Fast and the Furious: Momo traders are back

Local market had another positive day with global macro currency trade driving value sectors such as Energy, Banks and Miners. As recent trend suggests, global investors are on a currency/value trade and that is leading them to Financials and Resources. We started strong on US lead and faded through the day to deliver a positive day. Trump administration looks like cleaning up to prepare for the inevitable while talking up legal cases. Biden camp is moving forward as expected. Vaccine updates are in for now and the next batch of new vaccines are not expected to deliver updates for another 3 months. Election and vaccine optimism is in the price while economic and pandemic weakness is weighing on earnings. Bond market is flagging reflation. Market wants to price in stimulus multiples and recovery earnings when both outlooks are uncertain and not correlated!!!

US pandemic management is being left uncoordinated and Thanksgiving long weekend remains a massive risk due to mass movement of people expected to speed up the spread of the virus that is already hitting record levels. We are seeing real time data in the US weakening and economic data like jobs and retail sales support that. We already know Europe recovery story is fading with lockdown. US pandemic is highly likely to drive Governors to do shadow/weak lockdowns due to political pressures and hospital capacity. Markets have priced in vaccine and election optimism but ignoring pandemic and economic reality in the short to medium term!!!

Bond market continues to show reflation trade is in play while Central Banks continue to say no rate rises for 2-3 years. History suggests Central Banks get it wrong and Bond market doesn’t. Growth to value rotation has started and it’s always starts nice and then gets aggressive. US 10 year bond yields maintain up trend with 50 day MA already breaking above 200 day MA after 2 years!!!

US market overnight had a solid positive day on Biden transition team being allowed to proceed and Oxford vaccine found to be cheaper and easier logistically. Safety assets in Bonds, Gold and USD came off. Russell continues to power higher compared to NASDAQ as growth to value rotation picks up steam on reflation trade. We now have clarity on vaccine and election but not on stimulus and pandemic. Economic recovery had been fading and current administration is not incentivized to get anything to solve the stimulus or pandemic issues over the next 2 months. Rising yields will hit multiples with downgrades coming. All sectors were green with Energy and Banks leading on value trade. Gold has pulled back as expected and touched 200 day MA...this looks to be the time to be adding more protection as money printing inevitably returns. Not chasing these multiples when prices are higher than pre pandemic with falling earnings and rising yields!!!

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

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