Sunset Strip - 14th October 2020
Local market had another aimless negative day with global investors dominating the trade chasing AUDUSD. It started negative on US lead and then recovering through the day before closing lower. Three main macro catalysts in play are US election, US stimulus and Covid 19 pandemic. US election has started to tighten up after being assumed to be in Democrats favour. In a two horse race, it always tightens up. The electoral voting system, pandemic restrictions, mail in voting and legal challenges means this will be a mess for weeks after the election. US stimulus is not even being negotiated as political games are the main show. Pandemic is rising in most parts of the world and US is one of the worst countries in managing the spread. US reporting season has started with numbers being weak but beating expectations and underperforming. The market multiples are so high that under playing the forecast data is already in the price. Momentum is a beautiful dream that turns to a nightmare when fundamentals are not backing it!!!
Banks and Resources were negative while Health Care and Consumer sectors were positive. Federal government is out talking the benefit of a budget that is going to deliver very little reform while locking in debt for 60-80 years. It all makes sense if rates remain this low and unemployment doesn’t get worse from here. Sadly…that won’t be the case. The Global economy is really sick and that’s why Central banks around the world are cutting rates to nothing and pumping trillions into the economy. The slide started before Covid and it will do damage well after a potential vaccine as the main issue is structural and no heath…but political spin is all about deflecting facts.
US market overnight faded through the day to end down 160. Everything was down except bonds and US$. Oil had a bounce on supply side risk with weather in US and labor strike in Norway... despite OPEC downgrading demand outlook. White House latest stimulus plan was dead before it started. China data remains stable to positive while US economic data shows gradual fade. EU and Asia are going back into select lockdown restrictions. US reporting season started well but stocks are down. The numbers are bad but better than expected as analyst forecast are stupid low while multiples were extremely high. Usually markets fall into election and run after on certainty but as with everything in 2020... we may have the opposite. We are near all time high. The election is going to be prolonged process of uncertainty with a reality star struggling...going to legal challenges and volatility. Every sector is down with banks and property leading the falls. Markets are starting to accept our medium term lower USD and higher Euro and AUD!!!
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy…new month/quarter has started!!!
Stimulus has made markets blind to risk!!!
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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...