Australian dollar absolute global whipping boy

DXY was up last night despite US markets being shut for President’s Day:

AUD was firm anyway, especially against a sagging EUR:

Oil and gold rallied on Ukraine:

So far, European gas has not run off:

Base metals were mixed:

EM stocks (NYSE:EEM) were hit:

Junk (NYSE:HYG) is weak too:

Treasuries were bid:

Stocks were closed but Europe fell:

Westpac has the wrap:

Event Wrap

Eurozone Markit PMIs showed a marked lift in services activity as Omicron restrictions eased, to 55.8 (est. 52.1, prior 51.1). However, manufacturing PMI undershot expectations at 58.4 (est. unch. At 58.7). Markit cited economic resilience to the Omicron outbreak but also the increased inflationary pressures and potentially more hawkish ECB policy guidance as risks to the recovery. German PPI in February rose 2.0%m/m and 25.0%y/y (est. +1.5%m/m and 24.4%y/y). The annual rise in energy of 66.7%y/y (prior 69.0%y/y) was the key driver but basic goods continued to rise, at 20.7%y/y (prior 19.3%y/y).

UK PMIs beat expectations. Manufacturing held steady at 57.3 (est. 57.0), while services rebounded sharply to 60.8 (est. 55.5, prior 54.1), the latter helped by loosening of pandemic restrictions.

Event Outlook

Aust: The RBA Assistant Governor (Financial Markets) Kent will speak to the Australian Financial Markets Association at 12pm.

NZ: January’s credit card spending will offer a timely update on consumer spending.

Ger: The February IFO business climate survey is expected to report a lift in German business confidence given the tentative signs of easing tensions with supply and omicron (market f/c: 96.5).

US: December’s FHFA house prices and S&P/CS home price index is anticipated to post robust monthly gains given the strength of underlying demand (market f/c: 1.0% and 1.1% respectively). The February Markit PMIs are expected to continue reflecting robust growth in both services and manufacturing (market f/c: 53.0 and 56.0 respectively). Consumer confidence will likely remain soft in February given the downside surprise in the University of Michigan survey seen earlier in the month (market f/c: 110.0). Difficulties in sourcing labour should remain as a headwind for manufacturing in the February Richmond Fed index (market f/c: 10). The FOMC’s Bostic will discuss the Fed’s role in the community at a Duke University event.

I’m not sure when market will get it that hard men lie all day, every day. Yesterday, it was all happy-clappy summits. Today it’s war:

Vladimir Putin has recognised two Moscow-backed separatist regions in eastern Ukraine, effectively hobbling the prospects of a diplomatic solution to the crisis as he put Russia on a war footing.

In an angry televised speech, Russia’s president cast doubts over Ukraine’s statehood and accused the west of using the country as a tool to destroy Russia.

Putin, who devoted long portions of his speech to his version of Ukraine’s modern history, vowed to “punish” those he accused of massacring Russians in Odesa in 2014. He also made clear that his grievances with Kyiv stretched to the country’s existence in its current form.

This is getting worse not better and fast.

Meanwhile, it is worth nothing (again) that the AUD has assumed the role of extraordinary global whipping boy. Credit Agricole (PA:CAGR):

The USD remains the biggest long in G10 FX at present and faced some selling interest last week, predominantly driven by IMM flows. Our FXflow data points at banks inflows as well as corporates, hedge funds and real money investors outflows.The AUD remains the largest short in G10 FX at present and experienced mild selling interest last week,p redominantly driven by Crédit Agricole CIB flows. Our FX flow data points at corporates and hedge funds inflows as well as banks and real money investors outflows.

I see no change ahead. Not unless or until markets bully the Fed into changing course by falling some more!