2021: When FOMO meets reality

Local market had a low turnover positive day on the back of rising AUDUSD and potential lockdown restrictions in Japan. USD continues to slide and that jammed up the AUDUSD to over 77cents and forced the passive global investors to chase Aussie exposure in a weak turnover day. Tokyo pandemic outlook is worrying markets that lockdown restrictions may be coming sooner than later. Investors jumped out of Japan and jumped into South Korea and Australia. We had all sectors in the green with large cap sectors in Miners and Banks pushed the market higher. Outside the new waves of pandemic hitting on a global scale, US senate runoff elections tomorrow night will be key to US policy settings into the next few years. NSW cluster has been badly managed due to vested interest groups and now hope is the only strategy. Globally pandemic waves continue to drive lockdown fears. Financial stress in the markets are rising with bond yields. Now even Gold is joining the FOMO trade on everything from 2020. Can the momo trade keep going away from reality? Probably not. One way or another, 2021 looks like the year for FOMO to meet economic reality.

Spot Gold pulled back in late 2020 with vaccine hope. The reality of the economic structural problems meant that money printing was always the only option to hold things together. The excess money printing has pushed asset prices higher while the economic recovery fades. Negative yielding debt have now moved to new all-time high and likely to keep rising. US Fed’s inflation outlook for 5-10 years is above 2% while Aussie 10 year bond yield touched 1% and AUDUSD is above 77cents. USD is cracking under the pressure of weak economy under attack from pandemic and endless money printing. We continue to see upside for gold equities in the current macro outlook!

US Market last close > US market did nothing all day before getting pumped in the last hour by 200 DOW points to deliver a positive day. Period end window dressing for US fund managers were obvious after European markets were down. DOW lead the indices while Russell was in the negative. Bonds, USD and Gold moved higher while Copper slides again. Utilities and Financials were the best sectors while Energy and Gold were lower. Republicans were not bashing down upgrading handouts from $600 to $2000 with some starting to believe that Trump is trying to sabotage the senate runoff elections in Georgia next week. It will be massive risk as markets give no chance for Democrats to win both. Vaccine rollout has had a few issues as expected and way behind schedule. Now that the performances are locked in for fund managers and tax period is rolled over, investors will start to pay attention to risk over return. Locally the NSW clusters are spreading around the country and has killed holiday spending cycle. There are a number of clouds hanging over the markets in January.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!

Not already a Livewire member?

Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.