Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Australian dollar on the highway to junk hell
Australian dollar on the highway to junk hell
By David Llewellyn-Smith   |  Jun 30, 2022 10:04
Saved. See Saved Items.
This article has already been saved in your Saved Items

DXY launched overnight as EUR swooned on peaky German inflation:


AUD was shoved right back to the cliff’s edge:

Oil fell though!

Metals held on:

And miners (LON:GLEN):

EM stocks (NYSE:EEM) too:

But the bid daddy of them all, junk spreads (NYSE:HYG), are the highway to hell:

Despite easing Treasury yields:

Which helped stocks to not fall too much:

Westpac has the wrap:

Event Wrap

The third estimate of US Q1 GDP was revised lower to -1.6% annualised from -1.5%, with a surprising fall in personal consumption to +1.8% from +3.1%. Uncomfortably, prices were firmer with the core PCE rising to 5.2% from 5.1%.

German CPI was lower than expected, with HICP falling 0.1%m/m, for an 8.2% annual pace (est. +0.4%m/m, +8.8%%y/y). Although there were Govt. subsidies for transport which pulled down the headline, other categories were expected to be higher. Spanish CPI was notably higher, lifting the EU harmonised level to 10.0%y/y – a 37-year high (est. 8.7%, prior 8.5%).

Eurozone economic confidence at 104.0 was firmer than expected (est. 103.0, prior 105.0). Both manufacturing and services showed slight gains.

ECB and Fed speakers (notably Powell and Lagarde) restated their resolve to contain inflation, acknowledging the potential for lower growth, but suggesting that recession can be averted. FOMC member Mester was notably more hawkish, calling for 75bp hikes, stressing the need to avoid embedding inflation expectations, and favouring a Fed funds rate over 4% by next year.

BoE Gov. Bailey stressed the MPC’s resolve to move aggressively if required, but also highlighted the vulnerability of UK economy. Incoming MPC member Dhingra was decidedly more negative on the expected outcomes for the UK economy but agreed with  the need to fight inflation.

Event Outlook

Aust: Private sector credit growth is set to post a softer gain in May given the start of the RBA’s interest rate tightening cycle (Westpac f/c: 0.5%).Meanwhile, job vacancies are expected to remain very strong in Q2.

NZ: Supply shortages, cost pressures and interest rate increases should continue to weigh on ANZ business confidence in June. RBNZ Chief Economist Conway will speak about the housing market at 11:30 NZT.

Japan: Another decline in industrial production is expected in May as manufacturers battle supply issues (market f/c: -0.3%).

China: The easing of virus disruptions should see the manufacturing PMI and non-manufacturing PMI lift into expansionary territory in June (market f/c: 50.5 for both).

Eur/UK: The European unemployment rate is set to hold near its lows in May, laying the foundation for robust wages growth (market f/c: 6.8%). In the UK, the final estimate of Q1 GDP is due (market f/c: 0.8%) and June’s Nationwide house prices are expected to reflect a slowing in price growth momentum (market f/c: 0.5%).

US: Weakness in personal income is raising concerns over purchasing power as households run down savings for personal spending (market f/c: 0.5% and 0.4% respectively). Although PCE inflation looks to have crested, price pressures will only slowly abate through 2022 (market f/c: 0.7%mth headline, 0.4%mth core). Initial jobless claims are set to remain at a low level (market f/c: 229k) and concerns around supply issues will remain prominent in June’s Chicago PMI (market f/c: 58.0).

European inflation peaking before the US is not good for anybody. This puts the rocket back under DXY and from there the global dominoes fall.

EM and commodity capital flows dry up. Interest rates rise and exports fall in the same EMs. EM profits get smashed until such a time as the stress flows back to DMs and they roll over as well:

The AUD tracks EM junk on the highway to hell every time:

Nothing will stop it until the Fed pivots.

Australian dollar on the highway to junk hell

Related Articles

Australian dollar on the highway to junk hell

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email