DXY is down:
AUD popped:
With North Asia:
Oil not so much. Gold at records highs:
Metals sniff relation. Good luck with that:
RIO gapped into madness:
EM having another crck:
Junk is unequivocally bullish:
As yields fall:
And stocks climb:
The Fed is going to cut and forex is pricing the regime shift. BofA:
After weaker-than-expected payrolls and ISM manufacturing led markets to price over 140 bp of cuts for 2024 and triggered a large correction in equities (seeUnwarrantedpanic), recession concerns eased with the subsequent data.
Over the past two weeks, the equity market has shrugged off the selloff.
However, even after CPI and retail sales, there are still over 90bp of Fed cuts priced in by year-end.
Much of the risks the market has been paying increasing attention to stem from the most recent employment data, with non-farm payrolls slowing, the unemployment rate ticking up, and the Sahm rule coming into play (Exhibit 3).
But it is important to note that so far, job creation remains solid and not far below what would be consistent with trend growth in the labor force (somewhat above 100k).
Furthermore, the job market remains about as tight as it was in 2019 before the pandemic hit.
We think data supports gradual, but not aggressive Fed cuts.
The Fed was cutting rates throughout 2019 and we are set for the same over the next year as the US slows further with declining fiscal.
This is likely to keep upward pressure on AUD, but it will be offset by the decline and fall of China and bulk commodity prices.
The net result is probably more of the range trade from 0.63 to 0.7 we have seen since early 2023 as data ebb and flow.
At least until iron ore pukes hard in 2026.
