TRACKRECORD DAILY
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TRACKRECORD DAILY

Another day, another new high in stocks but what’s next?

The S&P500 stock index which represents the broader US stock market made another new all-time high on Friday as the rise of risk assets continues. Though we’ve experienced corrections this year due to inflation fears, and fear of the Federal Reserve tapering its money printing policy sooner than expected, risk assets have shrugged off the selling from the bears and the non-believers.

As long as the Fed remains resolute in printing money and as long as the Biden administration remains committed to spending trillions of dollars to boost the economy, the longer-term trend will not change.

The short-term narrative, though, will change according to whatever short-term factor that will grab the headlines and feed the fears of the doubters. Now that the market has pretty much accepted the Fed’s narrative that high inflation will be transitory, the next likely factor to cause gyrations in the market will be economic data on the health of the US labour market.

So the focus for the week will be on the US Non-farm payrolls on Friday and till then, the bulls could be having a rare few days of peace.

MARKET OBSERVATION

The FUD (Fear, Uncertainty, Doubt) continues to be sown in the cryptomarket with the latest being news that the UK has banned Binance Markets from operating in the country. (https://edition.cnn.com/2021/06/27/business/binance-uk-ban/index.html)

Binance, one of the largest crypto exchanges in the world, is a separate legal entity from Binance markets which has yet to start operations in the UK. Binance, which prides itself of not having a determinate country of incorporation, says it will take its compliance obligations seriously.

Of course, on the surface, headlines such as this will scare newbie investors into thinking that it’s yet another nail in the coffin of cryptocurrencies but the truth is, another step towards being a regulated industry will make cryptos a more acceptable asset class to mainstream investors.

Headlines like this could cause short-term volatility but is validation that regulators are starting to take the growth of this sector seriously and are looking to put in place protections for the average investors.

WEEK AHEAD

All eyes turn to the US employment report (Fri) this week, which will probably add to signs of gradual job recovery, as well as a slew of worldwide manufacturing PMI surveys (Wed: China, Thurs: Japan, China, Switzerland, Spain, France, Italy, Germany, UK, US, Friday: Canada) and an OPEC+ meeting (Thurs) that is expected to offer guidance on the production plans.

Elsewhere, key data to watch for include US foreign trade balance (Fri) and construction spending (Thurs); UK Q1 GDP (Wed); Eurozone inflation (Tues) and business morale (Tuesday); Japan’s Tankan survey (Thurs), industrial production (Tues) and retail sales (Tues); and Australia foreign trade figures (Thurs).

TRADING PLAN

1. Currencies:

Keep short USD and long NZD, & CNH. Stay patient and look for opportunities to add to positions should there be any retracements. Remain short USD vs NZD & CNH.

LTGmembers. : Still looking to sell USDCAD on rallies, especially if it gets close to 1.2400

2. Commodities: Uranium — Fundamentals remain intact. Stay long and patient.

Key risks: Higher US yields that will lead to a strong USD.

3. Equities:

Equity Index: Long Nasdaq futures. Support is at 12,950–13,000. Nothing’s changed. Stay long and patient while looking for substantial dips to buy.

Single Stocks: Retracement in energy stocks is a short-term blip in a long-term trend. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Higher US yields due to inflation fears and geopolitical worries are the key risks.

WHAT HAPPENED YESTERDAY

Market movements as of New York Close 25 Jun 2021 (27 Jun 2021 for BTC/USD)
  • The U.S. Dollar Index was little changed at 91.85. Risk currencies such as AUD and NZD continue to edge higher as risk sentiment improves with the strong price action from the stock market despite resurgence of the virus in both countries. GBP remains weak as the UK continues to struggle with a surge of cases due to new strains of the Covid virus.
  • The US 10-year Treasury Bond and 30-year yield rose 5 basis points to 1.54% and 6 basis points to 2.16 respectively. The 2-yr yield budged higher by 2 basis points to 0.28.
  • S&P 500 (+0.3%) closed at a new record high while Dow Jones Industrial Average (+0.7%) gapped at open to close nearer to highs attained earlier this month due to optimism sparked by news of the Biden administration reaching a bi-partisan deal on its stimulus plans. Nasdaq (-0.1%) and Russell 2000 (+0.03%) had lacklustre performance.
  • Consumer prices surge again as PCE inflation gauge hits highest annual rate of 3.9% (expected 4.2%) since 2008 when oil prices hit a record high of $150 a barrel. While this seems to be close to double of the Fed’s target of 2% inflation, one should note that this can be merely seen as a result of base effect. Additionally, the actual measure falls short of the market expectations.
  • US airstrikes on operational and weapons storage facilities in Syria and Iran in retaliation against attacks made by Iran-backed militias amidst an attempt at diplomacy with Iran through the revival of the 2015 nuclear deal. This currently has no immediate market impact but could be a risk if things start to escalate.

HEADLINES & MARKET IMPACT

Notable Snippet: “I intend to pursue the passage of that plan, which Democrats and Republicans agreed to on Thursday, with vigor,” Biden added. “It would be good for the economy, good for our country, good for our people. I fully stand behind it without reservation or hesitation.”

Tensions appeared to calm afterward, when senators from the group of negotiators convened a conference call, according to a person who spoke on condition of anonymity to discuss the private meeting.

“My hope is that we’ll still get this done,” said Sen. Rob Portman of Ohio, the lead Republican negotiator, in an interview Friday with The Associated Press. “Our infrastructure is in bad shape.”

THEMATIC CONTEXT: “Biden will have to get his best policies through before the midterm elections (Nov 8 2022) as any new seats won by Republicans (more fiscally conservative) will result in perpetual policy gridlocks, a key risk to our sustained inflation trajectory. We suspect the Biden Administration will pull through and weaknesses in materials and especially energy is an opportunity to get in.” — 22nd June 2021

This is a recurring reminder of what might happen if the Biden administration does not act fast enough to boost the economy ahead of the midterm elections in Nov 2022, and we suspect they will pull it through. The time to be hawkish is not now till 8th Nov 2022 and we believe that the US’ Fiscal and Monetary authorities will soon fall in line. Stay invested in assets and as the dust clears, we will swing back into full position.” — 22nd June 2021

Notable Snippet: The climate law will guide EU regulations in the coming decades.

First up is a sweeping package of policies, which the European Commission will propose on Jul 14, designed to cut emissions faster to meet the climate targets. It will include more ambitious renewable energy targets, EU carbon market reforms and tighter CO2 standards for new cars.

THEMATIC CONTEXT: “Traditional energy is here to stay and the ESG “dream” of having the world run on Solar, Wind and Hydro is far fetched from a practical point of view. The only energy source that can truly sustain such large energy demands while remaining “Green” is nuclear power and for that reason, we believe uranium to be the most mispriced/underpriced asset in the coming supercycle. In the meantime, traditional energy supply/demand imbalance will only be brought forward, leading to an interim bull (years) market in the traditional energy space. We remain heavily invested in this theme.” — 16th Feb 2021

Notable Snippet: Sydney, Australia’s most populous city, was plunged into a two-week lockdown over the weekend, while the northern city of Darwin entered a two-day shutdown, as officials grappled to contain the outbreaks.

Australia’s Queensland state on Monday reintroduced mandatory masks and limited home gatherings in several areas, including state capital Brisbane, following a similar move by Western Australia officials for state capital Perth. Restrictions remain in place in Victoria state capital Melbourne and national capital Canberra.

SENTIMENT

Phan Vee Leung
CIO & Founder, TrackRecord

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