Forex is paralysed again as we await the US inflation print on Friday. DXY and EUR were stable:
AUD was unmoved against all crosses:
Oil’s march slowed as gold fell:
Base metals were mixed:
Miners too:
EM stocks eased back:
Junk is fine:
US yields are selling the inflation fact:
Which is giving growth stocks a lift:
Westpac has the data wrap:
Event Wrap
US job openings (JOLTS) rose to a record high of 9.3m in April, against 8.2m expected. Among the detail, the level of “quits” increased to a record high, while layoffs fell to a record low and hires remained little changed at 6.1m. The report reflects anecdotes of strong demand for workers as the economy reopens. The NFIB small business survey was slightly disappointing, at 99.6 (vs. est. 101.0, prior 99.8), with a notable fall in firms expecting the economy to improve. Against that, job creation rose, and selling prices jumped to the highest level since 1981.
The Eurozone’s ZEW surveys showed improvements in current conditions while expectations pulled back but remained strong. German expectations fell to 79.8 (from prior 84.4, est. 86.0) but current conditions rose to -9.2 from prior -40 (and vs. est. -28), indicating recovery. Eurozone expectations fell to 81.0 (prior 84.0), while current conditions rose to -24.4 (prior -51.4). Eurozone final Q1 GDP improved slightly from pits preliminary reading, to -0.3%q/q (initially -0.6%q/q) and -1.3%y./y (initially -1.8%y/y). However, German April industrial production was soft, falling 1.0%m/m with the prior month marked down to +2.2%m/m from +2.5%m/m.
Event Outlook
Australia: The June Westpac-MI Consumer Sentiment survey is in the field over the week to June 8. The major development this month is Vic’s move into a 14-day lockdown following a spate of COVID cases. The scale of the hit to Vic consumers and the degree of spill-over to sentiment inter-state will be of key interest. Other factors are likely to remain strongly supportive with housing markets booming and the ASX posting a strong rally, although labour market indicators have been a little more mixed in recent weeks, suggesting some fallout from the end of JobKeeper. The RBA’s Kent (Assistant Governor, Financial Markets) will speak at the KangaNews Debt Capital Markets Summit, 9.30 AEST. Following this, Weekly Payroll Jobs and Wages for the week ended May 22 will be published. This release will provide a lead on the possible outcome of the May labour force survey.
New Zealand: The initial release of the June ANZBO business survey will let us see if the strong trend in economic data has continued. Despite the Budget not containing much additional support directly for businesses, this is the first chance we’ll get to see how businesses think they will be impacted changes in government policy. We also will haver Q1 manufacturing activity, which will feed into updated Q1 GDP estimates.
China: The May CPI (market f/c: 1.6%yr) and PPI (market f/c: 8.5%yr) will continue to show a spike in through-the-year prices on base effects. Meanwhile, the M2 money supply should hold around 8.1% while new loans are set to expand a further CNY 1400bn.
So, my thesis of the great inflation bust is being priced by early movers already. Time will tell if it continues. There are three main scenarios:
- If the disinflation returns via deflating commodities then I expect both a soft DXY and AUD which would be very unusual.
- If it gets out of hand, and drags in EMs plus junk debt, then I expect a strong DXY and crashing AUD.
- If I am wrong and both US inflation and commodities continue to be bid then DXY and AUD will be strong, offsetting one another.
