Sunset Strip - 17th September 2020
Local market had a negative day with global investors dumping Aussie exposure with falling AUDUSD all day long. We could not hold any optimism despite surprisingly strong employment data. We have had these weird job data moves in recent years since ABS changed their methodology post cost cutting. Basically…US at peak cycle creates about 200,000 jobs per month and they are 14 times our population. If we are creating over 100,000 jobs with Victoria in lockdown, the economy is on fire and that is not the case!!! No matter how much lipstick you put on a pig, it is a still a pig!!! Government is basically paying workers’ wages to boost profits and bonus for corporates while hiding real unemployment. Even the currency market robots jumped on AUDUSD and then realized the data was inherently out of synch with reality and bashed down the currency. All sectors were in the red with the exclusion of Utilities. Tech, Materials and Health Care were the worst sectors.
US Fed followed ECB to under deliver overnight and flagged rates to remain low till 2024. NZ delivered big drop in economic growth. BOJ copied ECB and US Fed on wait and see with slightly better outlook. BOE is expected to add more stimulus but UK economy is a mess between Brexit and second wave.
US markets started positive overnight and ran up nearly 300 before US Fed update tanked the market to be up 40 with rates to remain low till the end 2024 unless we hit full employment or strong sustained inflation. US Fed delivered an update that confirmed to the market that they have lost control as we have been saying for a while. US Fed continues to favour the failed trickle-down economic policy with no plan B. No wonder US$ looks like Homer Simpson on a treadmill!!! Russell leads the gains while NASDAQ and S&P were negative with US$ rising in risk off trade. Bonds and commodities barely moved overnight except oil popped on weak stockpile and hurricane risk. V shape recovery is only for market while corporate earnings are linked to the economy. This disparity will normalize in the next few months as election uncertainty adds more fuel to the fire. Energy and Financials were the best US sectors overnight while Tech and Retail were the worst. Chinese Yuan keeps climbing against US$ with solid data and maybe they are preparing for the inevitable US$ fade!!! The US handling of the pandemic remains a complete mess with the CDC director expecting a vaccine rollout into 2021 while the president said CDC director was confused and he is expecting it during the election. Reality check is that the election is less than 2 months away and we have no vaccine yet. Given that Russia and China do have vaccines that are untrusted, US might be heading down the same path for political reasons and likely to create problems in distribution and treatment!!!
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! US futures are falling by the hour and showing delayed reaction to US Fed update. Buckle up...it’s going to get bumpy!!!
Too much stimulus is choking the economic cycle from getting out of recession!!!
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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...