Central Banks are going through SEA (Stimulus Ever After) change

Local market had a choppy positive day on the back of positive quarterly updates and weak bond yields. Relatively low turnover continues for the seventh week without a double-digit turnover day. Size mattered with Micro Caps being the best while Large Caps were the worst. Tech and Mining were the best sectors while Property Trusts and Utilities were the worst hit. API rejected the WES bid but the share price went up. It is a unique business and WES wants to get into that sector. Investors are betting on an upgraded bid soon or someone else may turn up. Asian markets continue to stabilize after recent bashing on China crackdown. The logic of their moves suggest more sectors are in their firing range. Investors will be cautious for while yet.

It was all about US Fed update overnight. The markets are divided on how to interpret the US Fed moves. After listening to the Q&A and the moves in currency, bonds and gold suggest that inflation is going higher and US Fed won’t act anytime soon. 

US Fed chair was clear in saying that the economic recovery had more to do and they will keep the current accommodative stimulus in play till that eventuates. He also expected inflation to keep rising in the short term while the persistent inflation average 2% over the medium to long term. The use of the word persistent with inflation was more prevalent that transitory. He also clarified that they will only raise rates after tapering and that they will flag well in advance of tapering. US Fed chair also flagged the uneven recovery in US and overseas while pandemic waves and inflation are likely to weigh on growth cycle. Lower growth outlook pushed investors into bonds and yields were sliding again. Weaker growth and extended QE outlook started to weigh on USD index and it broke away from recent up trend. Gold started move higher on weaker USD, weaker Yield and higher inflation outlook. US Fed is following the same “denial of reality” strategy used by all central banks to keep endless stimulus going. US Fed was asked directly in the Q&A to put up a qualitative/quantitative benchmark to flag tapering and he avoided answering it multiple times. 

Central Banks are hoping to avoid tapering while hoping that inflation hits growth and removes the need for tapering till it goes wrong. It may be different this time!

Banks are moving to mid to late Sep as the timeline for NSW lockdown. There is no new supply of Pfizer coming into the country. At best they are trying to move the existing supply from one place to another to deal with rising risks. The rising numbers suggest we are still haven’t peaked for the latest NSW cluster. 

Economic downgrades are inevitable and that will get RBA talking about more QE than less. We are likely to get the same play book on a global basis. It may be different this time!

US earnings season continues to deliver massive beats while share prices moves suggest it was already priced in. US reporting season continues on the historical 90% strike rate. It could be different this time!

You can view the full Sunset Strip report, with charts and the end of day market stats, on the following link.

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