Australia In Focus : Australia’s Golden Week Too

Australia In Focus :

2 year low in the ASX but the AUDUSD stayed out of trouble and avoided breaking a new 6Y low after its 0.6896 earlier this month.

It would be difficult to say if the worst is over but safe to say that Australia would be out of the limelight for the time being as China breaks for its Golden Week holidays next from 1-7 October even as the drought persists in Queensland that is leading to a poor sugar harvest as well as the record slaughter of cattle (more cheap beef ?)

Australia In Focus : Australia's Golden Week 1

Like I said last week, “Going ahead, I am less bullish now because Australia Inc will be on a reform warpath, that is, if Turnbull survives holding on to his seat till Jan 2017 (next elections) and it will be ugly business overhauling the tax system, the highest minimum wages in the world and more while avoiding falling into their first recession since 1991 (see chart above).

Bloomberg’s William Pesek sums it up well : http://www.bloombergview.com/articles/2015-09-15/australia-s-turnbull-can-t-afford-complacency

This gives the long end bonds (>10Y) some meat especially with the curve inverted in the 2-3Y point if there is a need to trade at all.” https://tradehaven.net/australia-focus-changing-hands-in-springtime/#

And I am not alone !

“Foreign investors have turned especially bearish on the Australian economy, with one describing it as “toast”, a National Australia Bank report says.

Chief economist Ivan Colhoun said a recent visit to clients in Britain, continental Europe and the Middle East revealed a “uniformly negative view on Australia’s prospects”.

“I have never experienced such overwhelming negativity on the outlook for the Australian economy and Australian dollar in all my years marketing the Australian economy offshore,” he wrote on Monday.” http://www.smh.com.au/business/the-economy/australia-is-toast-foreign-investors-tell-nab-20150921-gjrfth.html?&utm_source=social&utm_medium=twitter&utm_campaign=nc&eid=socialn:twi-14omn0015-optim-nnn:nonpaid-27062014-social_traffic-all-organicpost-nnn-smh-o&campaign_code=nocode&promote_channel=social_twitter

The correlation with China has grown stronger this year, along with EM FX (which is about China, as well). I note that AUD has been responding more enthusiastically to the SHCOMP in the past 3 months as we cannot possibly continue to rely on the housing market and retail sales for assistance.

We can also expect a bit of help from the market short positions who cannot afford the carry pain of holding a short AUD for help to bring us to the 0.74-0.75 level where I hope to sell.

As for the bonds, Australia 10Y yields have caught up with Singapore’s although we saw a nasty spike in the credit spread of the Markit iTraxx Australia index that comprises of 25 equally weighted investment grade Australian entities’ 5Y credit default swaps.

Charting against the AUDUSD and the sovereign credit spread, it does look like the currency has ran ahead of the spreads widening.

 

Australia In Focus : Waiting For Godot-damn China

AUD bonds did well for the week with a nice rally and most corporates did well except for the isolated names like Far East Horizon which sold off on the credit negative watch news, still holding well above 100 though and of course, the car companies led by naughty Volkswagen which affected BMW as well which does not say a lot for a black swan event.

Bonds In Conversation : Ending The Quarter On High Drama 1

Leaving with the indicative prices and looking for some peace into the Golden Week that Australian markets deserve as well.

 

Australia In Focus : Australia's Golden Week