Sunset Strip - 28th October 2020 - Global macro trade delivers a positive day
Local market fell at the open before global fund managers were back buying our market for the currency bounce and pushed it back over to slight positive territory. Local fundies were on the side lines while global money was moving from US/EU into Australia for the China exposure and currency/commodity trade. The global macro trade chasing currency was missing for the last few days but seems to be back as pandemic waves run rampant through EU and US. RBA was out there talking up what they can do but they only managed to confuse the market. RBA claims they have options to drive recovery, recession is over but they are going cut rates soon. RBA is clear as mud but that’s what happens when you have wasted your ammo boosting asset prices instead of economic recovery!!! Reality is that they are a candle in the global currency trade wind and AUDUSD went up despite this calamity. Australian government continues to have border wars with states to distract from the lack of reform policy to drive growth. We may be fighting with China but they are still our only hope for sustainable recovery in most sectors!!!
US stimulus is completely off the table before the election while Covid pandemic is hitting daily records in most parts of US. With over 70m pre voting already (i.e. more than 50% of people who voted in the last election), US election results are unlikely to come out for days after the election…may be even a week. The presidential election is tightening as expected while the popular vote may favour Democrats, it is all about the 5-6 swing states. The worst case scenario for the markets is Republican president with Democratic Senate and Congress. In a contested election as most are, anything is possible. Markets don’t like uncertainties but that’s what we have in EU and US while economic data continues to show the recovery is fading. We had the returns over the last seven months and now the risk is playing catch up!!!
US Government may be ignoring the pandemic but the US consumer shopping pattern suggests the hoarder mentality is starting to play out. Political pressure and out of control pandemic suggest lockdown restrictions are expected post-election!!!
Overnight the US market was mainly down with NASDAQ staying positive. DOW was down between 50 to 150 most of the day before sliding lower in the last hour to finish down 220. NASDAQ being boosted by lockdown stocks as the pandemic is ramping up in all parts of EU and US. EU said that they won’t have a vaccine out to all of Europe till 2022...assuming we find one soon. UK large scale test shows the antibodies post Covid does not last...hence the herd immunity strategy won’t work. US has no plan to curb Covid for political reasons and that means it’s going to go wild well into November. Bonds, Gold and most commodities were a bit higher as USD came back a bit. Gold and Tech were the only positive sectors in a market starting to accept lockdown restrictions and downgrades for Q4 with Covid winter made worse by political issues. No stimulus and prolonged election uncertainty to further dent the fading recovery in the US economy.
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
Mike Tyson > "Everyone has a plan until they get punched in the mouth."
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SunsetStrip20201028.pdf
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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...
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