Sunset Strip - 22nd September 2020

Local market had another negative and volatile day where global investors were the dominant player chasing AUDUSD. RBA tried to jawbone the currency lower with multi step bond buying and rate cuts plan. That did weaken the currency for the first hour and that added to the overnight global market weakness to bash the local market in the first few hours. But soon the currency market realized that RBA is trying to put out a bush fire with a tiny little hose. When the 350 million pound gorilla (i.e. USD) is in decline, there isn’t much a 24 million pup can do….size does matter!!! AUDUSD started to climb in the back of the day and the local market followed to recover some of the loses. Local restrictions are starting to relax as virus cases get back in control but the economic damage from recession is still going to play out. Best sectors were Tech and Health Care while the worst were Materials and Energy. Banks globally are under pressure on the illicit trades. Everyone knows that banks can get away with murder but their profits are going to be under more pressure with more regulations and central banks pushing yields lower.

US market had another volatile and negative overnight. DOW opened negative overnight and fell more to get below -900 and then recovered to finish -510. Russell lead damage -3.4% while NASDAQ was least hit -0.1%. European markets were hit 3-4% last night. US$ bounced with bonds on risk off and all commodities were hit. Tech was the only positive sector on WFH stocks while Industrials and Energy were hit hard. The main negative triggers were pandemic lockdown, banks illicit trades, weak economy, US election and no new stimulus. The financial stress has started to squeeze markets and they are starting to panic. Leverage is big in the market and that will get out and create the momentum. We may be at the start of the next slide!!!

EU markets should bounce after the 3-4% bashing overnight while US futures are negative and have weak economy running into more election and geopolitical uncertainties. Locally market pundits are buying into the RBA and government tune of endless debt and deficit don’t matter but someone must pay the bill. There are no doubts that we are going into a long period of higher tax, lower consumer spending and deleveraging cycle. The longer we ignore it, the bigger the problem will get to and the longer it will take to unwind. Rating agencies should be sending warning signal to investors but they are back-casters in crisis!!! Can’t blame them…they are not alone…central banks and governments are spinning fantasies over economic reality!!!

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

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