Deutsche – FX View from Down Under – Still wobbly: FXWW

From the FXWW Chatroom: As our colleagues have noted, global PMIs look to have stabilised in April
and global data surprises are closing in on four-year lows, which could potentially
mark a bottom. But some alternative indicators of the global cycle are a little
more concerning at present.
 The first indicator we highlight is the earnings revision ratio for emerging
market companies (which compare the proportion of companies having
earnings forecasts upgraded vs downgraded). This has fallen swiftly in the
past three months, and suggests downside risk to the PMI (figure 1). The
intuition behind this indicator is that equity analysts are monitoring realtime
momentum in demand and orders.
 The second indicator is export growth for Korea and Taiwan, both of which
are highly sensitive to the global cycle. Growth was 15%+ in the second
half of 2017, but has since dropped quickly to the mid-single digits. The
average of the two series lines up well with the global PMI historically, but
paints a more downbeat picture at present (figure 2).
What does this mean for risk assets? It need not lead to much downside –
commodity prices, AUD/USD and EM FX have broadly moved with in line this
softer pulse already (figures 3 and 4). But it does suggest caution in expecting
a near-term rebound, at least until there’s greater clarity around the growth
In the case of AUD specifically, we’d further note that the month of May is
typically a poor month for the iron ore price. It’s fallen in six of the past seven
years, by a median of 13% (figure 5). So while AUD/USD has dropped to the
mid-70s per our forecasts, we’re hesitant to get positive. That’s particularly the
case given our downbeat view of the domestic economy.
Quarterly wages data this Wednesday will be important – the market expects
gradual improvement (+0.6%), but we see downside risk. (1) The past two
quarters likely incorporated an outsized minimum wage increase, so the
underlying softer pace of wage growth may now become evident. (2) Australia
joined the low wage growth club with a lag, so is likely to lag on the way out.
And the unemployment rate seems comfortably above full employment, unlike
most peers. A soft wages number would make Australia look stark vs Canada
and the US, both of which have shown wages acceleration in recent prints
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