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Aussie dollar pulverizes as commodity bubble bursts

By on July 3, 2022 0

DXY pushed again for new highs on Friday night but failed. This remains a very bullish chart:

The AUD shattered and broke key support. Watch below as the crosses also cracked:

Oil was offered, unfortunately:

Goldman’s commodity bubble burst dramatically. The idea that you are buying commodities as a hedge against commodities remains absurd:

The big miners follow:

Emerging market stocks have hung on again, but this chart isn’t promising:

As the waste sinks into the Mariana Trench:

Dragging the Treasure brings with it:

What helped stocks overnight:

The US ISM was weak and the internals even weaker:

“The June manufacturing PMI® recorded 53%, down 3.1 percentage points from May’s reading of 56.1%. The figure indicates an expansion of the overall economy for the 25th consecutive month after a contraction in April and May 2020. It is the lowest manufacturing PMI® since June 2020, when it recorded 52.4%. The new orders index of 49.2% is 5.9 percentage points lower than the 55.1% recorded in May. The production index reading of 54.9% represents an increase of 0.7 percentage points from May’s figure of 54.2%. The price index recorded 78.5%, down 3.7 percentage points from May’s figure of 82.2%. The Backorders Index recorded 53.2%, 5.5 percentage points below May’s reading of 58.7%. The employment index contracted for a second straight month to 47.3%, down 2.3 percentage points from the 49.6% recorded in May. The Supplier Deliveries Index reading of 57.3% is 8.4 percentage points lower than May’s figure of 65.7%. The stocks index registered 56%, 0.1 percentage point higher than May’s reading of 55.9%. The new export orders index of 50.7% was down 2.2 percentage points from May’s figure of 52.9%. The import index climbed into expansion territory, rising 2 percentage points to 50.7% from 48.7% in May. »

This means that the new orders-to-inventories measure, which is a great leading indicator of earnings in the US economy, has fallen to a new low. Moreover, regional surveys point in the same direction:

The US economy is already in a recession and it will get worse:

Is it any wonder that industrial metals are collapsing?

I warned you. Commodity mania in the first quarter was a typical explosive high led by the Great American Bubble Machine and Zoltan the Magnificent. Now the madness of the crowds is rushing through the narrow exit.

Everything is ‘oversold’, so some sort of bounce will happen eventually, but, likewise, it’s still overpriced, so expect even lower prices. These are classic “up the escalator and down the elevator” products, as the cycle overwhelms all structural drivers (which I also remain quite skeptical of). That it is a bubble is pretty clear:

  • Prices surged as fundamental demand drivers in China crumbled. Now those demand drivers are rebounding, but prices are collapsing.
  • I didn’t run the flight numbers, but it was clearly a 6-sigma event for a material like nickel.
  • It ended with big statements about a “new paradigm” and a “persistently high plateau” for prices. For example, Zoltan the Magnificent argued that there was a shortage of air.

I don’t think the commodity slide ends until the Fed pivots, which can’t happen until oil is also dumped. Below $80 is my goal. This will set us up for the perfect repeat of the 1920/21 post-Spanish flu deflationary crisis in 2022/23.

Meanwhile, the pressure on the AUD will obviously persist.

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