Rabobank: Stocks Are Trading As If The U.S. Is Now A Banana Republic
by Michael Every of Rabobank
ZeroHedge.com
Wed, 06/03/2020
Markets continue to trade as if we are all going to have a Hollywood ending where the good guys win, the bad guys lose, and everyone hugs and learns something. As a bellwether, AUD is up around 3.6% in four days. That is from a currency facing the worst economic downturn since the 1930s, the first recession since 1991 (as GDP was -0.3% q/q in Q1), a destroyed tourism sector, a housing sector which cannot logically hold up much longer, the threat of a breakdown in trade relations with key partner China, the linked recognition that its location is now geostrategically vulnerable rather than safe, and as the RBA pegs bond yields out to three years with the overnight cash rate on hold at 0.25% until full employment returns (so basically forever). Yes, there isn’t any mass rioting – but don’t think that there is no risk of it in the future if the asset-rich/income-poor socio-economic template of the past four decades is returned to as Covid-19 fades away.
In Asia the risk on rally continued, helped by the Chinese Caixin PMI coming in at 55 vs. 47.3 expected and despite China hassling a Japanese fishing boat in the Senkaku islands, adding another country to the list that it is clashing with and raising geopolitical tensions further. Likewise, the UK is lobbying the 5-eyes Anglo group to allow millions of Hong Kongers to leave for Britain (who will take 2.9m), the US, Canada, Australia and New Zealand: what does that suggest about the outlook? Worse, Russia’s President Putin has changed his national defence strategy to allow the use of nuclear weapons in response to conventional attacks that “impact on critically important government or military facilities”. That is both a warning to the US and a dangerous step away from a global no-first-use nuclear policy.
But hey! Let’s sit and look at paper profits on a Bloomberg screen as a delicious meal is about to be delivered by a gig worker risking Covid-19 and street robbery and who earns less than the minimum wage! Everything everywhere is being resolved Hollywood style, right?
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