Inflated central bank hopium starting to lose traction

Mathan Somasundaram

Deep Data Analytics

First let us wish you a safe and merry Christmas. It's certainly been an interesting and unique year to launch Deep Data Analytics. We like to thank our clients for allowing us to ride the investment experience with them.

Sunset Strip was always designed to educate and make investors think. 2020 shows that there is a million ways to skin a cat but the underlying thematics have been played out before. Dig underneath the sales pitch and follow the data. It is not different this time!

2021 likely to be the year of the reflation after nearly 40 years and investors are going to want more.

Stay safe and be different. No one outperforms being like everyone else!

Local market had another volatile positive day on very low turnover due to global investors chasing the currency before profit taking in the last hour. We are moving into the long weekend ahead of short trading week to end the unique and eventful 2020. Energy and Property Trusts were the best sectors while Utilities and Health Care were the worst.

Local pandemic cluster in NSW maintains low new cases but the locations are spreading while the patient zero remains a mystery. NSW is having lockdown restrictions without having lockdown restrictions. NSW government is pushing their luck and let’s hope we do remain lucky or we may be following VIC into another mess. Virus does not take holidays and people follow leaders. NSW leaders have shown the public that they don’t always follow the rules and sadly we are seeing that the public doing the same.

US political mess has delivered an outgoing president veto a massive spending defense bill and threaten to do the same to the stimulus bill. The US economy is fading while the pandemic is not. More inaction and leadership delays will only make the US recovery cycle that much slower.

US 10 year bond yields are rising on inflation outlook. We expect inflation to hit over 3% in late Q1 to early Q2 period in 2021. It is easy for central banks to say that we will let inflation run but can they do that in a weak economy while expanding balance sheet and printing more money? Time will tell and we are going to see it soon enough. Currency debasement, money printing, and balance sheet expansion will raise the risk of losing control of the inflation in Q2. What would equities do if the bond yields were 2-3% in Q2? Not very well!

Overnight US markets finished positive on the back of banks outperforming and Brexit hope. Brexit deadline keeps getting pushed and at some point some deal will happen while UK is a mess in multiple dimensions. EU is on a fast track to socializing banks due to economic mess. Trump just vetoed defense bill and threatening to do the same with the weak stimulus bill. DOW has nearly halved its pop for the day while Russell is the best and NASDAQ is negative. Bonds and USD pulled back and that's positive for commodities, AUDUSD and Growth to Value rotation. Energy and Gold were the best sectors while Tech and Property were the worst. Fundies don't want it to fall apart before New Year while investors don't want to pay tax selling ahead of Jan in the US.

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

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Mathan Somasundaram
Founder & CEO
Deep Data Analytics

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...

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