Looking from Above – A macro funnel to view the trading world

With so many variables and external forces impacting markets, one must start with the Macro side of markets to drill down to the opportunities.

The first macro theme of note is: The global environment is stuck in a low inflation and highly accommodative monetary policy cycle. This becomes the starting point for the macro investor and trader.

The drawdown from a low inflationary environment is to look to Growth as this kind of vehicle will naturally outpace its peer Value.

Therefore in the pursuit of Growth, the presentation looks at three key markets –

  • The US – The baseline for all market investing
  • The Australian Environment – Is the economic environment conducive to growth?
  • Doctor Copper – a gauge of Growth and the China link

The US remains the bright spot of the developed world – GDP is expanding at its fastest rate in the new post-GFC era, wealth creation is ramping up, employment is reaching the ‘full employment’ level and yet inflation remains by and largely mediocre. It is a perfect environment in which the Growth scenario has and will play out. Over 2017 the three main US markets are up over 20% compare this to the ASX which is a Value market and its 5.6% year to date.

The interesting part of the US baseline is the US Dollar (USD) – it has struggled to catch a bid (buying interest) in 2017, and only in the past three months has it finally flattened out of its linear decline – with expectations of rate rise and further growth. The USD weakness may have been a theme of 2017 but unlikely to be a 2018 one. It is a currency to watch.

Looking into the market that we all live and breathe is the ASX – and it has been an anemic year compared to peers. However, Growth is also playing out in our local market – Materials are up over 13.5% year to date compared to the financial index which is unchanged – one of the clearest examples of Growth over Value. With China still expanding and global growth (Europe and the US) now ramping up, Australian Growth may remain an interesting future opportunity.

With this in mind, the next part of the Growth story is one of the best measures of growth – Copper. The bulk industrial metal is currently seeing levels not seen in over 3 years and with demand on the up, inventories dropping to pre-GFC levels and China’s demand ramp up – the red metal is also providing another market for the Growth thesis.

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