBER

    Am I the only person that thinks this whole computer generated art thing is a bit sus? It doesn’t look like any of his other work. Surely there would be a stock image that this was stolen from and replicated? I’m not that much of an IT nerd, but if I was I’d be researching it. https://www.abc.net.au/news/2020-12-01/doctored-image-of-australian-soldier-tweeted-by-chinese-diplomat/12938244

    I guess they’ve probably got a few of our military uniforms, you know with that whole joint military training and all.

    • SnappedUpSavvyMEMBER

      you know when aussies get cultural cringe, yeah jimmy barnes and cold chisel is exactly that

    • Flappers = bats.

      Geddit? Geddit? Eh?

      It was originally going to be “I left my lungs to the flappers round Wuhan”.

      OK. I’m sorry.

  2. robert2013MEMBER

    Anyone interested in buying bitcoin? I’ve got a small allocation. Thinking of increasing it. BTC haters can stop reading now.
    I’ve been following this guy occasionally since 2017: https://www.tradingview.com/u/FlaviusTodorius67/
    He had a decent explanation of what was happening then. Reckons BTC is headed to 100k USD. Not unique in that either.

  3. China, meh. WTF is Scottie going to do about what’s happening in West Papua? We can’t afford to p!ss of Indo as well as China but we also have an obligation to our oppressed neighbours if we want to keep pretending we’re a regional power in the Pacific.

    • I predict we are not going to come out of that well. But what can you do?

      I had an Indonesian mate who was philosophical about East Timor, but adamant about West Papua.

      I couldn’t understand it.

      • robert2013MEMBER

        Indonesia is essentially the ex-dutch colonies of SE Asia. East Timor was Portuguese so not Dutch, and hence Indo never really had a claim to it. That is why they care about West Papua more than East Timor. If they countenance the break up of the ex-Dutch ruled areas, the whole thing could disintegrate into 50 different micro-states. Basically, one colonial ruler (the Dutch) was replaced by another (the Javanese).

        • Thanks!

          Funny how it trickled down to my entirely ordinary guitar teaching mate.

          Must be a bit of an Indo theme then.

        • I remember a story he told which shows how indos can stir (he was Javanese).

          One of the families his family knew called their kid H!tler, because they knew how much the Dutch hated it.

          • robert2013MEMBER

            I would love to play with you one day. Check out Kent Nishimura (sir duke), Luca Stricagnoli (lose yourself) and Juan Ignacio Moreno (stand by me) on youtube – guitar geniuses all of them.

      • If I was Xi I’d be fully supporting the Papuan resistance, we’d be wedged hard if that happened.

        End of the day I’d love for Aust. to just stick it hard to Indo and move in as a liberating force. It would be ridiculously damaging and cause more problems than it’d solve but I’m an idiot so meh, let’s do it.

  4. Australia is collateral damage in a bigger dispute.
    China can see what is about to happen. Every single nation in the Asia Pacific (excluding North Korea) is now hostile to China.
    The US has had enough and now they have a competent leader who will actually unite Asia Pacific allies.
    Early indications have the CCP worried. Biden has committed to extend the Japanese security treaty and has recruited Brad Setser into the administration.

    Their post COVID growth has been totally dependent on stealing demand from abroad and increasing their CAS to a post GFC high – a made in China boycott, coupled with the ruling elite being forced to drink inferior wine will not help the popularity of the CCP.

      • Like who? Certainly not Vietnam and Vietnam is the big kid in that part of the world. Burma maybe, which would give China access to the Indian Ocean. Probably not Malaysia or Indonesia, both are dominated by bumiputera.

    • A SEATO mark II would be the next logical step with a 21st century anti CCP lineup:

      Australia
      New Zealand
      US
      Taiwan
      Vietnam
      Phillipines
      Japan
      South Korea
      Thailand
      Singapore
      Malaysia