Australian dollar leads reflation rocket

DXY sank last night as the reflation trade rages on:

AUD led the rocket:

Oil, commodities, miners, EMS up!

Yields were flat:

Stocks flew:

Westpac has the wrap:

Event Wrap

US private sector payrolls (ADP) disappointed with a 128k gain in May (vs 300k expected, April revised lower from 247k to 202k). The services sector was the strongest with a still modest 104k increase. Factory orders in April rose 0.3% (est. +0.7%, prior revised from 2.2% to 1.8%).

FOMC vice-chair Brainard does not expect a pause in September, adding that market pricing for 50bp hikes in June and July seems reasonable. Mester also supports 50bp hikes in June and July, but added it is not clear what will happen in September. If there is “compelling evidence that inflation is moving down, then the pace of rate increases could slow…but if inflation has failed to moderate, then a faster pace” could be needed. She said it is too soon to say that inflation has peaked, and that recession risks have increased but it is still likely that a downturn can be avoided.

Event Outlook

Aust: Housing finance approvals are set to fall in April given the housing cycle has now peaked and market turnover has sharply declined (Westpac f/c: -3.0%); owner-occupiers are expected to be hit harder than investor loans for the month (Westpac f/c: -3.5% and -2.0% respectively).

NZ: Strength in residential construction activity should continue to support building work in Q1 although capacity constraints are limiting the gains (Westpac f/c: 2.0%).

Japan: The final estimate of the May S&P Global services PMI is due.

Eur: Retail sales are expected to post a muted lift in April with inflation and conflict limiting the full rebound in consumer spending (market f/c: 0.2%). The final estimate of the May S&P Global services PMI is also due (market f/c: 56.3).

US: Non-farm payrolls should continue to reflect healthy gains in employment growth in May (Westpac f/c: 370k; market f/c: 323k) pushing the unemployment rate to its likely low for the cycle (Westpac and market f/c: 3.5%). The historically tight labour market should continue to support robust growth in average hourly earnings (Westpac f/c: 0.3%). Meanwhile, the S&P Global and ISM non-manufacturing PMI will likely reflect a healthy services sector in May (market f/c: 53.5 and 56.5 respectively).

The key event was this:

Private sector employment increased by 128,000 jobs from April to May according to the May ADP® National Employment ReportTM.

Of course liberating the Fed to pause, hopefully.

There’s only one problem, the rally is so focused on commodities still that it is self-defeating for the Fed to stop.

Ergo, while it runs, AUD will lead it.