Market is betting on Central Banks to override economic/pandemic cycles

Local market had another positive day on global traders chasing currency trade. It was very low turnover day as most local fundies were already on holiday mode with private school holidays starting today. The value sectors (Resources and Banks) were up while growth sectors (Health Care and Tech) underperformed. Bond market remains weak and putting pressure on US Fed to get the printers going again.

US markets continues to outperform the fading economy on the view that US Fed will save them. US Fed is expected to keep pumping QE to the top end and boost asset prices while economy fades. We are seeing early signs of lockdown restrictions in the US as pandemic waves fill up hospitals. Vaccine candidates are already having issues and that is scaring the markets while the two main candidates are unproven tech with substantial logistical risks. Expect more things to go wrong in the execution and UK is now the test dummy after their abysmal management of the pandemic. US is not even trying to manage it and will continue to get worse over seasonal holidays. The problem for the US Fed is that the more they do to support asset prices, the more currency debasement and inflation boost is being delivered. Pandemic wave is the returning black swan factor and it makes the US Fed job even harder!!! Nonfarm Payrolls data tonight is expected to drop from above 900k to below 600k. Irrespective of job data being a miss or a beat, it is clear from real time data that the economic recovery is fading.

USD has returned to down trend and now in the risk off rebound territory. Over the last 5 years, the pullbacks generally rebound from around these territories on risk off mode. For the first time in multi years, US market dividend yield and US inflation are below US 30 year bond yield. The relative value in bonds over equities and currency risk are all well positioned for risk off trade in the market that has priced in vaccine, stimulus and recovery cycle without reflation. US Fed has big shoes to fill as expectations are getting higher and higher!!!

US market overnight was positive most of the day on stimulus chats before vaccine production issues pulled it back near flat. Russell was the best performer while S&P was flat. Bond yields pullback a bit while USD keeps falling. Gold is on the move higher. US pandemic is rampant while nonfarm payrolls tonight is already forecast to fall dramatically. Energy and Property were the better performers while Utilities, Health Care and Tech were the worst. Facebook charged by DOJ on unfair employment while Trump wants tech legal protection removed. Vaccine hope is overplayed while economic problems are under-priced in the US markets.

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

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