Pandemic and Election risks are going to bring the Halloween party to the markets

Local market had a volatile positive day due to the global investors chasing currency after the positive China manufacturing data. Despite the negative global lead from Friday night, China data drove global investors to buy into Asian markets as pandemic waves and election uncertainties weigh on Europe and US. The main overhang remains the US election while the pandemic waves are gradually pushing the global economies into another phase of lockdown restriction and corporate earnings downgrades. The risk weighted outlook suggests US election is likely to be close in the first few days before one side runs away with it. Given the polarization of US politics, it will be easy to drive up civil unrest during the uncertainty. Similar to what happened in February, markets are starting to accept lockdown restrictions and corporate earnings downgrade. What if there is no vaccine and this restriction cycles are the way forwards in 2021? Investors are overly optimistic on vaccine like global growth!!!

Central Banks will inevitably print more cheap debt in order to hold the ponzi scheme together and make the problem deeper and harder to solve. Fiscal miss management in most parts of the world over a number of years have left structural problems that can only solved by reform but in most cases vested interest groups have turned the problems in ideological argument instead of economic reality. History shows economies do not reform unless recession cycle cleans out the dead wood. The global recession realities are going to remove the dead wood as cost inflation starts to filter through the economies!!! RBA went off the rails in 2016 rate cuts and now they are becoming the problem than the solution. Like what happened in Japan after WW2, RBA is going to dig a bigger and deeper economic hole due to fiscal policy failures!!!

Overnight the US market finished down 150 despite 300 point pump in the last hour for month end window dressing. NASDAQ was the worst hit -2.5% compared to DOW -0.6%, Russell was -1.5% and S&P500 -1.2%. Growth stocks were seeing some pain after big tech results were beats but not in the ballpark for sky high valuations. EU lockdown restrictions are spreading while herd immunity has been proven invalid by Sweden as well the large scale testing proved immunity doesn’t last. Even in the US, El Paso is returning to restrictions and it looks inevitable that for more will follow after election politics gets out of the way. Bonds and most commodities are lower while Gold and US$ higher. Bond yields are pushing higher...US 30 year bond yield is 1.66%...breaking out higher with inflation outlook!!! Month end window dressing is likely to unwind as election and pandemic uncertainty rises further.

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

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