Even a broken clock is right twice a day

The local market started choppy with no real sentiment before global investors boosted the market for the currency/reflation trade by buying into resources and financial exposures. It was a strong buy portfolio from the passive money bots into an aimless market. Energy and miners were the reflation picks but banks, property and insurance quickly joined the global buy list. The market looked to be flat on resource buying, negated by tech and retail bashing, but the global macro trade-driven boost to financials turned the market positive. Some small/micro caps are experiencing month-end pumping while bond yields keep climbing and USD keeps sliding. Retail sector sentiment fell after the JobSeeker upgrade was pathetically low by a government suddenly worried about a decade of fiscal mess from unbridled corporate handouts in the billions delivered bigger bonus, dividends and buybacks. Trickle up economics being sold as trickle-down but the market is not buying the alternative facts anymore. The government was planning on an early election but that’s off the table after the recent coverup unravelling. Interestingly the Australian government has ramped up the requirements to get unemployment benefits while making disclosure and class action rules easier for corporates. Nothing like “Socialism for the Corporates and Capitalism for the People” to solve the inequality in the economy…that has worked so well for decades…why stop now!

Reflation is the main game in town and the bond market is shoving it down the throat of the equity market. The US economy is weak and being held together by stimulus hope. Democrats are moving to push the latest package through this week - even if the Republicans don’t play ball. It won’t be the last time we will be playing this song. US Fed comments this week will be key as markets expect them to bail them out every panic cycle. The Fed has continuously said that they want inflation to run hot. Be careful what you wish for! 

The RBA will be cursing the US Fed after they lost control of AUD/USD and Aussie Bond Yields. It is going to get worse. The next cycle of USD debasement may be just starting and that spells trouble for AUD/USD. Are we looking at a parity party in H2? Time will tell. Unlike previous cycles, massive global passive money bots are moving quickly to play out the reflation trade. We are in the last week of the month and the bots will have to move on asset allocation changes. Equities have outperformed bonds and the bond market is much bigger. Expect US equities to get hit on reflation and asset allocation. The good thing for RBA is that a market pullback will give them a short term relief on currency and yield. RBA’s new strategy is like a broker analyst who keeps a buy on a stock falling apart on multiple downgrades as it raises the potential for a survival cap raising…“Even a broken clock is right twice a day”.

Comments on US market last close

US market was mainly down with NASDAQ leading the damage. DOW held flat while the rest were red. NASDAQ down 2.5%. We are clearly in reflation territory that we have been warning about. Bond yields are ripping higher and USD is falling lower. Commodities are the flavour of the market for now. Smart bots are selling bonds and equities while buying direct commodities exposure. Even gold is joining the commodities rally. Panic is hitting growth dreams. NASDAQ, SPACs and Crypto are going to see some volatility and not the good kind. Gold and energy lead the positive sectors while tech and retail were hit the hardest. Are we starting the next slide on reflation? The bond market I thinks so. Expected risk playing out and risk management will be key. Gold is ticking a lot of boxes here...value, commodities and safety trade.

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

Full report with end of day market stats are on the attached link/pdf.