DXY is still strong versus uninvestable EUR:
AUD is suddenly very weak:
Oil is slowly breaking:
Metals will follow:
Miners were soft:
EM stocks are at the cliff again:
Junk is not quite so bad:
As the US curve drops ever deeper into a blood red inversion that is screaming recession:
The village idiot got the memo:
Westpac has the wrap:
Event Wrap
US August Retail sales posted a downside surprise of unchanged in its key Control index (est. +0.5%m/m). Although the headline appeared firm with a rise of +0.3% (est. -0.1%m/m), the prior month was revised down from flat to -0.4%m/m and the Control index was also revised down from +0.8%m/m to +0.4%m/m in July within an overall softer report.
US weekly initial claims were low at 213k (est. 227k) and continuing claims were also low at 1.40mn (est. 1.478mn), suggesting continued strength in the labour market.
Sept. Empire Fed manufacturing survey rebounded from its surprise slump to -31.3 in August to -1.5 (est. -12.9) with a notable lift in orders (to +3.7 from -29.6) and prices paid pulled back again, from +39.6 to +55.5.
Conversely, the Sept. Philly Fed Business outlook was softer than expected, slumping to -9.9 (est. +2.3, prior +6.2) with a fall in orders to -17.6 from -5.1 but also showed a pullback in prices paid to 29.8 from 43.6.Eurozone July trade deficit widening to -EUR40.3bn (est. -EUR32.0bn, prior -EUR32.2bn) as the energy crisis continued to bite.
US rail workers appear to have avoided strike action by agreeing in principle to a five-year pay and benefits deal with retrospective lifts to wages back to 2020.
Event Outlook
NZ: Rising costs and staff shortages will continue to weigh on the manufacturing PMI in August.
AU: RBA Gov Lowe appears before the House of Representatives Standing Committee on Economics in Canberra.
China: Momentum in retail sales will be a key area of support into year-end (market f/c: 0.2%yr ytd) as lingering virus disruptions and a weakening global economy continue to impact fixed asset investment and industrial production (market f/c: 5.5%yr ytd and 3.6%yr ytd).
Eur/UK: The final estimate of Eurozone August CPI will provide more detail on the breadth of the inflationary pulse in Europe (market f/c: 9.1%yr). Similar price pressures in the UK will continue to weigh on retail sales in August (market f/c: -0.5%)
US: The University of Michigan’s consumer sentiment measure will remain in very weak territory in September as rates and inflation continue to bite (market f/c: 60).
The key chart for AUD is still this:
CNY is in freefall versus USD. There is nothing good about this for anybody:
- It signals that China has no intention of “rebalancing” to consumer demand. It is declaring another trade war instead.
- It also signals, in my view, the end of China’s growth era. One can overlay a chart of property area sales on CNY and get a pretty good correlation. If the one-off real estate build-out is cooked then so is CNY.
- EMs are slammed between the falling CNY and rising DXY delivering a one-two knockout blow to external accounts and growth.
- Commodities will crash as EMs do, made worse by China’s locally produced dirts getting cheaper.
If I am right about China going ex-growth, then CNY will fall much further. It won’t stop at the 0.14 post-GFC support, it will retrace all the way back to pre-GFC levels. If we flip it over, I’m talking 8 CNY/USD.
As CNY falls, commodities, equities, and inflation everywhere will follow.
AUD will go deep into the 50s.
