Aussie gold miners hitting the macro sweet spot

The local market had another low turnover volatile day that finished slightly positive. We have started 10th consecutive week without a single day’s turnover above $9 billion. Today was all about the China move on commodities and the risk to the currency. Miners and staples were the negative sectors while health care and energy were the best. 

Gold was a substantial outperformer as inflation and currency trades put the Aussie gold miners in the sweet spot. Miners were getting hit on China regulations to control commodity prices while Health Care was the beneficiary on weaker AUD/USD outlook driven by commodity risk.

We are heading into the end of the month and markets are facing a lot of macro risks. US Fed is preparing the markets for tapering while the White House is preparing the market for higher taxes. Locally, Federal government is preparing for a snap election in Sep/Oct and borders opening up for Dec. Bond and Currency markets are preparing to take on the Central Banks as inflation starts to pick up steam globally. Expect volatility and financial stress to rise over the next few weeks. The more speculative the asset bubble, the bigger the risk in the short term. Aussie Gold miners are hitting the sweet spot with reflation cycle driving higher spot gold price in USD with an extra margin boost coming from falling AUD/USD.

Let us run through the main data points released in the last 24 hours…

The IHS Markit Flash Eurozone Manufacturing PMI stood at 62.8 in May 2021, little-changed from the previous month's all-time high of 62.9 and above market expectations of 62.5, a preliminary estimate showed. New order growth slowed, but remained the third-highest in the survey’s history and strong enough to generate a new record rise in uncompleted backorders for a third straight month. The pace of job creation remained solid, while inventories of finished goods stock fell at a rate not seen since 2009 as firms increasingly met demand from existing stock. On the cost front, both input and output prices rose at record rates. Good EU is humming while bad EU is not. Expect more money printing for EU trash bailouts!

The IHS Markit US Manufacturing PMI jumped to a fresh record of 61.5 in May of 2021, beating market forecasts of 60.2 amid stronger client demand. New orders also expanded at a record pace while output growth accelerated despite the marked deterioration in vendor performance due to limited operating activity. Subsequently, backlogs of work accumulated at the highest pace ever, as firms were constrained by raw material shortages. Companies meanwhile sought to expand staff numbers, but the rate of job creation eased to the slowest for five months. At the same time, input costs rose at a pace not seen since July 2008 due to higher logistics, raw material and fuel costs and output charges rose at a record pace. Although strong, business confidence slipped to a seven-month low. US recovery is red hot like inflation!

Existing home sales in the US unexpectedly sank 2.7% to 5.858 million in April of 2021, compared to forecasts of a 2% rise. It marks three consecutive months of declines as housing supply continues to fall short of demand. "We'll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes. The falling number of homeowners in mortgage forbearance will also bring about more inventory", said Lawrence Yun, NAR's chief economist. All but one of the four major US regions witnessed month-over-month drops. On the year however, sales surged 33.9%. The median existing-home price for all housing types in April was at a record of $341,600, up 19.1% from April 2020. Total housing inventory amounted to 1.16 million units, up 10.5% from March's inventory and down 20.5% from one year ago. Inflation hits property bubble!!!

Retail sales in Canada increased 23.70% in March of 2021 over the same month in the previous year. Retail sales in Canada rose 3.6% over the previous month in March of 2021, well above forecasts of a 2.3% rise, led by higher sales at building material and garden equipment and supplies dealers (19.8%) and clothing and clothing accessories stores (23.6%). The lone decline in March was at food and beverage stores (-1.3%), where sales decreased for the third time in four months on lower sales at supermarkets and other grocery stores (-1.6%) and specialty food stores (-12%). These declines were partially offset by higher sales at beer, wine and liquor stores (3.1%). 2.1% of retailers were closed at some point in March due to coronavirus restrictions. The average length of the closure was less than one day, below an average of two days in February. Retail sales were up 1.8% in the first quarter, the third consecutive quarterly increase. There is a reason why the most comparable country in the world to Australia is QE tapering to reduce risk. RBA will ignore it as usual till it goes wrong and then say it is not their fault.

Comments on US market last close…

US market started positive and faded through the day to end weak and at the lows of the day. Major indices finished down for second consecutive week and that hasn't happened since Feb. DOW +0.36%, RUSSELL +0.34%, S&P -0.08% and NASDAQ -0.48%. Yields, VIX and Metals ticked lower while USD and Oil moved higher. Banks and Utilities were the best sectors while Tech and Retail were the worst. Crypto currencies took more hits as China talked about more regulations regarding mining and trading digital assets. Chinese bonds are in big demand on global basis on yield and currency outlook. The sentiment is moving towards global higher standards in tax and regulations as well as QE tapering for months to come. Markets tend to fade after expiry and US had it today. Time to play defensive till the numbers are in your favour.

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