In this discussion with BFM 89.9, Tony Nash speaks about the Dow breaking past 30,000 and what’s supporting this risk-on marketing? Also discussed are the stuttering economic recovery in the US, Janet Yellen as Biden’s Treasury Secretary and what that could mean to the world economy, and whether oil has more legs to rally right now.
This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/whats-supporting-this-risk-on-market on November 26, 2020.
WSN: To help us make sense of where international markets are heading, we have with this Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, it’s a bit confusing when it comes to markets because yesterday the Dow broke 30,000. But there’s a bit of correction this morning. So do you think this rally has legs? Is it a risk on or risk off for equities at the moment?
TN: Well, I think people really just took a breather today. I don’t necessarily think we’re seeing a fundamental shift or risk off environment. Equities are definitely a risk on environment, especially if you look at certain techs like Palantir. They were up almost 20 percent today. But, you know, when you look at things like the stimulus, we’ve had and the vaccine environment, you almost have a double accelerator environment where you’ve got this windfall of vaccines and all the same monetary and fiscal stimulus and potential new packages coming out. So there’s a lot of hope in these numbers. Valuations are really extended, assuming best case all around, which is what people do in situations like this. So it’s risk on at the moment, but we don’t necessarily expect this to be sustainable over a long period.
WSN: We look at the data that’s come out just on the eve of Thanksgiving, and it’s not positive at all because you’ve got higher unemployment claims and also weak consumer sentiment suggesting that the actual economic recovery may take longer than anticipated. So how do you reconcile all this with the actual market performance?
TN: What’s happening is we’ve had some state and local governments who are starting to shut things down again, worried that Covid will spread over Thanksgiving. And so, we get these legs to recovery coming and then the local, state and local bureaucrats who have absolutely no consequences to the decisions, they really kill economies that start coming back. And so Americans are really starting to push back and really starting to complain. So I think this is probably the last round of hard Covid lockdowns you’re seeing in different jurisdictions in the US because Americans are just fed up.
Maybe there may be something going into Christmas, but I doubt it. But I just don’t see much patience for this, because just as we have some sort of recovery coming, local governments come in and just suffocate any sort of recovery. So the jobless claims rising again. It’s more and more of the same where we have legs to recovery and then local governments come in and kill it.
I guess on a good note, orders for kind of good nondefense good rose almost one percent, which is pretty good news. It’s not terrible. They’re our collapsing consumer spending rose half a percent. So, again, it’s nothing to shout out, but at least we have growth there. So there is still positive news, but it’s slowing dramatically. And if these local government officials continue to suffocate local economies, we’re going to see things get much, much worse.
WSN: And what do you think about Janet Yellen as possible appointment as Treasury secretary? Do you think it’ll be good for markets.
TN: Markets like it. Some of the legislators like it. I think when she was the Fed secretary, she talked about fiscal stimulus not happening at the rate that it needed to happen. So if she’s a Treasury secretary, I think we can expect a big push for fiscal stimulus. We’ll see. My worry is, will the US become Japan with this kind of endless loop of debt being issued that then gets bought by the central bank? And there’s this circular economy that happens at the level that really doesn’t do much aside from a wash from the Treasury to the central bank. If that’s the case, then it could be problematic and it could be somewhat inflationary. But I just don’t think we’re going to see inflation here for at least a few years.
WSN: Meanwhile, does all look overbought to you at current prices? I mean, this morning, when I look at this Bloomberg screen is 45 U.S. dollars for the WTI delivery in January next year. Do you see any short term resistance? And what are the support levels we’re looking at?
TN: Right now, I think it’s because we’re seeing a lot of airline travel going into this Thanksgiving weekend. Airports here are packed. It’s the first time we’ve seen that in a long time since Covid. So people are a bit excited. I think jet fuel has been one of the main missing components for refined products in terms of demand. So I think there’s hope that maybe air travel is back, but I think that’s a bit early.
We really do expect some acceleration in the crude price in late December. And Jan, this is a bit early, but I don’t think this will last. Support prices, low 40s, 40 to something like that, which is right around where we’ve expected and where we’ve seen it. So things are a little bit ahead at the moment, but it’s not too far. We’re not seeing a six at all price, which we’re well ahead of demand.