Reflation is going to run over slowing global growth
Local market had a low turnover negative day as risk off hits all markets on US senate runoff election risk. Energy and Utilities were the only positive sectors while Tech and Health Care were belted. Bond market pulled back hard and that will speed up the growth to value rotation. USD continues to slide and that keeps pushing up the AUDUSD. New pandemic variant out of South Africa is relatively worse that UK variant. More lockdowns and US election risks are going to weigh on market sentiment. We should get the senate runoff results confirmed tonight and congress is expected to confirm the presidential elections results. Given the recent moves by the US in domestic and global politics, just about anything could happen tonight. National guard are being posted in Washington DC as protection against things going wrong.
The markets had a one way bet that Republicans will win one of the two Georgia senate runoff elections. As we keep mentioning in recent times, when the market is betting on one side with certainty, the risk is that it is wrong. This seems to be the case again this time but that will be confirmed later tonight or more accurately by midday US time. The latest projections from NY Times points to Democrats taking both seats. If that result does eventuate, we are probably early in the cycle for substantial policy changes in the next two years before the mid-term elections. Sectors that are highly open to regulatory changes are Tech, Banks and Health Care while corporate tax reform and higher main street handouts are likely. Growth to value rotation will get a boost with bond yields rising on reflation. USD outlook may get a short term boost on risk off but the medium to long term view shows more downside risk. Markets had a one way bet on the senate runoff elections and that looks to be a mistake!
US market last close > US market up cautiously waiting for Georgia Senate runoffs and Congress certification of election over the next few days. USD falling and Bond Yields and all commodities running. Russell was the best with growth to value switch. Lockdown restrictions are popping up everywhere and that will weigh on outlook. China is tightening gradually after pumping stimulus for most of 2020. OPEC mainly held production with Saudi's cutting to cover Russia and few others pumping more. Problem for oil is demand in the short term. Every country that badly managed the pandemic is ramping up vaccine delivery...and starting to have rollout issues.
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.
MORE ON Equities
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...