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Do Not Sell Into the Dip

That has not worked out so far, and is unlikely to.

6 Jul 2020


As of New York Close 3 Jul 2020,


U.S. Dollar Index, -0.15%, 97.17
USDJPY, +0.01%, $107.51
EURUSD, +0.08%, $1.1249
GBPUSD, +0.14%, $1.2485
USDCAD, -0.13%, $1.3547
AUDUSD, +0.27%, $0.6942
NZDUSD, +0.35%, $0.6535


S&P 500 Futures, -0.43%, 3,115.62
Dow Jones 30 Futures, -0.51%, 25,627.50
Nasdaq Futures, -0.26%, 10.328.88
Nikkei 225, +0.72%, 22,306.48


Gold Spot, -0.06%, 1775.05
Brent Oil Spot, -0.35%, 42.73


U.S. cash markets were closed on the 4th of July for Independence Day but futures were opened for half day.

The Dollar has been locked into narrow trading ranges recently as concerns about resurgence in U.S. virus infections offset growing optimism about the economy. The Euro will come into focus later in the trading day as Germany, the eurozone’s largest economy, is scheduled to release industrial orders for May. Retail sales for all of the eurozone will also be released later today. Both indicators are forecast to recover strongly from large declines caused by the spread of the virus.

The AUD is another market focus ahead of a Reserve Bank of Australia (RBA) policy meeting on Tuesday. Analysts expect that rates will stay at 0.25% amid signs that Australia’s economic downturn will not be as dire as first feared. AUD and NZD have been grinding higher on the back of the prevailing positive risk sentiment.

Nasdaq made new highs on Monday morning with no attributable catalyst. One would expect it to open flat or lower with no good news over the weekend, the move is putting the squeeze on bears and they may be getting out of their shorts, propagating the stronger move higher.

The Hong Kong and Chinese stock indices are pushing higher aggressively, up 2% and 3% respectively at time of writing. The rally is also adding to the strong positive sentiment of the market.


Trump on Saturday vowed to defeat the “radical left,” in an Independence Day speech at the White House that condemned recent protests against monuments to historical figures as attempts to destroy the United States.

Trump claimed without evidence that 99% of virus cases in the United States were “totally harmless.” In fact, many states marked a record number of new COVID-19 cases. In Texas alone, 7,890 patients were hospitalized after 238 new admissions over the past 24 hours.

Trump, who has faced criticism over his handling of the pandemic, said China must be “held accountable” for failing to contain the disease.

Trump, in his speech, also said the United States would have a vaccine or therapeutic solution to the virus “long before” the end of 2020. Such a success could help the U.S. economy and Trump’s chances of re-election. On Thursday, a top U.S. health official said he was optimistic the Trump administration’s vaccine-acceleration program “Operation Warp Speed” will generate a safe and effective vaccine for COVID-19 by year-end.

COMMENTS/IMPACT: As expected, Trump is playing to his voter base and the agenda is not about unifying America towards a greater future, but in self-centered ambitions at the expense of more political polarization. These are dark times in America, and investors should find respite in Tech Supranationals whose business will continue to do well no matter how long the Covid-19 crisis persists. (AMZN, MSFT, FB, or broadly Nasdaq). Risk seeking currencies such as AUD and NZD will continue to track the stock market higher.


British Prime Minister Boris Johnson is expected to begin phasing out the use of Chinese tech giant Huawei’s technology in Britain’s 5G network as soon as this year, The Daily Telegraph reported on Saturday.

The move comes after the nation’s spy agency GCHQ raised new security fears over Chinese technology. A report prepared by GCHQ’s National Cyber Security Centre concludes that new U.S. sanctions on Huawei will force the company to use untrusted technology that could make the risk impossible to control, the newspaper said.

Thematic Context:As the old adage goes, “the enemy of my enemy is my friend”, 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, Pro-china aligning with One Belt One Road initiative (commodities priced in RMB) and Pro-U.S. aligning with Blue Dot Programme (commodities priced in USD), we can identify the aligned factions via the existing and forming ideologies (i.e. Pro-U.S. = U.S., UK, Brazil, Japan and Israel, Pro-China = China, Africa, Russia, Central Asia, Iran).

COMMENTS/IMPACT: Prime Minister Boris Johnson, who in January allowed Huawei a limited role in Britain’s 5G network, has faced intense pressure from the United States and some British lawmakers to ban the telecommunications equipment maker on security grounds. On Tuesday he toughened his rhetoric on Huawei, warning China he would protect critical infrastructure from “hostile state vendors”.

With the UK onboard the anti-China bandwagon, the Commonwealth Nations, along with the U.S., Vietnam, Philippines, Poland and former U.K. colony, India is developing into a clear economic faction of their own. This adds more credence to our theme of dual-hegemonic zones forming as de-globalization amongst countries takes effect. Expect China to respond and that will not bode well for GBP as it isn’t wise to mess with a big trade partner like China while grappling with Brexit.


Two U.S. aircraft carriers were conducting exercises in the disputed South China Sea on Saturday, the U.S. navy said, as China also carried out military drills that have been criticised by the Pentagon and neighbouring states.

Vietnam and the Philippines have also criticised the planned Chinese drills, warning they could create tension in the region and impact Beijing’s relationship with its neighbours. The United States accuses China of trying to intimidate Asian neighbours who might want to exploit its extensive oil and gas reserves. Brunei, Malaysia, the Philippines, Taiwan and Vietnam also lay claim to parts of the South China Sea, through which about $3 trillion of trade passes each year.

Thematic Context:” In our opinion, the U.S. can only get away with this in the long run and not suffer the fate of Weimar Germany if they

1. Manage to successfully defend their Hegemony (threatened by RMB backed Commods) or

2. Achieve asymmetric technological innovation and edge (sputnik moment — i.e. Kennedy’s Space Race).”

COMMENTS/IMPACT: The reason why the U.S. can get away with incessant money printing without consequences is because King Dollar is still the world’s reserve currency and foregin countries are financing Washington’s deficits by buying U.S. Treasury Bonds with those Dollars. As the world is caught in a web of volatile geopolitical tensions, sovereign countries realize that the Dollar can be “weaponized” against them and this threat needs to be nullified with a “competing hegemony”.

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).


RBA To Stay Put

The Reserve Bank of Australia is almost certain to keep monetary policy unchanged on Tuesday when it announces its decision. Australia is one of only a handful of countries that can boast a successful virus containment policy and that success bodes well for its economy as it allows the RBA to take a backseat, which in turn is boosting the AUD. However, with even Australia now facing a resurgence of coronavirus cases in some districts, will the RBA strike a more cautious tone?

Full employment is one of the RBA’s three mandates so should the recovery in the jobs market hit a stumbling block from persistent virus woes, the central bank might feel obliged to pump more stimulus. For now, though, while the RBA maintains a ‘whatever it takes’ pledge in line with other central banks, all the indications are that it will be sitting on the sidelines for the next few months.

The RBA has already scaled back on its asset purchases and ruled out negative interest rates — something that its peers like the Reserve Bank of New Zealand, Bank of Canada and the Bank of England are not ready to do. That gives the AUD a competitive edge among the riskier currencies.


OVERALL SENTIMENT: Markets were pretty quiet on Friday as the US markets were mostly closed ahead of the 4th July Independence Day holiday. US equity futures drifted lower ahead risk reduction ahead of the long weekend. They have since recouped the losses and started trading in Asian morning open on a positive note. The US equity market now drives the risk sentiment and currencies are mostly trading off of that.

The plan remains unchanged. Stick to the side of unlimited liquidity. If you need to put on risk aversion positions, do not sell into the dip. That has not worked out so far, and is unlikely to as long as the Fed remains resolute in easing aggressively whenever the markets become jittery.


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