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Good News is Great News

Every positive development will be shouted out from the top of roofs.

2 Jul 2020


As of New York Close 1 Jul 2020,


U.S. Dollar Index, -0.24%, 97.16
USDJPY, -0.52%, $107.38
EURUSD, +0.16%, $1.1251
GBPUSD, +0.51%, $1.2464
USDCAD, +0.13%, $1.3593
AUDUSD, +0.17%, $0.6915
NZDUSD, +0.36%, $0.6477


S&P500, +0.50%, 3,115.90
Dow Jones, -0.30%, 25,735.45
Nasdaq, +0.95%, 10.154.63
Nikkei 225, -0.75%, 22,121.73


Gold Spot, -0.64%, 1770.31
Brent Oil Spot, +1.74%, 42.05


U.S. ISM Manufacturing Index for June rose to 52.6% (consensus 49.2%) from 43.1% in May. This was the first reading above 50.0% in four months. The dividing line between expansion and contraction is 50.0%. The key takeaway from the report is that it reflects a clear bounce back from the super depressed conditions seen in April and May. It’s a natural rebound so to speak as the economy reopens, but the key is its sustainability, which is still an open question. The ADP Employment Change report for June showed an estimated 2.369 million jobs were added to private-sector payrolls. This was less than the consensus of 3.75 million. The data from May was revised higher to +3.065 million from -2.76 million.

The US Dollar was on the defensive against more growth-sensitive currencies (notably AUD, NZD) following upbeat U.S. and European economic data but renewed worries about the virus blunted more aggressive risk taking. The enigmatic JPY which was weak in the past few sessions regardless of risk sentiment was strong today despite the strong stock markets. The odd behaviour of the JPY continues to puzzle many traders.

Risk sentiment were boosted by news that a COVID-19 vaccine developed by German biotech firm BioNTech and U.S. pharmaceutical giant Pfizer has shown potential and was found to be well tolerated in early-stage human trials. Prior to that, European stock markets were down roughly 1. Advances in vaccines will further fuel risk sentiment.

The FOMC Minutes from the June 9–10 meeting highlighted concerns about a significant rise in virus infections due to early reopening, and that highly accommodative monetary policy will likely be needed to facilitate a recovery. U.S. Treasuries finished with modest losses, pushing yields higher across the curve. The 2-yr yield increased two basis points to 0.17%, and the 10-yr yield increased three basis points to 0.68%. The U.S. Dollar Index declined 0.3% to 97.15. WTI crude declined 1.2%, or $0.48, to $39.76/bbl.

S&P 500 (+0.5%) and Nasdaq Composite (+1.0%) finished with decent gains on Wednesday amid positive economic data and upbeat vaccine news. It was also a record close for the Nasdaq, but it was a negative day for the Dow Jones Industrial Average (-0.3%) and Russell 2000 (-1.0%). It’s key to note that Nasdaq made record highs on Thursday (high: 10,321.36) before settling lower as news of more Apple store closures in 7 states and LA country restaurants being shut due to Covid-19 concerns sapped the positive sentiment.

The S&P 500 real estate (+2.6%), utilities (+2.3%), and communication services (+2.2%) sectors rose more than 2.0%, while the energy (-2.5%), financials (-1.0%), and materials (-0.5%) sectors closed in negative territory.

It was a mixed session with cyclical sectors underperforming and money continuing to flow into the mega-cap and momentum stocks like Amazon (AMZN 2878.70, +119.88, +4.4%). FedEx (FDX 156.66, +16.44, +11.7%) was another standout with a 12% gain following its earnings report.


Fed policymakers are looking at reviving a Great Recession-era promise to keep interest rates low until certain conditions are met, in a bid to deliver a more rapid recovery from the recession.

The policymakers “generally indicated support” for tying rate-setting policy to specific economic outcomes, minutes from the U.S. central bank’s June 9–10 policy meeting showed on Wednesday. “A number” favoured a promise to leave rates low until inflation meets or even modestly exceeds the Fed’s 2% goal.

A couple of policymakers preferred tying changes to rates to a specific unemployment rate; a “few others” wanted to promise easy monetary policy until a specific date in the future — an approach the Fed used effectively in 2012 and 2013.

Although two warned of the danger of adopting any such policy, citing financial stability risks, the minutes showed that policymakers overall supported giving the public more explicit forward guidance, both for rates and bond purchases, “as more information about the trajectory of the economy becomes available.”

COMMENTS/IMPACT: This is a roundabout way of implying that the Fed wants to cap yields and may even adopt yield curve control (as speculated). In light of such conditions, Stocks and Hard Assets usually outperform Fixed Income in real terms (look at post WW2 for context when the Fed capped yields). Hence we continue to advocate buying the Nasdaq, Silver and Gold as Fiat and Fixed Income will lose their allure in the times ahead. Currencies that will benefit will be commodity currencies such as AUD and NZD.

FED capping Yields of U.S. 10yr Bonds at 2.5% during WW2 (Chart of U.S. 10yr Rates)

(Source: FFTT)

Impact of Fed capping Yields during and after WW2 (CPI: is an Inflation Index)

(Source: FFTT,


The U.S. House of Representatives approved a $1.5 trillion infrastructure package on Wednesday by a 233-to-188 vote to boost spending on roads, bridges, public transit and rail, but the White House and Senate Republicans opposed the measure.

The bill dedicates nearly $500 billion for surface transportation needs, $130 billion for school infrastructure, $70 billion to improve the electric grid, $100 billion on housing, $100 billion to expand broadband internet and $30 billion on healthcare facilities.

Congress faces a Sept. 30 deadline to reauthorize surface transportation spending. Four months before the November presidential election, it is increasingly unlikely Congress will strike a compromise deal to pay for a big spending jump and will instead temporarily extend existing funding.

THEMATIC CONTEXT: We believe that a huge infrastructure bill in the U.S. will eventually be passed because it is a matter of national security and this impasse is likely a political one. The fact that the argument is centered around the ability to pay for the spending is ludicrous, considering the MMT like spending the Fed and Government is already practicing. As we have said, “Print the money or trigger the revolution”. — 30th June 2020

COMMENTS/IMPACT: Well, that happened much sooner than expected. The Fed and Government are indeed on top of this and their swift actions are reassuring for risk appetite.

As we have said “print the money or trigger the revolution”, American need to create real jobs and the only way out of this is to “build their way out of this crisis”. With that, we maintain our bullish stance on Hard Commodities (Copper & Silver) & its related currencies (AUD) and Gold.


The U.S. House of Representatives passed legislation on Wednesday that would penalize banks doing business with Chinese officials who implement a national security law that House Speaker Nancy Pelosi called a “brutal, sweeping crackdown” on Hong Kong.

The measure passed by unanimous consent, reflecting concern in Washington over China’s enactment of a security law seen as ending the autonomy that allowed the former British colony to thrive as an international financial center.

THEMATIC CONTEXT: We believe Hong Kong to be an important chess piece in Beijing’s push for dual-hegemony. Chinese Renminbi may be a buy in time to come as China is not only going to be a trade based economy, but gradually moving towards a financial based one as evidenced by its investment banking intent. — 1st July 2020

COMMENTS/IMPACT: The move towards a dual-hegemonic world makes sense for Beijing as this will prevent the U.S. from weaponizing the Dollar and SWIFT banking system to stifle Chinese commerce. Watchout for development of this theme, China’s investment banking intent is an obvious tip off.


U.S. Jobs Report Looms

Last month’s upbeat NFP report could have potentially brightened the outlook for the US economy and increased the market’s confidence that the continuous removal of restrictions would result in further data improvement. However, conditions have changed over the past week and this assumption may be at risk following the spikes in Covid-19 cases and the resumption of some social barriers.

Hence, it is almost certain that a negative surprise in this week’s data could only hurt risk appetite, signaling that the recovery may have started to lose steam before the new virus outbreak. On the other hand, better-than-expected readings would come at a bad time and could be viewed as cautiously optimistic, with traders likely waiting for upcoming releases for better clues on whether the virus situation has started to weigh on the data recovery.

Encouragingly, central banks and governments keep reiterating that they will do whatever it takes to support consumers and businesses after releasing massive stimulus packages in previous months, maintaining stock indices in an uptrend. Fed chief Powell was the latest to remind markets of that on Tuesday.


OVERALL SENTIMENT: Stock markets were trading listlessly on the weaker side pre US open but a risk rally was sparked when positive news of vaccine development by Pfizer and BioNTech hit the wires. Expect more of such news as many companies are pursuing vaccines for the virus and no one announces negative developments, but every positive development will be shouted out from the top of roofs.

The plan remains, embrace the bubble, and ride the wave of unlimited liquidity.





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