It's the economy, stupid!!!

Local market had a strong day despite patchy US lead with DOW up 0.9% and NASDAQ down 1.4%. The local market was jammed up by global investors chasing the currency all day. They bought almost all sectors like a market index fund. We have had two massive turnover days in a row but local fundies played very little part of it.

Bond market is in sell off mode as currency debasement drives cost inflation. US bond yield are flying so fast that they went past Aussie bond yield and forced them to move higher. Aussie 10 year bond yield is on the verge of hitting 1%. That may sound like not much but it is 10 times the RBA cash rate!!! The bond market is selling off on risk while equities are moving higher as pandemic and political risks are rising in major economies that are trying to recover from recession and structural problems. Velocity of money has collapsed while the recovery cycles are fading. Central banks only have one game in town…more money printing. Governments are stuck between ideological weak policies and weak growth outlook as the structural problems in the economy starts to weigh on recovery cycle.

Everyone knew that there is about a dozen potential vaccines that will get early data in Nov. Expect more to come out soon. This does not change the fact that the best case scenario for vaccine coverage of US will be in about 6 months while the world coverage is likely to be in a year. There is a substantial economic mess to clear up ahead of that. It is positive news but that will not remove the winter hit coming to northern hemisphere after the abysmal management of the pandemic by some major economies. The political infighting in the post-election US is starting to fester. What could go wrong?

If you haven’t noticed Aussie 10 year bond yield is nearly 1%...that’s 10 times RBA’s cash rate!!! Aussie bond yields are flying past US bond yields after they ran hard recently. It looks like that ride has just started and it’s pulling AUDUSD higher with it…now over 73 cents.

Overnight the US market was firmly in the growth to value rotation that we have been talking about for weeks. Russell up 1.9% and DOW up 0.9% on vaccine hope while NASDAQ is down 1.4% on rotation out of growth and S&P is flat as both effects cancel each other. NASDAQ leads the moves and the rest follow in time. Bonds mainly held with USD while Gold has started to bounce back. Energy and Staples were the best sectors while Tech and Retail were the worst. Vaccine hope is being over played as reality of economic issues and political uncertainty over the next few months remain high.

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

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