USD debasement and vaccine ends the yield pandemic

Local market started negative on US lead before global investors pushed it into positive territory on macro trade. Global investors continue to buy our banks for the currency and value trade as AUDUSD gets shoved up by USD debasement. If you removed the bounce in the big four banks today, local market was in the red. Covid pandemic new waves are hitting all parts of the world and driving lockdown restrictions. Vaccines are on the way but production, distribution and marketing into a polarized country will take longer than most think. Europe is already in lockdown restrictions while parts of US are shutting schools and in late night lockdown as hospitalization rates hit all time highs. More lockdown restrictions are coming for US. Vaccines are at best 6 months away in covering US but probably 9 months on a risk weighted basis. When you stretch that out to the world, we are looking early to mid 2022. Lame duck President in the US continues to make moves that suggest scorch earth strategy while Congress is holding back stimulus support needed to hold the economy together. We are beginning to see early signs of US investor confidence cracking overnight as retail sales disappoint and Covid case numbers keep rising. Locally the employment data was again disjointed with reality as we created 180k job with participation rate and unemployment rate rising to 7%. Real unemployment is double digit despite the handouts and it’s going to get worse as the handouts fade. Local stimulus plans are dominated by property and infrastructure related spending and that will be filleted by big government donors (i.e. developers and contractors). RBA likely to cut rates again and banks are likely to not pass it again. Wage growth hit all time low and it’s not going to beat inflation for a long while yet!!!

Overnight US market started 100-150 up on Pfizer release more pump news about their vaccine before the reality of the pandemic drove the market down 500 odd to finish -350 odd. Vaccine pump stories are all about share price as the details are weak. We still do not know how long it protects while the production and logistics are still putting 6 months as the best case for US while 12 months for the rest...more likely longer as this has never been done before. Bonds mainly flat, Oil up a bit and metals down a bit. USD weak again and pushed A$ above 73. Local fundies are watching the market like kangaroos in front of the headlights but it’s the global macro trade is moving our market in recent months. Growth to Value rotation continues with Russell better than the rest in a down day as well. US pandemic and political risks are elevated as currency falls, inflation rises and retail starts to fade!!!

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

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