The Australian dollar was hammered last night as the fallout from the Fed meeting continued. In a reversal of the night before, skyrocketing long bond yields hurtles into risk assets like a missile that obliterated the Aussie dollar rally. To the charts!
DXY was up firmly on “risk off” flows. EUR fell:
More to come!
The Australian dollar was hit hard versus DXY and is still tracing out the right shoulder of a head and shoulders top, which is meaningless unless we sink decisively below 0.76:
Australian dollar up and then down again
I’m not sure why oil crashed so heavily. Gold is hanging on:
Base metal were hit:
Just say no to the supercycle
Big miners look rather toppy suddenly:
The dream is over
EM stocks also have a very nasty looking head and shoulders top only the neckline is already broken once:
Goodbye cruel world
Junk is steadily eroding but still nowhere near levels that would spook the Fed:
Rolling but not rocking
US yields and curve to the moon!
Higher and higher, straight uphill climb
The Nasdaq was bashed lower. I see a crash ahead as yields roar. The broader market fell but is fine:
Tech wreck 2.0
Westpac has the newsflow:
The Philadelphia Fed business survey jumped to a near 50-year high of 51.8 from an already strong 23.1 in February. There was a marked lift in all major components: prices paid and prices received, new orders (a 50-year high of 50.9 vs 23.4), the future outlook (61.6 vs 39.5), and employment (30.1 s 25.3). Weekly initial jobless claims were higher than expected at 770k (est. 700k, prior 725k revised from 712k), continuing claims also higher at 4.124m (est. 4.03m). The leading index in Feb. edged up +0.2%m/m (est. +0.3%m/m, prior +0.5%m/m).
The BoE policy meeting left settings unchanged and remained committed to not raising rates until there is evidence of “good progress on inflation”. The minutes and statement referred to several areas of progress since their February meeting.
Norges Bank also left settings unchanged but signalled an earlier lift in rates, in Q1 2022 from mid-year 2022 previously, with a slightly more elevated path for rates through the forecast period.
Eurozone trade surplus in Jan. of EUR24.2bn missed the median estimate of EUR29bn (prior EUR27.5bn). Eurozone labour costs in Q4 rose to +3.0%y/y from prior +1/6%y/y. However, the series has been particularly volatile through the pandemic-hit year.
Philly Fed at 50 year high! Meanwhile, the Paris region of France went back into lockdown and although the Astra Zeneca vaccine rollout resumed in some countries it remains deeply troubled. Meanwhile, the Biden Administration indicated it would lift travel restrictions in mid-May.
In short, US recovery leadership over Europe is rapidly extending. That is going to combine with yield leadership:
US 10 year yield to 3%?
Inflation leadership:
Catch-up inflation to 3%?
And growth leadership, to drive DXY higher:
DXY up 10%?
The US economy is about to fly. Ahead is what we have already seen in Australia: a spike in growth and crashing unemployment, only it has another $2-4tr stimulus package ahead with a crashing currency to deliver spiking inflation to boot.
It’s all temporary in a structurally deflationary environment but it is the new pain trade as markets simply cannot digest a shift happening in real-time.
The Australian dollar will be dragged down with tech stocks, commodities and EMs as global reflation leadership swings from China to the US in the months ahead.
