DXY was strong last night as EUR weakened and CNY held on. That chart points the USD higher:
The Australian dollar rebounded against developed markets:
It was mixed against emerging:
Gold fell back:
Oil lifted a little:
Base metals too:
And big miners:
EM stocks firmed:
And junk:
Treasuries were sold:
And bunds:
Stocks lifted moderately:
Westpac has the wrap:
Event Wrap
US PresidentTrump threatened to shut down the government if he doesn’t get what he wants on border security. Meetings with Democrat leaders, in the presence of the press, deteriorated into a shouting match over border security. Government funding for several agencies runs out on 21 December.
NFIB small business optimism eased in November, falling to 104.8 from 107.4; a seven month low but still at historically very elevated levels. The decline was driven mainly by forward looking gauges: expectations for better economic conditions fell 11pts to a post-Trump election low of 22.0, while current conditions around CAPEX, employment and wage compensation remain solid. Producer price inflation firmed in November, the headline rising a higher than expected 0.1% (est 0.0%), while the core measure stripped of food, energy and trade rose 0.3% (est 0.2%).
Eurozone ZEW’s sentiment survey showed a decline in the current situation for Germany (to 45.3 from 58.2, exp. 55.0), but the more important expectations component stabilised. German expectations of -17.5 beat the median estimate of -25.0 (prior -24.1), while Eurozone merely lifted to -21.0 (prior -22.0) and remains at low levels.
UK employment for October was stronger than expected. Employment rose 79k (exp. 25k) with a solid rise in full-time employment (110k) and a 70k rise in male employment to a new record. Wage growth of +3.3% (both headline and ex-bonus) also beat expectations (headline of +3.0%). However, Brexit continued to dominate as May faced a wall of non-response in Europe and plots to remove her back in UK.
“Yellow Jacket” riots/demonstrations have forced France to back down on a series of reforms which now threaten to push their budget deficit projections for 2019 through -3.5% of GDP (their initial and rejected projection was -2.8%). This will clearly breach EU budget guidance and lead to the recommending of sanctions. It is also causing Italy to push back on recent containing measures around their own deficit proposals (initially -2.4% of GDP, now closer to -2.0%).
Event Outlook
NZ: RBNZ Governor Adrian Orr presents the annual review to Parliament.
Australia: Westpac-MI consumer sentiment is released.
US: Nov CPI is expected to show annual headline inflation pulling back to 2.2% due to easing energy costs. Core inflation is anticipated to continue at pace, 0.2% in the month, 2.2% in annual terms.
There was also some good news on China cutting tariffs for US car makers which was the primary driver of the lift in the Aussie battler. If not for that it would have fallen sharply given the key release for forex was the German ZEW which continues to fall away on current conditions:
While expectations are worse:
That whacked EUR and lifted DXY.
European growth is fading. I don’t expect recession or anything of that nature but as a massively over-sized current account surplus entity, it relies way too much on external demand for growth. Add fractious politics, entitled polities, a half-pregnant monetary system with a stillborn fiscal union and its potential growth is permanently low. It’s just reverting to mean. The ECB is deluded and will also be forced to backtrack on planned rate hikes.
Thus although the Fed is going to pause so is the ECB, the PBOC is going to cut soon as Chinese credit swoons and the BOJ has its own problems.
The US remains the cleanest dirty shirt and while that circumstance persists the US dollar will sit on the Australian dollar. When the RBA capitulates next year and delivers “shock” rate cuts into the housing bust then the Aussie dollar may take another leg lower.
