Sunset Strip - 18th September 2020

Local market had a slightly negative and volatile day with global investors continuing to chase the AUDUSD while local investors were mainly on the sidelines. Massive volume day as option/futures expiry at stock/index levels today.

The local market remains negative with weak economy and China uncertainties. Economic recovery since reopening has been mainly driven by taxpayer funded employment, super withdrawals and deferred rents and mortgage. We are now moving to the next phase where unemployment benefits will weaken, super spending cycle has started to fade and rent and mortgage payments will soon start again. The continues open geopolitical media warfare with China continues to weigh on weak growth sentiment as Australia is seen as US attack dog in Asia. US economic recovery showing signs of weakening with election uncertainties while Europe is starting to see substantial second wave. Emerging Markets ex China are buried in first wave and unlikely to get that under control till 2021 at best. China remains the only major economy where recovery remains robust and consumer spending remains supported. Chinese Yuan continues to strengthen against a weak and declining US$. US and China are seeing inflation and they are pushing the rest of the world into deflation. AUDUSD is going higher and USD collapse in the next few months could be shoot it out to parity!!! All our major growth engines are exporting commodities and services. High AUDUSD will make them too expensive and less competitive in a global market with lower demand. RBA hasn’t got too many bullets left and the government can’t find a reform agenda to save their lives. Debt and deficits are here for decades while most pundits keep coming back to pumping property prices as the solution. When will we stop using yesterday’s solutions for tomorrow’s world? Probably till it all goes wrong!!!

US market had another volatile down day overnight as investors digested US Fed comments to keep rates at almost nothing for atleast 3 more years...at this point...probably longer given the track record of money printing Ponzi schemes like Japan and EU. DOW started -300 odd and then recovered to flat in an hour before fading back to the lows over the next few hours...then it remained weak before last hour pump to finish -130. NASDAQ lead the falls with weak US$. Bonds were slightly higher overnight with most commodities while Gold was lower. Market preparing for quadruple-witching tonight with stock/index options/futures expiry volatility in the US. BOE held rates and QE as it is while flagging elevated risk and considering negative rates. When everyone is crazy, you must go full metal jacket mental to get attention!!! Industrials and Energy were the only positive US sectors while Property and Retail were the worst. Growth continues to underperform value. US election risk raising geopolitics, handouts and divisions. The insiders are selling out of US markets at 5 year high levels and history suggests investors should follow!!!

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