Forex markets clearly beginning to signal increasing concerns about global growth. Friday night witnessed some of the most bearish action we’ve seen in 2021. DXY was firm and EUR soft:
Australian dollar free fell to new seven month lows:
The market is moving aggressively to get short:
Oil and gold were hit:
Base metals did OK:
Big miners puked:
EM stocks were weak:
But junk debt is still sanguine:
The curve flattened a touch:
But stocks were weak all night:
The major data release for the evening was US retail sales which came much stronger than expected at 0.6% versus -0.4% expected. Why were expectations so dour? This:
As stimulus cheques are spent and income reverts to normal, consumption will as well. A part of this is the end of bonus unemployment cheques:
Plus, a lot of the excess saving is in rich bank accounts so that rundown will not be beneficial as markets think. The following chart is from Canad but it is the same in the US:
As consumption pulls back, the global inventory crunch is going to resolve. In fact, it already is at pace, meaning the great inventory cycle production spike ends:
As consumption and production normalise through H2, the inflation and commodity price bubble will pop, ending the crazed COVID boom and bust mini-cycle.
My strong risk case for a global growth scare in H2 is still gathering momentum.
If it is right then the Australian dollar will get smashed until the Fed breaks towards more stimulus.
If it is wrong then the Australian dollar will fall anyway as the Fed moves to a tightening posture while China slows.
