Sunset Strip - 05th October 2020

Local market was jammed up 2.5% on weak volumes as most were on holiday with NSW long weekend overlapping the school holidays. The market was completely dominated by the unwinding of the shorts and currency trades set up in our market after the White House covid cluster hit the US president and his wife. 

The severity of the covid exposure for the president was high enough for the doctors to move him to a special hospital and give him substantial therapies and drugs only used on patients that are severely affected. Despite the infection, the president still trying to keep the election campaign on track by getting the secret service to drive him around to show his supporters that he was doing well. Despite the show, the president will not be able to get back on the campaign for the next few weeks at best as that is the standard procedure. It would make a mockery of standards if the president goes back to campaigning like nothing has happened. Given the updates of all the treatments, it will be hard to break protocol as every step will be analyzed. Covid reality is that the first week is critical. Since the president has already had some worrying days…every day is going to bring uncertainty for markets over this week!!!

We have super Tuesday tomorrow…budget and RBA…nothing to see here!!! Coalition government that promised surplus every year will confirm that they will never get to surplus. The debt will blow out for years and will require decades of higher taxes to pay for it. The budget update tomorrow will have ramped up infrastructure boosts and tax cuts. It sounds good but it is the same old strategy that hasn’t worked. The trickle down economic is a broken model as big vested interest groups have built massive business models in the middle to drain all the benefits out…like Jobkeeper delivering more bonuses and dividends than economic growth!!! It will fail and leave future governments unfunded. Inevitably budget reality means services to the low income and retirees will be cut. There is no real plan for reform or growth. Doing more of the same failed policies will deliver more economic weakness!!! RBA is going to talk a lot and do very little as they are very short on firepower…not winning a currency war with US Fed!!!

US market started down 300-400 on Friday before test results came negative for Pence and Biden boosted it to flat at lunch...then it faded on economic reality to close down 135 as White House covid cluster remaining the main uncertainty. Nonfarm Payrolls came in at 661k when expectations were at 800k. Data continues to show economic recovery fading with stimulus. Lot of the jobs lost are moving from short term layoffs to permanent as bankruptcies rise to new decade high. Trump’s age and weight puts him in a high risk category for a president and hence they moved him to a hospital. It must be more severe case of covid as substantiated by the therapeutics and steroids used to treat the president. Bonds and Gold gave up the gains in our market time while US$ remains strong. Oil down a bit on demand worries but Copper ticked up. Russell is up 0.5%, DOW down 0.5%, S&P down 1% and NASDAQ down 2.2%!!! The late recovery was under the view that Mnuchin will move from his $1.6T stimulus package towards Pelosi level of $2.2T since what has happened with Trump. The updates from the hospital since Friday suggests it was severe but the president is trying to keep the appearance going due to the election cycle.

China is in their “Golden Week” holiday period Australia has School holidays through next week. Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy…new month/quarter has started!!!

School Holiday Break…next Sunset Strip on Monday 12th!!!

Global Health Crisis (GHC) will leave a trail of global economic damage!!!

Not already a Livewire member?

Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.