Market optimism ignoring economic reality

Mathan Somasundaram

Deep Data Analytics

Local market had another positive day with global macro currency trade driving all sectors green. Global investors were chasing the rising AUDUSD with Energy and Banks playing into the currency/value trade. We started positive on US lead on the new vaccine update and ex Fed Chair Yellen being announced as future Treasury Secretary while intra day the Trump administration finally allowed the transition team to start moving after extensive pressure from all sides. Trump administration continues to claim that legal challenges will turn the result but all attempts so far have failed. We are only a few weeks away from individual states confirming the result and then it’s too late. Recent steps by Trump administration in the Middle East and in Asia looks like we may see geopolitical escalation in the next few weeks to lock the new administration. 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!!!

The new administration’s appointments are more likely to concentrate on the economy than the markets. That will further drive the reflation trade and style rotation from growth to value. The growth to value switch has started globally and locally. The bond market flagged is a few months ago. New US administration and vaccine hopes will add further fuel to the fire. US market outperformance is driven mainly by high growth high multiple tech sector and that ain’t sitting in a good spot for investors!!!

US market overnight were up on the last of the big three expected vaccines delivered solid result as well as Biden’s team announced ex Fed chair Janet Yellen to be Treasury Secretary. US had solid PMI data update while real-time data suggests economy is fading in November. Russell is the big mover for the day while NASDAQ is barely in positive territory. Growth to Value switch is picking up steam as bond yields rise. USD bounce hit all metals while oil was higher on opening up. Oil has bounced too hard given lockdown restrictions are in play in most northern hemisphere regions. More election legal challenges fail but still no transition. European markets were slightly negative on pandemic risk. Health Care, Property and Tech were the only negative sectors. We are now done with new big vaccine plays for a few months.

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

Not already a Livewire member?

Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.

........
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.