Fading US economic recovery is running into reflation with weak stimulus

Local market had a volatile positive day on very low turnover due to global investors chasing the currency all day. Local investors have been a declining force in the market as holiday period and lockdown played out but today was another low point in turnover. The global macro trade was chasing the moves in AUDUSD and that was volatile as Trump administration wanted bigger cheques to go out with stimulus package…$600 to $2000. Not sure the Republicans want to play ball after fighting to keep it low against a much bigger spending Democrats. The main thematic that has turned in the short term is the USD. It’s breaking the recent down trend and likely to run up on risk off trade. That will weigh on AUDUSD and hence our markets. Iron Ore has gone ballistic of late and looks to be driven by trading optimism than Chinese economic reality. Trump pushback on the negotiated stimulus deal to get the cheques from $600 to $2000 is not what the republicans want to deal with ahead of the senate runoff elections. Democrats are likely to wedge the senate ahead of the election cycle. Locally NSW government made a lockdown decision based on politics over health. No health professional would have recommended a solution which will be weakened for a few days when we do not know the patient zero. CovidSafe app has proven to be a bigger mess than NBN. NSW has had more luck than management in terms of pandemic and let’s hope that continues. China uncertainties continue to rise while most Christmas celebrations have been cancelled or scaled down in NSW. Christmas has been officially coronised!!!

US pandemic mess continues to get worse in the short term while medium to long term vaccine rollout remains key. No matter how you look at the pandemic management disaster, short term lockdown remains logical but not political. We are likely to watch it get worse by the day and the new virus variant deliver another layer of mess.

Overnight US market had another risk off day on economic and pandemic issues despite stimulus deal. Russell is the best and DOW the worst. Bonds and USD higher and that pushed other currencies and commodities lower. USD index has broken recent downtrend while Oil has broken recent uptrend. Tech and Property were the only green sectors while Energy and Banks were down the most. S&P has fallen for three days in a row.

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

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