Cash is King – as a reserve


Market Update: 30 April 2020

There’s a continuation of amazing market moves reflecting positivity despite poor data, poor sentiment and Central Bankers telling us this is a medium to longer-term concern. A Vaccine – which we’d mentioned previously has been the darling of rallies and sheds a glimmer of hope. Gileads’ Remdesivir showed some promise by way of reducing time in hospital by 4 days on average – at least giving congested hospitals some capacity to deal with future onslaughts. Tests continue, but Trump is pledging to fast-track by the end of this year.

What’s happening in the background though is Australian corporates are raising large amounts of cash to save for this rainy day/months. It’s reported more than 60 companies have issued new shares since April. This goes in line with our own COVID-19 checklist indicating cash flow would be at the forefront of concern.

Why though are we now back at October ’19 levels for S&P? It’s not that things are as rosy as they were then (despite Brexit and US-China trade relations), it’s because of all the liquidity injected by Central Banks and Governments. Even today, the RBNZ announced the removal of LVR restrictions for 12months.. i.e. leverage up with your ears pinned back!

Also today, China PMI came out a tiny smidge lower than expected… 50.8 (vs 51). I’d say that’s a win although caution should continue for the following months.

AUD is skeptically attempting a move higher, but if it is just short terms players dominating, don’t expect this to last as RSI’s move to overbought – especially on the crosses.

Sources: Bloomberg

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