I think Asia traders are having a touch of pre-weekend indigestion, and “traders’ little helper” (Alka Seltzer) is not providing the desired effect as its better the devil you know than the devil you don’t, mainly when the toxic brew of election uncertainty fuses with raging global Covid-19 concerns – Stock Market Today: Toxic elixir leaves traders a bit dizzy.
Indeed, this toxic elixir leaves traders a little dizzy, especially with the markets a bit more shaken than stirred this morning.
Prudence says it is tough to see things moving higher with contested election results hanging over the market head.
While I do not think there is anything sinister behind the Friday housekeeping biases, it is Friday, and traders are happy to trim risk and punch their TGIF tickets and head for the golf course.
Still, the keeners are jobbing the market trying to catch a bounce, but they keep risk on a very short leash contributing to the choppy price action.
I think it is doubtful that risk assets will run too far away with the global central banks backstopping the bond market to no end and simultaneously providing next to zero interest rates for as far as the eye can see. Assuming that is the status quo narrative that is encouraging the current risk-on splurge
My trading view is to stay the course, ride the favourable wind and tack the gnarly headwind.
- The market has concluded that gridlock is a friendly outcome – less growth and stimulus and less tax, regulation, and bond issuance.
- Lower rates and a lower discount rate support valuations and take compounders to the next level – this suits most books.
- Reflation is rapidly priced out, but positive vaccine news limits the downside. The dollar slide gathers pace.
- Global growth is likely 100bp lower without significant stimulus, but mobility restoration is an offset, and vaccine optimism could drive yields materially higher – watch break-evens.
- Technically dips can be bought with the high now in place for VIX. Chinese equities can make material further gains even with the sentiment knock from the Ant Group IPO suspension.
G10 FX vols have come to a smidge off Thursday’s highs, with equities retracing a little from the highs last night. FX spots have not done much this morning, and I would expect the front ends to remain bid until the US dollar downtrend continues, but the curves behind should come in as soon as directional demand subsides – Stock Market Today: Toxic elixir leaves traders a bit dizzy.