Expect US Fed to repeat the same failed policies and expect a different outcome
Local market started positive on global investor buying on currency trade and held up most of the day in low turnover before late selling pulled back the outperformance of the day. Banks and Miners were doing the heavy lifting while Health care and Energy faded through the day into negative territory. Aussie market’s stretched multiples are heavily reliant on the strength of the AUDUSD. The currency is being supported by the falling USD and commodities strength on China data. US market optimism was based on new stimulus package below US$800bill but that still has to pass congress and senate. Independent analysis was targeting above US$2trill to keep the recovery cycle but markets are so desperate that they will take anything now. US Fed meeting update tomorrow morning Sydney time will be key. Growth stocks are pricing in negative yields in 2021 while bond market is pricing in reflation. ECB added QE but that was ignored. Will US Fed add more QE? Will it matter? Has the United Socialism of America reached a Mexican standoff between equities, bonds and currency markets such that nothing happens and the economy declines? It is not a question of will they print but when will they print and how much as the US economic recovery will not be self-sustaining for a while yet…so we will be back at the printer in a few months!!!
USD continues to free fall on the economic, pandemic and leadership mess. Vaccine and College vote confirmation has cleared pandemic and leadership risk in the medium to long term while uncertainty remains high in the short term. The economic mess is being held up by massive debt building up through fiscal and monetary stimulus. United Socialism of America will not be able to get off money printing for years to come and such the outlook for USD remains weak. USD is at the support level of the down trend with US Fed meeting update ahead. Risk remains that US Fed and stimulus plans don’t live up to expectations and USD bounces from oversold position on risk off trade. Despite short term volatility, the medium to long term outlook for USD remains weak on risk weighted macro basis.
Overnight US markets had a positive day on stimulus hope. Just about everything is up... Russell is best performing index and Gold is the best performing commodities as bonds and USD pullback. Growth to value rotation getting more steam on reflation. US Fed update tomorrow is key. Market optimism is historically high and not sure US Fed keep that going. It has been blatantly clear in recent years that central banks are only boosting asset prices and hoping that helps economy but it hasn’t. But they keep repeating the same failed strategy and expect a different outcome…basic insanity strategy!!! More weak economic data from US on manufacturing and industrial output while China data yesterday was solid again. Every sector in the green with Gold, Property and Energy leading. EU new regulations are going to be a minefield for US tech and likely to be a benchmark used everywhere...maybe even in US after new regime takes over. Yields remain in uptrend and USD remain in downtrend.
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.
MORE ON Equities
Over 25 years’ experience in the finance/tech industry. Mathan has worked extensively in all parts of the finance sector (i.e. County NatWest, Citi, LIM, Southern Cross, Bell Potter, Baillieu Holst and Blue Ocean Equities). Currently Founder and...