007 days

Market Update: 14 August 2020

I’ve been on the phone to Bloomberg a few times now because everyday at 10 am for the past week, AUD is priced at 0.7150…. obviously, the screens are frozen right??

It must be broken given Gold fell 10% then rallied 5% all within that period….and that Oz saw far more jobs than expected and lower than expected unemployment… and that RBNZ sounded more dovish with an increase in its asset purchase plan and still considered negative rates… and US jobless claims were lower than expected… and that RBAs Lowe said job and CPI goals won’t be met for the next 3 years… or even a shooter outside the White House caused Trump to stop a press briefing….

These are all things that are supposed to move the AUD, yet 10 am… groundhog day… OK, so yes it moved between those 24hrs each day – but AUD vol was pretty suppressed. Why? well, there’s a dull asset class (according to screen jockeys like myself) call bonds. These bonds actually stole the limelight this week. In particular, US 10yrs through to 30yrs had a bit of a move (see below chart).

Now it’s fair to say that 10yrs moving down to 0.5% last week was a reflection of a deflationary environment – in which Gold rallied hard, but the correction back to 0.7% actually has managed to suppress risk this week – also evident in VIX holding just above 20%. Why are we seeing this? well a combination of being overdone, but the 30yr auction had low demand and what was possibly a buyers strike – perhaps this unlimited stimulus comes at a credit cost? We could certainly see the Fed get dragged into buying more 10’s-30’s.

In a similar vein, RBA told (Australian) states to not worry about their credit rating and go forth and spend. This could be because RBA have no monetary bullets, but would potentially support buying semis (semi-government bonds). Nonetheless, 007 was more interesting than bonds, but this week James might’ve taken notice.

Have a great weekend.

US Yield curve today in solid green, last week in gold and 1 month ago in dotted green.

Sources: Bloomberg

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