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A Difficult Vocation

As has been the case in recent weeks, the sentiment turned for no obvious reason, and the market started to grind higher. Being a bear sure is a difficult and expensive vocation…

15 Jul 2020


As of New York Close 14 Jul 2020,


U.S. Dollar Index, -0.32%, 96.15
USDJPY, -0.03%, $107.25
EURUSD, +0.60%, $1.1410
GBPUSD, +0.13%, $1.2570
USDCAD, -0.08%, $1.3599
AUDUSD, +0.70%, $0.6988
NZDUSD, +0.05%, $0.6544


S&P 500, +1.34%, 3,197.52
Dow Jones, +2.13%, 26,642.59
Nasdaq, +0.94%, 10.488.58
Nikkei 225, -0.87%, 22,587.01


Gold Spot, +0.34%, 1809.60
Brent Oil Spot, +2.13%, 43.06


U.S. Consumer Price Index (CPI) for June increased 0.6% m/m (consensus 0.5%) following a 0.1% decline in May. Excluding food and energy, CPI rose 0.2% m/m (consensus 0.1%) after a 0.1% decline in May. This was the first increase in core CPI since February. Although the numbers were higher than expected, the report shows that inflation at the consumer level remains in a subdued state, evidenced by a 0.6% yr/yr increase in total CPI and a 1.2% yr/yr increase in core CPI.

In the Treasury market, longer-dated tenors saw increased buying interest following the large credit-loss provisions from the banks. The 2-yr yield declined on basis point to 0.15%, and the 10-yr yield declined three basis points to 0.62%. The U.S. Dollar Index declined 0.3% to 96.15. EUR rose to a four-month high against the Dollar on hopes European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the pandemic. The Dollar was on the defensive, particularly against other growth currencies such as the AUD, following the stock rally on news of progress in vaccine development.

S&P 500 gained 1.3% on Tuesday, recovering yesterday’s decline in a mostly broad-based advance. The Dow Jones Industrial Average (+2.1%) and Russell 2000 (+1.8%) had strong performances with roughly 2% gains, while the Nasdaq Composite (+0.9%) underperformed.

The market stumbled out of the gate after the higher than expected inflation numbers spooked investors as higher inflation will deter the Fed to be more aggressive in their easing measures. However, Fed governor Brainard was on the wires not long after saying that an overshoot in inflation about the target level of 2% will make up for the months of undershoot before. She also added, “The recovery likely will face headwinds for some time, calling for a sustained commitment to accommodation, along with additional fiscal support.” This is in line with our view that the Fed will actively try to soothe investors whenever the stock market starts to look wobbly.

JPMorgan Chase (JPM 98.21, +0.56, +0.6%), Citigroup (C 50.15, -2.05, -3.9%), and Wells Fargo (WFC 24.25, -1.16, -4.6%) reported large provisions for credit losses in their Q2 earnings reports. While large provisions reflect a challenging economic environment for the banks, investors were willing to stay in the market. JPM and Citigroup handily beat earnings estimates due to outperformance from their trading divisions.

Shares of Amazon (AMZN 3084.00, -20.00, -0.6%) were down as much as 5.0% in early action alongside many of the mega-cap technology stocks, as money appeared to flow out of these crowded names and into beaten-down stocks. Investors, however, gradually returned to the mega-cap space throughout the day, providing a boost for the major indices and leaving AMZN shares down just 0.6%.

Separately, Delta Air Lines (DAL 26.11, -0.71, -2.7%) missed top and bottom-line estimates and issued a cautious revenue outlook for its September quarter. Travelers (TRV 118.55, +4.31, +3.8%) said it expects a net loss in Q2, primarily due to catastrophic events and civil unrest. TRV shares still closed higher.


Prime Minister Boris Johnson ordered Huawei equipment to be purged completely from Britain’s 5G network by 2027, risking the ire of China by signalling that the world’s biggest telecoms equipment maker is no longer welcome in the West. The seven-year lag will please British telecoms operators such as BT (BT.L), Vodafone (VOD.L) and Three (0215.HK), which had feared they would be forced to spend billions of pounds to rip out Huawei equipment much faster.

From the end of the year, it will be illegal for operators to buy any 5G equipment from Huawei, Britain’s Digital, Culture, Media and Sport Secretary Oliver Dowden told parliament.

After Australia first raised alarms about the risk of 5G being hijacked by a hostile state, the West has become steadily more worried about Huawei. White House national security adviser Robert O’Brien is meeting representatives of France, the UK, Germany and Italy in Paris this week to discuss security, including 5G. Dowden said Britain was working with its intelligence allies to create a group of rivals to Huawei to build 5G networks, naming firms from Finland, Sweden, South Korea and Japan.

Thematic Context: “In an increasingly polarized world caught in a Thucydides trap (US vs China) which could possibly split the world monetary order into two hegemonic zones,

  1. Pro-china aligning with One Belt One Road initiative (commodities priced in RMB) and
  2. Pro-U.S. aligning with Blue Dot Programme (commodities priced in USD)” — 22nd June 2020

At this point, it seems that pretty much of the western world is against China. The dual-hegemony theme we laid out is getting closer by the day (China already has Oil priced in RMB and trading volumes are increasing). This is positive for the RMB (and proxy SGD) in the longer run. — 14th July 2020

COMMENTS/IMPACT: One man’s meat is another man’s poison. As the western world is pretty much aligned against Huawei (China) and are determined to compete, this resolve may prove to be a renaissance moment for European tech firms. Coupled with some semblance of greater European cooperation in recent months, 5G related companies like Nokia and Ericsson warrants a look.


The United States on Monday rejected China’s claims to offshore resources in most of the South China Sea, drawing criticism from China which said the U.S. position raised tension in the region, highlighting an increasingly testy relationship.

The top U.S. diplomat for East Asia said on Tuesday that the United States could respond with sanctions against Chinese officials and enterprises involved in coercion in the South China Sea.

“Nothing is off the table … there is room for that. This is a language the Chinese understand — demonstrative and tangible action,” David Stilwell, the assistant secretary of state for East Asia, told a Washington think tank when asked if sanctions were a possible U.S. response to Chinese actions.

Thematic Context: “The fundamental demand for Dollars is what allows the U.S. to embark on MMT like money printing without fear of severe backlash and this power allows the U.S. to pull itself ahead out of the crisis. Hence it makes sense for the U.S. to be worried about another commodity backed currency emerging as it will throw a wrench hammer at the U.S.’ economic and foreign policy playbook. Understanding this, it is not in the U.S.’ best interest for such an outcome to occur and they will do whatever they can to prevent China from gaining access to resources and establish trade routes for which these commodities can be traded in Chinese Renminbi (RMB).” — 6th July 2020

COMMENTS/IMPACT: We believe the aforementioned reason highlighted on 6th July is a key reason why the U.S. is so aggressive towards China’s commodity backed expansion. It is a matter of national security and upholding of the vistages of the American Empire.


ASIA: Australian states tightened borders and restricted pub visits on Tuesday, while Disney prepared to close its Hong Kong theme park and Japan stepped up tracing as a jump in virus cases across Asia fanned fears of a second wave of infections. India’s tech capital of Bengaluru begins a new, week-long lockdown on Tuesday after a surge in cases following the easing of restrictions. The Philippines this week recorded the biggest daily rise in coronavirus deaths in Southeast Asia and part of Manila will return to lockdown affecting 250,000 residents. A presidential spokesman said restrictions in other parts of the capital were unlikely to be relaxed. Even Thailand, which has had no locally transmitted cases reported for six weeks, has stepped up border security over concern about a second wave of infections after the arrests of thousands of illegal migrants in the past month.

SINGAPORE: Gross domestic product (GDP) plunged by a record 41.2% (expected 37.4%) in the three months ended June, on a quarter-on-quarter annualised basis, preliminary data from the Ministry of Trade and Industry showed on Tuesday. The first in Asia to report second-quarter GDP data, the grim numbers for the wealthy city-state — a bellwether for the global economy — underscore the sweeping worldwide impact of the COVID-19 pandemic and point to an arduous road ahead. Many major economies are already facing their steepest downturn in decades.

Thematic Context: “The virus situation is still severe and new strains seem to be developing. A large part of the world is in the midst of battling the 2nd and 3rd waves, the last week of July and first 2 weeks of August will be crucial to watch for mortality rates. Any spikes in mortality rates might spook markets and dampen risk sentiment.” — 13th July 2020

“The virus situation remains fluid, keep an eye on mortality rates and vaccine developments, those will be the main drivers of sentiment in the weeks ahead.” — 14th July 2020

COMMENTS/IMPACT: The above pieces of news are representative of the “real world situation and economy”. At this point, the world is clinging onto hopes of a vaccine and keeping an eye on mortality rates, as mentioned, those two factors will significantly drive risk appetite and sentiment.


Bank Of Canada

The Bank of Canada (BoC) will wrap up its policy meeting on Wednesday, and while no action is expected, the accompanying statement could still be crucial. Even though the Canadian economy is healing, the resurgence of infections in the US is scary given Canada’s exposure to America, and might lead policymakers to strengthen their easing bias. If so, that would argue for a negative reaction in the CAD. Longer term though, the stage seems set for a powerful rally.

The Canadian economy has continued to recover since the BoC’s latest meeting in June. Incoming data confirm that both the jobs market and the broader economy are slowly healing their wounds, helped by the gargantuan stimulus measures from both the government and central bank.

This is precisely what the BoC envisioned at its June meeting. Back then, policymakers noted that the worst point of the crisis was likely behind Canada, but they also warned of ‘high uncertainty’ about how the recovery would play out. These encouraging signs suggest the Bank will probably stay on the sidelines at this meeting. But this is not the time to sound optimistic either.

Longer term though, once the US outbreak is brought under control, the stage seems set for a powerful rally in the CAD. The currency’s underperformance so far implies that it has greater scope to strengthen going forward, something also supported by CFTC positioning data, which show that large speculators remain net short.


OVERALL SENTIMENT: Nasdaq, which at one point was down more than 2%, was especially weak throughout the day as being invested in tech stocks seem to have become the most subscribed trade in recent weeks. S&P500 and Dow Jones index, however, were pretty resilient, throughout the day.

Weak investors who bought in at bad levels were likely trying to bail as it did look shaky for most of the day. However, as has been the case in recent weeks, the sentiment turned for no obvious reason, and the market started to grind higher. Intraday volatility was high, and the swings were wild as it gyrated throughout the trading session. However, the unlimited money printing remains a key driving force as against expectations, the Nasdaq managed to close almost up 1% on the day. The futures market jumped more than 0.5% at the Asian open due to some positive vaccine news from Moderna.

Being a bear is a difficult and expensive vocation…


Stock Indices

Read this day’s Trading Tip here:



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