Austrailian dollar smashed with everything

See the latest Australian dollar analysis here:

Macro Afternoon

Everything but DXY, that is:

AUD was pulverised:

Oil fell:

Metals too:

Big miners reversed:

EM stocks gave way:

Global junk is screaming RECESSION AHEAD:

The Treasury curve was steamrolled:

And stocks were smashed:

Westpac has the wrap:

Event Wrap

US housing starts in April remained elevated, at an annualised 1.724m (est. 1.756m, prior 1.728m revised down from a cycle high of 1.793m). Building permits were also elevated at 1.819m (est. 1.814m, prior 1.870m).

Canadian CPI in April rose 0.6%m/m (est. 0.5%m/m) and 6.8%y/y (est. unchanged at 6.7%y/y), but the core components were notably firmer.

Eurozone CPI in April was finalised slightly lower at 7.4%y/y from its flash reading of 7.5%y/y, while core was unchanged at 3.5%y/y.

UK inflation data for April spiked higher as national utility and household energy provider caps were lifted. Headline CPI rose +2.5%m/m (est. +2.6%m/m) and +9.0%y/y (est. +9.1%y/y, prior +7.0%y/y) – a 40-year high, and core CPI rose 6.2%y/y (as expected, prior 5.7%y/y). PPI rose 14.0%y/y (est. 12.5%y/y, prior 11.9%y/y).

Some key earnings downgrades added to the turn in sentiment in equity markets. Target shares fell as much as 25% (the most since October 1987) after it reduced its full-year forecast for operating income margin. Walmart shares fell 11% (the most since October 1987) after quarterly profit missed analysts’ estimates and it lowered its full-year outlook for earnings growth. Rising costs featured in both reports.

Event Outlook

Aust: Given that weekly payrolls suggest weather and holiday events dampened jobs growth in April, Westpac anticipates employment to lift by 20k for the month. The participation rate holding flat at 66.4% should see unemployment rate move downwards (Westpac f/c: 3.9%).

NZ: Higher oil and dairy prices are will likely keep the PPI elevated in Q1. The 2022 Budget should show the Government’s books are in a relatively good shape given the impacts of COVID-19.

Japan: Volatility in machinery orders is expected to persist with supply issues continuing to cloud the investment outlook (market f/c: 3.9%).

US: Initial jobless claims are set to remain at a very low level (market f/c: 200k) and the May Phily Fed index should continue to reflect relatively healthy business conditions (market f/c: 15.0). Limited supply and cooling demand are a headwind to existing home sales in April (market f/c: -2.1%). The leading index is expected to point towards a slowing of economic momentum in April (market f/c: 0.0%). The FOMC’s Kashkari will speak on inflation.

The US economy is still not buckling. Retail and housing volumes are rolling but not enough. The financial market panic is actually now easing conditions for the latter.

The Fed is locked in for 50bps in June and July meaning that everything is going to be stress-tested and something will eventually snap.

Oil is still feeding inflation in at above 50% per month and must be broken.

Europe is buggered by its war and energy shock. China is reeling as OMICRON crashes property. EMs are on their knees as DXY rages.

Nothing changes unless or until the US consumer breaks and adds a trade shock to everybody else’s woes.

AUD still going lower.

Houses and Holes
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Comments

  1. They sucked them in nicely this time……..the only way the Fed has to drop inflation quickly is to crash the stock market……see 2008

    https://twitter.com/NorthmanTrader/status/1527010834983137282

    CLO’s are the corporate counterpart of the CDO’s of 2008

    https://twitter.com/AlessioUrban/status/1527034840834527232

    And never forget the umbilical cord that holds the Chinese and US economies together under the present paradigm

    https://twitter.com/takis2910/status/1526551942335430656

    • The fed’s priority may be inflation today, but that may change tomorrow.
      Will the fed pivot with high inflation?
      It is good to keep an open mind when it comes to the fed.

      • Andrew it’s more than the FED need to watch the US bond market
        The FED will follow, bond yields will lead like they did on the way up

        Focus on the bond market that will tell you what the FED is going to do

        That’s what happened on the way up

        Bond yields were way ahead of the FED

  2. What’s the reason for the ASX massively outperforming the US this year? YTD S&P down nearly 20%, Nasdaq 30%, and we’re down what, 6%? Miners printing money? Other than tech have we had any significant sector declines?
    Another 4% down over there and our futures are not even off 2%?
    We’re barely even in correction here and it’s like record-breaking armageddon over there.

    • TRADINGtheAPOCALYPSE

      I’m guessing.. 1) We have less to no real tech, which is reallyyy getting crushed. 2) asx never ran up as hard as us markets. 3) aud is off about 10% 4) our banks are “unquestionably strong”..

      • Muttafukaburrasaurus.MEMBER

        How, esg and formation of trading blocks will only restrict hard & soft commodity supply, along with logistical restructuring required.

      • Since 8 months ago, around evergrande AUD was 71/72 but many times mid 69s
        You have been virtually saying every time at the same spot AUD getting smashed & it goes not much lower. Maybe there is more in it but a lot of hikes are factored in. Is JP going to get a full 50 in June & July, my guess June but not July
        Let’s watch the bond market

        How important is the FFR really

        US mortgage rates have already gone from 2.5 to 5.5
        Companies paying a margin above bond yields so that’s more than double

        Phil (RBA) won’t get much above 1% & FED won’t get much above another 50bp

        It’s jawboning

        Gasoline & bond yields are doing the heavy lifting for FED

        Let Phil say what he wants his credibility is very low

        I’d say there is 2 by 40bp at the RBA

        Anyway Australian 10 year bond yield peaked at 3.60 & its heading back to half of that

        Our 10 year bond yield is on its way back to 1.80% (under 2 high 1s

        We might settles in a range 1.80/2.50 for a while

        But the 10 year will see anywhere near negative 2% in the global (Aust banking crisis) later this year

        Please understand Aust is going to have a major banking crisis

        Our big 4 won’t make it through 2023

        I have no idea what they’ll do but a couple of the big boys will be gone next year

        You won’t even be able to borrow money next year for a period

        • Mike Herman TroutMEMBER

          What is the catalyst for the major banking crisis, if interest rates drop back isn’t that better for mortgage holders and future borrowers? And therefore better for the banks?

        • More complicated
          Going to be triggered by offshore
          RBA will raise here but I really look at the bond market & bond yields have peaked heading back to 0 & below negative over next year or more into 2023
          It’ll be the global crisis that actually pushes home loan interest rates much lower with deflation
          RBA will maybe get 2 by 40 then reverse
          Anyway let’s see how it goes but falling home int rates are really later this year

          This is not going to play out like you think
          Spreads will blow out
          Banks won’t lend etc

          Going to be an absolute debacle

          Insolvency crisis won’t be any traditional rules

          Australian banks will be owned or partly owned by the GOV by end of 2023

    • DingwallMEMBER

      Super funds having to invest regularly? Look at today….. US market smashed and ASX drops 2% then starts to fight back … who is in there buying ?