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The bull in the butler! - Standard Investment Bank

This starts down in the dumps with what has been happening in Australia, which is being ravaged by the worst wildfires seen in decades, with large swaths of the country devastated since the fire season began in late July 2019. At least 28 people have died nationwide, and in the state of New South Wales (NSW) alone, more than 3,000 homes have been destroyed or damaged. All this has been exacerbated by persistent heat and drought, and many point to climate change as a factor making natural disasters go from bad to worse. The Insurance Council of Australia increased its estimate for damage claims from the fires to more than A$700 million, with claims expected to jump when more fire-hit areas are accessible. Closer home, the locusts menace rages on unabated and on matters of food security, we look on with bated breath.

The Australian Dollar has a few monikers going for it, Aussie or the Butler as the case is known in most dealing rooms. And at Mansa-X our view is that the butler is on a slow staircase to the moon! It looks like it will be a painful slow grind to the top, but focus and patience are the key attributes needed. Aussie gains have fundamentally been attributed to optimism on US-China trade pact that was signed at the White House on Wednesday. As of writing, the price is at 0.6904, 4 ticks above the figure inflection point, with support coming in at 0.6880. Breakouts are not always about pimples, but we are watching if markets will validate this move. We will be chasing the sun, targeting 0.7150. Understand asymmetric risks, generally, bad things happen quickly, good things happen slowly. Anyone interested in a lift to the top?

Marco factors that may add steam to this slow building rally are Chinese data in respect to signs of a rebound in its economy, global growth, rising commodity prices, like doctor copper which has been rising as well and the ripple effects of US-China trade pact. Markets anticipate due to the high price tags on insurance claims caused by the fires in Australia, the Reserve Bank of Australia would be inclined to cut interest rates at its next monetary policy committee meeting on February 4th. Drought and fires may lift Australia’s quarter four consumer price index with headline inflation looking set to be lifted by rising food prices as a result of the supply shortages.

Aussie is battling opposing currents, caught between the forces of an improving global backdrop (or at least less downside risks) and pricing for a cut of the RBA’s cash rate, currently priced by markets at 46 percent. For the past five trading sessions, the butler found much needed support at 0.6880 levels, and the favourable US-China phase one trade pact has generated further short-term support in the midst of slowed economic activity due to the bushfires and drought. It is estimated that full year GDP growth may be 2.1 percent, down from 2.4 percent forecast in 2020.

A rate cut might spur government spending, private sector recovery and reconstruction, lift consumer spending and consumption. Even so, unconventional monetary measures are unlikely. So is a cash rate cut fully priced or half-baked in? If prices remain vertical, especially above 0.7000, even after the interest rate decision, well put a fork in it and ride the bull time will tell if the bears will be in tears.

Germany’s economy grew 0.6 percent in 2019, the slowest pace in six years. One reason why its economy recorded the slowest growth in six years in 2019 is because the German government opted for a consistent surplus on its budget. And last time there was a budget deficit was in 2011! In a normal world, budgets should not have deficits. So really, should this tell us that ‘modern’ GDP numbers are not an indicator of a healthy economy? What do you prefer, slow growth with a surplus, or high growth with a massive deficit?

On something exotic, if this is your kind of adrenaline rush, bitcoin is up 13 percent in the last 6 days and at 20.85 percent year-to-date! Gold is up 2.51 percent year-to-date. As of last Friday, the Dow Jones hit 29,000 for the first time in its history! Choose your own adventure!