Sunset Strip - 16th October 2020

Local market started positive with a boost from global investors buying banks for the first half of the day before the reality of the global weak economy dragged it into negative territory by the close. Tech and Retail were slightly in the positive while Property and Energy were the worst hit. The job data shows that Australia is losing jobs after three months of gains. Aussie fiscal policy and monetary policy effects are expected to be dwarfed by the US macro risks. ECB saved the markets last night by promising more stimulus to counter pandemic lockdowns but no amount of cheap debt can save small business from another layer of lockdowns and decade of money printing have not solved structural problems. How do they think it will work now? When you are loaded with debt to breaking point? Don’t let reality sow down FOMO!!! US election is favouring Democrats and that means expect just about anything from White House. We have already seen the online email attack like last cycle but that did not have much effect this time. Trump did not make up ground in the debate or Townhall chats. US stimulus will come but not till the election. US consumer spending is falling over, jobless rates are rising and mortgage delinquencies hit 20 year high!!! On the flip side, China steady recovery cycle with stimulus continues to deliver solid economy…expect trend to remain positive on Monday’s data deluge!!!

US market overnight started negative and recovered to reduce the losses after ECB delivered ready with more stimulus as pandemic bites. EU and US are in the Japan style ponzi scheme where money printing must be ongoing forever till there is a reset, crash and reform. Japan proves the case why it does not work as politicians will not do the reset, crash and reform cycle. EU is a pandemic mess again with US fast behind them. Emerging Markets ex China will be in pandemic mess for years. The second wave of recession effects likely to hit EU first and then drag US lower. ECB can’t stop it but add more debt to delay it a bit. US stimulus pre-election talk seems over but White House continues to talk it up with no negotiations. US$ and Gold were higher while Bonds were lower. EU markets were down over 2%. Job market data shows the pick-up in jobless worse than expected as economic recovery fades. Energy and Financials did the best. Reporting season not stacking up with multiples. ECB stimulus talk won’t hold markets for long. Chinese economy looking better by the day and their bonds and currency too.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy…new month/quarter has started!!!