DXY pumped and dumped overnight as markets took fright on China then bid back up:
The Australian dollar did likewise though kept falling on the crosses:
Oil fell and gold rose:
Base metals broke:
Big miners too:
EM stocks gapped into madness:
EM junk fired off a major warning flare:
The yield curve was squashed:
Stocks took fright:
Westpac has the data:
Event Wrap
US homebuilder confidence (NAHB) stabilised at 76 (prior 75, estimate 74), after a series of declines since it peaked in late 2020. The report noted some easing in building material cost challenges, especially as lumber prices have dropped from record highs. But delivery times remain extended and the “chronic construction labor shortage is expected to persist.”
German PPI inflation in August rose further, +1.5%m/m (est. +0.8%m/m) to 12.0%y/y (est. 11.1%y/y). Once again energy costs (+3.3%m/m) were the main driver, along with basic goods (+1.5%m/m).
Event Outlook
Australia: The RBA minutes will provide colour on the risks to the central case forecasts.
New Zealand: The Q3 Westpac-MM consumer confidence index is likely to reflect the increased Covid Alert level. Further, RBNZ Assistant Governor Hawkesby will deliver a speech titled “A least regrets approach to uncertainty”.
US: Housing starts are expected to build a base in coming months after their H1 2021 decline (market f/c: 1.0%). Further, labour and materials shortages may see projects delayed in August, impacting building permits (market f/c: -1.8%).
So, our long-predicted China growth scare is here. But that’s all it is at this stage. Markets are not especially perturbed yet and BTFD saved the day again, for the Australian dollar as much as anything else.
I don’t buy it. For me, Chinese resolve is unshaken here. The property segment restructuring has barely started, commodity prices are FAR TOO HIGH, and China relies upon far too many enemies for them.
The AUD actually rose into last night’s storm as well, telling us that this is little more than hiccup for risk so far.
More downside ahead as China shifts its new policy of economic coercion beyond Australia to the entire planet.