Australian dollar canary warns of global recession
David Llewellyn-Smith | Aug 02, 2023 11:08
The DXY false break is confirmed. Up we go as EUR plunges:
AUD was bashed to new lows:
The entire Complex of commods, miners, EM and junk – reversed. Oil and gold led it:
Dirt was hosed:
Miners (NYSE:RIO) are going to retest lows:
EM (NYSE:EEM) may never be investable again:
Junk (NYSE:HYG) is unequivocal that there is a problem:
Get The App
But US long-end yields are marching higher:
Stocks faded:
The setup is not there for the much-vaunted “soft-landing”. DXY will need to keep falling so that US earnings keep rising and the global economy is reflated.
Instead, we have a resilient US economy driven in part by a share market bubble and everywhere else dying:
- China is in the early innings of a long-cycle property bust that will worsen as stimulus lags the reality. This is structural. Chinese growth leadership is over, throwing huge questions over the EM investment case.
- Europe has over-tightened, and its economy is about to crash into a genuine recession. Earnings are tumbling, and its all-time stock market highs make no sense at all. It’s days of leveraging off China are also over, as Chinese EVs eat it for breakfast and luxury item exports deflate with Chinese property.
This is an environment in which US yields are higher than elsewhere for longer. DXY can’t fall; it must rise, and before long, that will hurt its runaway stock bubble, most notably in tech.
Worse, the AI story exacerbates the above, with the US being the winner.
At some stage, US inflation will fall far enough that the FOMC can ease and reverse this global forex liquidity tightening, but the higher US stocks go, the less likely that this is.
Markets need a risk-off event to prevent a risk-off event.
AUD weakness is the dead canary.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.