UNIT University Network for Investing and Trading UniMelb

Before The Bell 05/05/2019

By: Sam Triantafillopoulos


The ASX 200 and the S&P 500 continue to climb to nosebleed levels, with more late-cycle IPOs on the table. The NASDAQ has managed to shake off the anxieties of 2018; beating all other indices for YoY growth, likely supported by domestic growth of 3.2% in Q1(YoY). Worth mentioning is that a large proportion of this GDP figure (~45%) was inventory and export driven, just as the greenback has slid with Jerome Powell hinting the end of QT within six months.


Inventories in Cushing, Oklahoma continue to draw down as the West Texas Intermediate retraces some of the recovery since the New Year. The Brent-WTI spread has settled from the highs in February, suggesting structural supply improvements since late 2018. Copper has recovered from a disastrous 2018, in which demand in China collapsed due to a slowdown in growth and primary industry; likely suggesting stimulus earlier in the year has helped (most of which was in debt, hence primary industry and construction feeling the sugar-hit first).


The AUD looks set to complete its long run mean inversion, breaching the 60-handle. EMs have recovered significantly (along with their bonds) from the annus horribilus of 2018. The USD remains the best of a bad bunch, maintaining the author’s view that currency performance, like growth for the next 20 years, will be an American victory by default as the rest of the West succumbs to stagnation and a demographic slowdown. In the near-term context, Brexit (and EU) turmoil still buoy the dollar.


The short end of the curve continues to plunge as the market sees a rate cut as more likely than not in the next few months. The US yield curve mean reversion has dominated the news cycle as growth, wage pressure and inflation remain at local highs (the bigger they are…). Anyone not named Jerome Powell seems determined to keep the party going, but the author has a feeling the GOP wants a dovish Fed for about two more years (wink wink).

Sources: Australian Financial Review, Sydney Morning Herald, Investopedia, Bloomberg, MarketWatch

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