Clarifying our Macro thoughts

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Question asked 19/06/2021

Clarifying our Macro thoughts

Dear James, Thank you for sharing your thoughts on the opportunities & where the market is heading. I particularly like your macro analysis. Please explain what’s the relationship between Usd and growth or IT stock? I understand that you think usd will range bound between 88-95 for the next few months. I don’t understand why you suggested to buy & overweight growth & IT when usd reach 88. If usd is 88 then bond yield will be low which is favorable for growth & IT. So why would we overweight IT when USD hits 88 esp if usd will go back to 95 as predicted by you? If usd reach 95 the bond yield would rise & will be negative for growth & IT. It makes more sense to me to sell IT & growth when usd reach 88 rather than overload. On the other hand overloading resource at usd 95 makes sense as resource benefits from a drop in usd. Is this the reason why you suggest loading resources when usd hits 95? Richard Ho.

Answer

Hi Richard,

Thanks for the thumbs up for our macro report, much appreciated. To answer your $US correlation to IT / resources we believe it’s a case of the later leading the way:

A weak $US is bullish for commodities and hence the resources, the likes of BHP and RIO have rallied as the $US has depreciated over 10% since its March 2020 high.
Hence if the $US is set to bounce strongly we believe the resources will struggle, at least in the coming months.
Conversely short-term the Australian tech sector in particular has struggled as bond yields have rallied and the $US has fallen since February, we are simply looking for some reversion to this crowded trade as opposed to long-term macro changes.

chart

The $US Index

LAST UPDATED 17/06/2021 08:43

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