TRACKRECORD DAILY
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TRACKRECORD DAILY

Full Steam Ahead!!

With that final visible risk of the possibility that Biden and his promised flood of money finally put to rest, the market did what it had been wanting to do — every major US stock index broke to new all-time highs and registered new all-time high closes.

Finally, more than one and a half months after it was clear that he has lost the electoral vote to Biden in a decisive landslide, after losing more than 60 baseless lawsuits in trying to overturn the results, after inciting a mob to storm the Congress to stop the counting of the Electoral Vote, and 13 days before the constitutionally mandated Inauguration day for President-elect Biden, Trump concedes the election by insisting he won the election and commits to a smooth transition to the new administration.

With that final visible risk of the possibility that Biden and his promised flood of money finally put to rest, the market did what it had been wanting to do — every major US stock index broke to new all-time highs and registered new all-time high closes.

We have been saying this and we will keep saying it — get out of cash and get invested. Anything but cash. The purchasing power of paper currencies, especially the USD, will be eroded in the weeks and months ahead. Every day you wait is a day wasted.

TRADING PLAN

  1. Commodities : Gold & Silver — Support for Silver are at 21.80–90 and at 24.70–80. Gold major support is at 1750–60 and at 1840–50. Relatively quiet session as the market is caught between the conflicting forces of higher US bond yields (stronger USD, weaker metals) and the promise of more stimulus from Biden (weaker USD, higher prices for metals).

Key risks — Key risks are higher US interest rates and a stronger USD. US bond interest rates and especially, real yields (bond interest rates minus inflation) will be a key risk factor to monitor.

2. Equities : Keep long US Tech and China A50 Index Futures. Buy any dips. Stocks will continue to rise in anticipation of more stimulus packages when Biden takes over.

3. Currencies : Keep short USD and long NZD, CNH & TRY. The trend is strong. Sell USDCNH should it spike to 6.49–6.50 level. Turkish Lira (TRY) will trade well given its high interest rates in the world of negative rates and the central bank is now committed to continue hiking interest rates to control inflation.

WHAT HAPPENED YESTERDAY

As of New York Close 7 Jan 2021
  • The projected Democratic majority in the Senate contributed to the continued selling pressure in longer-dated US government bonds (bond prices down, implied interest rates higher) amid the possibility for more fiscal stimulus. The 10-yr yield increased three basis points to 1.07%, while the 2-yr yield was flat at 0.14%. The rise in real yields (interest rate you get after you subtract the Inflation Rate (i.e. CPI) from the prevailing Nominal interest rate) is a reason for the strengthening Dollar and the lacklustre price action in precious metals. The CNH edged lower at 6.4675 (USDCNH +0.29%) after Chinese authorities signaled a desire for a slower pace of currency appreciation. Bitcoin marked a fresh all-time high, topping $40,000 on Thursday, and was last up 7.22% at $39,407.0.
  • Although Biden’s promise of massive stimulus packages should weaken the USD, higher US bond yields in anticipation of more government borrowing to fund the spending supported the USD and given that short USD positions are quite well-subscribed, the USD managed to trade stronger on the day. However, Bitcoin had no such headwind and continues to power higher.
  • Each of the major indices closed at record highs on Thursday in a momentum trade led by the technology stocks. The Nasdaq Composite outperformed with an impressive 2.6% gain, followed by solid gains in the Russell 2000 (+1.9%), S&P 500 (+1.5%), and Dow Jones Industrial Average (+0.7%).
  • Risk sentiment broadened out to nine of the 11 S&P 500 sectors. The information technology (+2.7%), consumer discretionary (+1.8%), energy (+1.5%), and financials (+1.5%) sectors were the best-performing sectors; conversely, the utilities (-1.3%) and consumer staples (-0.3%) sectors closed lower.
  • Investors bought yesterday’s dip in the broader technology space and continued to bid up shares of Tesla (TSLA 816.04, +60.06, +7.9%), which was upgraded to Sector Perform from Underperform at RBC Capital Mkts after the firm conceded it was wrong about the stock.

HEADLINES:

U.S. Congress certifies Biden win after Trump supporters wreak havoc in the Capitol

Notable Snippet: After the chaos on Capitol Hill, Congress resumed its work late Wednesday certifying Biden’s Electoral College win — normally a formality but which included efforts by some Republican lawmakers to stall the process. As the sometimes tense debate stretched into the early hours of Thursday, the Senate and the House of Representatives rejected two objections to the tally and certified the final Electoral College count with Biden receiving 306 votes and Trump 232 votes.

THEMATIC CONTEXT: “This does not look good for Republicans and Trump’s rhetoric is probably a large contributing factor to why they lost both seats in the Georgia runoffs. These scenes will be etched in the minds of American policymakers and a sticking point for leverage by Democrats in the future. The repercussions are yet to be realized.” — 7th Jan 2020

Central banks must arm up for next market upheaval, BoE’s Hauser says

Notable Snippet: Financial markets are likely to be hit more often by the kind of upheaval unleashed by the COVID-19 pandemic, and central banks need new tools to deal with powerful investment firms at the heart of the turmoil, a Bank of England official said. Central banks should consider a formal role as “market makers of last resort” — trading securities in times of financial panic — in return for tougher regulation of financial businesses other than banks, he said. Government bonds would be an obvious starting point and coordination would be needed between central banks, Hauser said.

THEMATIC CONTEXT: “Powell couldn’t have been more clear that they are “locked and loaded” with cash. The interesting point to note is that he explicitly states that the Fed is actively monitoring “real-time flows’’, this is as granular and sensitive as it gets. This implies that the Fed is here and they will come running at any point in time should things get wobbly. — 6th Jul 2020

Crypto market cap surges above $1 trillion for first time

Notable Snippet: The total market value of all cryptocurrencies rose above $1 trillion for the first time on Thursday as Bitcoin surged to a record high, according to data by crypto coin trackers CoinMarketCap and CoinGecko.

DAY AHEAD

U.S. Jobs Numbers

The US Non-Farm Payrolls number is expected to show that the US labour market added just 100k jobs in December, down from 245k in the previous month. The unemployment rate is forecast to have stayed unchanged at 6.7%, while average earnings probably rose by 4.4% year-on-year, the same pace as in November. After the recent poor readings on consumption, a weak jobs report could raise fresh concerns about flagging consumer spending. However, now that Congress has finally approved the long-sought stimulus deal and more is about to come with the new sheriff in town, household income is about to get a major boost, which means any negative reaction to bad jobs numbers is likely to be limited.

SENTIMENT

FX

STOCK INDICES

MARKET OBSERVATION

Like all technologies that rely on the network effect to succeed, the dominant one usually experiences the winner-takes-all rewards when the sector matures. We are pretty confident that this will be the case for Bitcoin within the crypto network — not including stablecoins, as their purpose is still tied to servicing the traditional fiat system. Bitcoin is the only major cryptocurrency that was created with the intent of being a superior Store of Value (Sov) and it has evidently succeeded in its cause. Given its track record, institutional adoption and generational tailwind (massive Millennial and Gen Z adoption), it’s hard to stop the freight train of adoption. Any decent dips is a chance to hop on!

Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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