Reflation is back like a drunk relative you can't ignore
Local market had another negative day as global sentiment on growth and stimulus fades with US uncertainties. ECB rammed up their QE as expected due to the second round of lockdown restrictions to drive another downgrade cycle. Even the upgraded QE wasn’t enough to counter the weak US economic data and stimulus uncertainty. Stimulus negotiations will restart next week while legal challenges to election result is at the last stage before individual states confirm results. The quality of the legal challenges are cratering to illogical levels as the pressure of the shrinking timeframe starts to bite. Pandemic blasted UK keeps pushing Brexit deadline back and back as EU is starting to lose interest and prepare for no deal Brexit. Bond, commodities and currency markets are all flagging reflation trade. Equity markets are taking the positive trade on both sides of the reflation trade while ignoring the negative trades. Growth to value trade is picking up steam as central banks start to lose control. More stimulus and currency debasement by US Fed looks inevitable to keep the recovery cycle and that will create inflation. All roads to recovery leads to reflation trade and that means multi decade high multiples will pull back!!!
US employment market continues to deteriorate as economic recovery fades without stimulus. Given the recent US economic data overwhelmingly confirming the fading economic recovery, it is a matter of time before US Fed returns with more stimulus and currency debasement. Pandemic management is hitting new highs for the wrong reasons and this will further hit economic recovery and increase the need for higher stimulus. Do you have enough Gold exposure? May be not!!!
US market was mainly flat overnight with Russell leading the pack while DOW was the laggard. ECB added to QE as lockdown restrictions added to their mess while US employment data was worse than expected on recovery fading. New stimulus pack seems to be getting delayed for new reasons every day. USD is down and AUDUSD is now over 75 cents as commodities rise. Reflation trade is happening and growth to value switch is playing out. Energy was the big positive sector while Banks and Tech were the only once in green. Election challenge to Supreme Court still being pushed.
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
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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...