Sunset Strip - 22nd October 2020
Local market had another volatile day but there were big transition portfolios moving around all day and delivered solid turnover through the day. The market fell at the open and global transition portfolios were moving in from then to reduce the loses to deliver a negative day. It looks like money is moving out of US and into Asian exposure. Bond yields are breaking higher and USD is breaking lower. US stimulus deal likely to get delayed and pandemic is hitting multi month high while Europe is getting hammered by the pandemic. The US election risk is rising as the swing states remains close and the second/third debate is tomorrow Aussie time. Globally economies are rolling over as handouts are fade and pandemic takes off.
US 30 year bond yield has broken the down trend as inflation picks up. Markets are pricing in central banks returning to the ponzi scheme to keep yields lower. Something has to give sooner than later!!!
The central banks around the world are fast running out of ideas and preparing to take rates to negative territory and unleash digital currency to directly stimulate the economy. Due to government and banking system problems/rorts/corruptions, the monetary policy has not solved the problem and fiscal policy is loaded with too much debt. Central Banks are going to bypass governments and banks to boost economy by direct income. Socialism may be coming sooner than most anticipate but it will be packaged as enhanced capitalism. Bit like the Coalition government running Labor policies after spending a decade bashing them for supposedly badly managing a GFC with no recession!!! As we mentioned before, we are all following the failed model of Japan and inevitably this will create a lot of unforeseen problems. The first of that is inflation!!! Not the good inflation through wage growth but bad inflation through cost rises. Depending on what happens in the US election and the policy options taken after that, we may see the ugly head of cost inflation within months!!! White House wants a stimulus deal to boost a fading election cycle while Democrats are stalling and Republicans are scared of the mess after the election.
Overnight US market started up 150 odd and finished down 100 odd in another aimless volatile day. Stimulus talk keeps going and timeline keeps getting extended but nothing new. Bit like every US deal...lot of talk but very little meat on the bone. Covid is really picking up in infection rate and cases through US and Europe. Bonds, US$ and Oil lower while Gold lead the metals higher. US 30 year bond yield is hitting new 5 month high and has broken downtrend. It’s moved back into positive real returns... albeit by very little!!! These imbalances are creating volatility with markets near all time high multiples...not a good combination. OPEC further downgraded demand outlook. Energy and Industrial were the worst sectors in a day where Gold was the only positive category. Chinese Yuan is trading at 2 year high against US$... tells you all about the global macro!!!
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
US reporting season are farcical due to analyst low balling expectations!!!
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...