DXY is holding at peaks as EUR bounces:
AUD at new lows vs USD and is even falling against EUR:
Oil and gold are not well:
Metals used Goldman’s latest buy madness to sell off:
Miners too:
EM stocks are breaking down:
As junk leads the way:
US curve inversion is a deep crimson:
And stocks look headed for a retest of the lows:
Westpac has the wrap:
Event Wrap
US private sector payrolls (ADP) in August disappointed at 132k (est. 300k). After a two month absence in reporting, this series now has a new methodology intended “to provide a more robust, high-frequency view” of the US labour market. The Chicago PMI was close to expectations at 52.2 (est. 52.1).
FOMC member Mester said the Fed must lower inflation, “even if the economy were to go into a recession,” warning it will be a “long fight,” and it is not a “one-and-done situation.” She wants to see the funds rate “somewhat above 4%” by early 2023 and remaining there for some time. She does not anticipate a rate cut in 2023.
Eurozone CPI inflation in August was higher than expected at 9.1%y/y – a record high, with core at 4.3%y/y (est. 9.0%y/y and 4.1%y/y, prior 8.9%y/y and 4.0%y/y). The rise in core inflation warns of inflation becoming more broad based. Further, country inflation differentials are drifting apart, with headline rates of over 20% in some countries.
ECB members continued to stress the need to act against inflation with Nagel calling for a “strong” rate rise next week. Germany’s Chancellor Scholz and Finance Minister Habeck said that they will act to prevent price spirals and will provide a set of measures to tame inflation and provide support for energy cost pressures.
Event Outlook
Aust: CoreLogic’s home value index should print another strong decline in August as the RBA’s aggressive tightening cycle continues to impact the broader housing market (Westpac f/c: -1.5%). Housing finance approvals should clearly move another step lower in July (Westpac f/c: -4.0%); this is likely to be evenly spread across investor loans and owner-occupier loans (Westpac f/c: -4.0% for both). Private new capital expenditure should be supported by a rebound in activity Q2 given fewer disruptions (Westpac f/c: 4.0%). For similar reasons, estimate 3 for 2022/23 capex plans should remain upbeat too.
Japan: The final estimate to August’s Nikkei manufacturing PMI is due.
China: The Caixin manufacturing PMI is expected to fall to a neutral level in August, reflecting a softening of business conditions for small-to-medium sized firms (market f/c: 50.0).
Eur/UK: The European unemployment rate is expected to hold at record lows in July (market f/c: 6.6%). The final estimate to August’s S&P Global manufacturing PMIs are due for both Europe and the UK (market f/c: 49.7 and 46.0 respectively).
US: Initial jobless claims should continue gradually lifting from historic lows (market f/c: 248k). The ISM manufacturing PMI is expected to print a stronger result in August (market f/c: 51.9) than the S&P Global manufacturing PMI (market f/c: 51.3). Construction spending will likely remain under pressure in July (market f/c: -0.3%) and a small revision is anticipated in the final estimate to Q2’s non-farm productivity (market f/c: -4.3%). The FOMC’s Bostic is due to speak, and the Dallas Fed will introduce its new president with a Q&A.
Why anybody would want to buy a shockingly stagflationary EUR is beyond my understanding. The yield differential is negative even if it is going to close as the ECB move to wipe out what’s left of the economy.
Winter is ahead. The war isn’t ending. The energy shock is extreme and at the mercy of Putin.
You lose on the currency, the yield, the inflation, and the capital value. It’s uninvestable.
AUD is its proxy.
