Sunset Strip 2nd September 2020

Local market backtracked the bash yesterday after deflation data from EU and solid manufacturing data from US. After the opening jostle, local market was chasing the currency with global investors taking over. US market has been grinding higher on multiple expansion with US$ worries while Asian and European markets are treading water. Market sentiment remains fickle when investor sentiment gets tested by historically high multiples and weak economic outlook.

US market started their day aimlessly into an expected solid manufacturing data before a weak inflation (i.e. deflation is more to the point) out of EU pulled EURUSD back from 1.20 and boosted US market. US and China (by being pegged to US$) are exporting deflation to the world. EU will be forced to react by money printing as usual, but it is pretty much running a hose to put out a bushfire. May be why the Big Buff moved into the Japanese Ponzi scheme sponsored by BOJ to diversify the short US$ bet!!! Australia has the same problem...A$ going up and core inflation going down...recession!!! Not real inflation…that’s 4-5% but RBA or Government do not want to talk about that. NASDAQ leads the move higher. Zoom up 41% after earnings beat as shorts were killed, Apple up on new products coming (and I through that is what they always do) and Walmart on new membership plans (and I thought everyone already did this). US$ recovered some losses from previous days but it looks like the slide path is set to continue and that weighed on commodities while bonds moved higher. Tech and Retail were the best in the US while Utilities and Energy were the worst. The three biggest stocks (CSL, CBA and BHP) that represent three main sectors were breaking important levels yesterday with the market...usually a warning shot.

Aussie economy was confirmed to be in recession today as Q2 GDP fell more than expected. Government blames pandemic but the reality is that recession was inevitable. RBA bashed rates from 1.50% to 0.75% (i.e. less than inflation) straight after the government won the election claiming “jobs and growth” agenda. AUDUSD moved up after GDP data confirmed recession after 30 years. RBA has lost control while US and China are exporting deflation and high currency around the world. 

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!!

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