The AUD getting smoked - a change in the market is happening
I think we’re seeing a turning point in the economic cycle and markets are moving to reposition for this – one where we’ve been myopically focused on inflation, to the next phase, a pure global growth focus, with inflation subsequently falling back to 4-5% range. We’re all scrambling to price recession risk and how protracted it will be and whether the result will be a lift in layoffs as consumption is hammered..here in Oz housing is the major unknown and is central to financial system and that is showing some worrying signs.
Central banks were far too late to lift rates (stop QE), will they now be too late to react to the economic change as well?? The fact we’re pricing more and more rate CUTS for 2023 (certainly in the US and UK) suggests it can’t be too far from a major turn from central banks – So, I think we get another 150bp of hikes (from the Fed) and other banks, but by late September that the Fed and others will be forced by the markets to make a shift to firmly ease up and start to more actively support growth. It becomes more and more political in the US given the Nov Mid-terms.
It means the AUD and NZD are our default plays in FX…it means copper and crude are front and centre in commodities and it means energy, materials and cyclical plays will remain underperformers vs utilities and staples…it means we likely trade to 3200, maybe 3000 (at a push) in the US500 and crypto is going to $12-10k range….
We’re already seeing market pricing of future inflation cratering and that won't have gone unnoticed by the Fed… the question is will they get it wrong again, and could something in the financial system break along the way….we shall see, but the base case is the Sept FOMC meeting will herald a shift from the Fed that could create a monster rally in gold, crypto, growth equities into year-end – this will then be compounded by active funds chasing performance…cash is king till then, so save your pennies or learn how to short…markets are never dull but they force you to be open-minded.
Central banks were far too late to lift rates (stop QE), will they now be too late to react to the economic change as well?? The fact we’re pricing more and more rate CUTS for 2023 (certainly in the US and UK) suggests it can’t be too far from a major turn from central banks – So, I think we get another 150bp of hikes (from the Fed) and other banks, but by late September that the Fed and others will be forced by the markets to make a shift to firmly ease up and start to more actively support growth. It becomes more and more political in the US given the Nov Mid-terms.
It means the AUD and NZD are our default plays in FX…it means copper and crude are front and centre in commodities and it means energy, materials and cyclical plays will remain underperformers vs utilities and staples…it means we likely trade to 3200, maybe 3000 (at a push) in the US500 and crypto is going to $12-10k range….
We’re already seeing market pricing of future inflation cratering and that won't have gone unnoticed by the Fed… the question is will they get it wrong again, and could something in the financial system break along the way….we shall see, but the base case is the Sept FOMC meeting will herald a shift from the Fed that could create a monster rally in gold, crypto, growth equities into year-end – this will then be compounded by active funds chasing performance…cash is king till then, so save your pennies or learn how to short…markets are never dull but they force you to be open-minded.
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