JPow delivers more delays

Mathan Somasundaram

Deep Data Analytics

Local market had a choppy positive day that started negative and grinded back to the positive territory. The big three miners (BHP, RIO and FMG) held the market from falling into negative territory. Size continues to matter as Micro Caps were the best while Large Caps were the worst. Miners and Energy were the best sectors while Retail and Utilities were the worst.

Last week was all about Jackson Hole symposium and US Fed delivered very little to clear the uncertainty. US Fed gave enough to keep the tapering in 2021 but no timeline. The markets were positioned for a negative outcome and a dovish US Fed update drove a short covering Friday bounce. US Fed has confirmed that tapering will start in 2021. The changing voting US Fed presidents was always going to pressure tapering in early 2021. US Fed chair JPow has now flagged to move this year to remove the bullying view in 2022. US Fed has meetings in Sep, Nov and Dec. Sep meeting is in 3 weeks and it looks likely to see tapering timetable. The US Fed has rising delta, fading global growth and rising inflation to keep pushing back on tapering. If they do not announce the timeline in Sep, it is obvious that Dec will be the tapering time table as Nov is the last meeting they can announce in advance as they have announced. US Fed has a shrinking window to taper while markets are facing multiple headwinds as global economic growth starts to fade.

The China geopolitics continues to become a bigger risk for Australia. China has flagged Iron ore as a key commodity that are targeted to manage down. We have seen everything from steel sector regulatory changes and higher lending standards for property market to curb demand. It has been part of the overall China move to reduce commodity prices and reduce consumer costs. We continue to see more downside risk to commodity prices as the regulatory changes remain in play.

Markets are underplaying the Australian economic growth outlook risks. It is consensus view that Q3 is going to see a dive lower but Q4 remains challenging to say the least. The most optimistic outlook suggest normality returning in Nov/Dec while any supply issues or worsening cluster will delay those plans. We still do not have a pathway to vaccinate under 12 kids and we have limited understanding of long covid effects. We are yet to cover the key risk groups like aged care, disability, first nation, health care workers etc. Global trend suggest that vaccination rates start to slow after 50-60%. NSW government has given up on suppression and expects cases to peak in mid Oct. We may be looking at elevated case numbers in NSW into Nov. If we are to learn from Israel, the pathway forward has more question than answers after the mistakes done as multiple levels of government. We are betting on substantially elevated vaccination rates being maintained with supply to make current timeline. It may be different this time!

Comments on US market last close…

US market had the short covering move higher at the open and then mainly traded sideways after US Fed update. JPow flagged tapering by end of year with a lot of conditions while rate hike cycle will be much later with more conditions. This is as dovish as he can get as voting rotations means relative hawks are voting in 2022 and his job extension would be done by then. Still sticking to transient inflation despite PCE yoy hit 30 year high overnight. DOW +0.69%, S&P +0.88%, NASDAQ +1.23% and RUSSELL +2.85%. VIX fell 13% to mid 16. True to his banking background, JPow was backing bubbles and debt over economic slowdown. Market knew rate hikes unlikely for years but tapering was the risk due to fading economic recovery. Guessing game on tapering timetable is narrowed to start in Q4. Will they announce it in Sep meeting or delay? Guessing the trend of weaker data suggest more talk and delays ahead. Yields fell with USD while commodities bounced. China was right again that US Fed won't make the tough decision but will move late. Inflation looks persistent at elevated levels into 2022 while growth likely to be lower. Stagflation risk rising and it may be too late again by US Fed. USD index gave up the recent bounce and back on the down trend. AUDUSD bears will have to cover now. US yields are likely to keep sliding on stagflation risk with rate rise still years away. Oil caught between weaker demand with delta, OPEC supply fudging and seasonal weakness. Metals are caught between China moves, weaker growth and sliding USD. Spot Gold in USD moved above all moving averages and will start to get equities moving on sliding USD, real yields and stagflation risk. Open up thematic will keep moving as governments now more politically motivated to get economy going even at the cost of lives to the pandemic. Vaccine has reduced risk for majority and it is now a pandemic for the unvax. We continue to see upside in gold, agri, media, telecom, staples and thematic sectors like BNPL. Global fintech Affirm up 40% intra day on a deal to offer BNPL to Amazon clients. We now have Sep, Nov and Dec meeting left and market will expect more details in Sep...which is 3 weeks away. Markets will slide with tapering but there is always hope that they delay and delay like they have through 2021. It is going to be a balancing act to taper ahead of stagflation risk taking over. There's only a few months for that window.

You can view the full Sunset Strip report, with charts and the end of day market stats, on the following link.


Deep Data Analytics provides this financial advice as an honest and reasonable opinion held at a point in time about an investment’s risk profile and merit and the information is provided by the Deep Data Analytics in good faith. The views of the adviser(s) do not necessarily reflect the views of the AFS Licensee. Deep Data Analytics has no obligation to update the opinion unless Deep Data Analytics is currently contracted to provide such an updated opinion. Deep Data Analytics does not warrant the accuracy of any information it sources from others. All statements as to future matters are not guaranteed to be accurate and any statements as to past performance do not represent future performance. Assessment of risk can be subjective. Portfolios of equity investments need to be well diversified and the risk appropriate for the investor. Equity investments in listed or unlisted companies yet to achieve a profit or with an equity value less than $50 million should collectively be a small component of a balanced portfolio, with smaller individual investment sizes than otherwise. Investors are responsible for their own investment decisions, unless a contract stipulates otherwise. Deep Data Analytics does not stand behind the capital value or performance of any investment. Subject to any terms implied by law and which cannot be excluded, Deep Data Analytics shall not be liable for any errors, omissions, defects or misrepresentations in the information (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the information. If any law prohibits the exclusion of such liability, Deep Data Analytics limits its liability to the re-supply of the Information, provided that such limitation is permitted by law and is fair and reasonable. Copyright © Deep Data Analytics. All rights reserved. This material is proprietary to Deep Data Analytics and may not be disclosed to third parties. Any unauthorized use, duplication or disclosure of this document is prohibited. The content has been approved for distribution by Deep Data Analytics (ABN 67 159 532 213 AFS Representative No. 1282992) which is a corporate approved representative of BR Securities (ABN 92 168 734 530 and holder of AFSL No. 456663). Deep Data Analytics is the business name of ABN 67 159 532 213.

1 topic

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...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Please sign in to comment on this wire.