Weak global economy is sailing into another virus minefield as leadership mistakes pile up
Local market started negative and kept sliding to close near the low of the day despite Iron Ore popping hard on Brazil issues. US market was weak but made late recovery on the back of banks. European markets were bashed overnight as the faster spreading version of the virus in UK has moved into EU. Lockdowns are expected to last into Jan and trade pathways are being affected. Inflation is expected to rise as supply chains are disrupted in many categories…esp in food. US and Australia are not blocking UK despite signs are the new virus is already in both countries. The same mistake that was made previously about Europe that costed both countries is being repeated. It is the definition of insanity to keep doing the same thing and expecting a different result. USD bounced overnight on risk off and that hit commodity prices and most currencies. Falling AUDUSD took down the banks while weaker commodities weighed on miners. Health Care and Property were the only positive sectors. Sentiment remains weak and bond yields remain high despite stimulus package being passed. We are unlikely to see any more stimulus move till inauguration. It is a good time for bond market to force US Fed’s hand by selling off and driving inflation higher. Bond market is holding the US Fed hostage while Equity market could be collateral damage!!!
US bond market is flagging that reflation has started and US Fed rates have bottomed. High growth stocks trading at multi decade high multiples need bond yields to go negative but that isn’t what the data is showing. Inevitably economic woes will need more stimulus and that will drive more USD debasement. All the roads lead to reflation and that means lower multiples for markets!!!
Overnight US market was mainly negative with DOW being the only index sneaking into positive. European markets were belted on lockdown and new virus variant from UK. Like what happened same time last year with China, countries are reacting too slow and countries like US and Australia are doing nothing for political reasons. DOW started down 400 and then ran up 100 and finished 40 up. Banks and Nike were the outperformed. Banks having a pop on regulators watering down dividends and buyback restrictions after bailouts. VIX has popped and USD ticked higher on risk off. Bonds ticked higher and commodities were lower. Banks were the only positive sector while Tech and Gold were mainly flat. Nearly $1trill with $600 cheque next week and $300 boost to handouts were not enough to boost sentiment in the United Socialism of America. More money printing looks inevitable and UK virus variant is probably in US and EU. We have already got it in Australia but due to politics we won’t do anything about it.
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
Not already a Livewire member?
Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.
1 topic