The rip-roaring start to Q2 for equities gave way to a listless drift on Tuesday with the RBA’s modestly dovish slant proving incapable of sustaining Monday’s euphoria in Asia.
RBA watchers focused on a statement tweak which, at least for Westpac’s Bill Evans, means the bank is “more ‘live’ than it’s been since Governor Lowe was appointed.” Bill is still looking for a cut in August and also notes that the bank’s move to change a key sentence in the statement on the same day as a fiscal injection from the government suggests Philip Lowe doesn’t view fiscal stimulus as something that’s going to alter the RBA’s calculus. “Any boost to disposable income from tax cuts will be of some assistance to the economy, but is unlikely to sufficiently offset the negative wealth effect from falling house prices and weak wage growth”, Evans said.
In any case, the Aussie ultimately fell, although some traders cited alternative takes on the statement to explain initial chop. “The short-term rates market prices an 80% chance of a cut by the end of the year and has done so for a month now”, SocGen’s Kit Juckes wrote Tuesday morning, adding that while “the currency’s down overnight [it’s] still in its range and with iron ore and oil prices rising, we remain bearish of EUR/AUD.”
Obviously, Australia is highly exposed to the vagaries of the Chinese cycle, which means Beijing’s success or failure in reflating is key to the outlook down under.
Meanwhile, Brexit is in complete shambles after UK lawmakers failed to agree on anything (literally) Monday – there are now no viable alternatives to May’s plan, which obviously raises the risk of a “crash-out” scenario.
“Lots of email asking why the pound isn’t falling faster/further and if the market’s too complacent about a no-deal outcome”, the above-mentioned Juckes wrote, in the same Tuesday note, before reiterating that “the market is fed up and has taken all its positions off.” “No deal, and a long delay, are the most likely outcomes from here, and one of those is positive for the currency while the other is negative”, he flatly concludes.
Policymakers (including Mario Draghi) have been at pains to warn that the market is not priced for a no-deal outcome.
Finally, you know it’s a languid day when cryptos are back in the news. Apparently, something woke up Bitcoin, which surged to its highest levels since November out of the blue.
If you’re looking to “explain” that, you can probably stop looking – it’s Bitcoin after all. To paraphrase a legendary orator: “It could be Russia, it could also be China, it could also be lots of other people – it also could be somebody sitting on their bed that weighs 400 pounds, ok? You don’t know who’s buying Bitcoin.”
For his part, Nomura’s Charlie McElligott has a simple take. “Funny what some excess liquidity and ‘wealth effect’ (likely / particularly in Asia) can do for a completely spec ‘asset’ like Crypto”, he wrote early Tuesday.