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Growth may not be as great…

The Fed may have to choose a path of cautious tightening

Although the White House has dismissed yesterday’s weak economic data (US GDP Annualised Quarter-on-quarter shrinking -1.4% vs expectations of a rise of +1.0%) as due to “technical factors”, it is what it is.

You can be sure they would be running a celebratory lap of victory if it was a surprise to the upside even if it was due to “technical factors”. Technical factors or not, it is a headline number of growth slowing instead of growing.

This should instill some caution into politicians who have been bashing the US Federal Reserve for keeping US interest rates “too low” and causing inflation pressures to rise. Should the Fed become too aggressive in tightening policy, the attendant contraction in growth may not be exactly what they have stomach for.

With the mid-term elections in November looming, the Fed may have to choose a path of cautious tightening if they do not want to be accused of being political.


When is the Right Time?

Often, many people will wonder whether they should buy an asset that is expected to trend higher even though it is much more expensive than before. Their common complaint is that “Oh, it is too high now”. Something that is within a strong trend will often look high relative to its past.

So, as long as your fundamental view will hold for an extended period of time, it is okay to buy an asset that seems relatively more expensive than before, because the point is not to buy low and sell high, but to buy high and sell higher.


The US PCE Price Index (the Federal Reserve’s preferred measure of inflation) released later today should remain high but the focus should be on the core index which is starting to moderate despite rising headline numbers. A lower than expected number will boost risk sentiment, and vice versa.


1. Currencies:

EUR — Short the EUR. EUR remains weak. Sell on rallies to add to short. Yes, keep doing what works.

2. Commodities: Uranium & Energy — Natural gas continue to trade higher as Europe remains adamant about not paying for Russian gas with Rubles.

3. Stocks:

US Stock Index: Amazon (AMZN) disappointed with its earnings reports and caused a retracement in stock futures after the market closed. The rally during market hours was strong, despite the lack of news. Welcome to the new world of high volatility within a range.

Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.

Key risks: Market sentiment will be driven by US earnings reports from the major companies. The Ukraine-Russia war rages on, but the market impact is limited for now. Tonight’s US Inflation data will be key for investor risk sentiment.

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Market Movement As of New York Close 28 Apr 2022
  • The US 2 year Treasury Bond yield and 10 year bond yield rose +0.05% and +0.03% respectively as the US stock market continued its stellar performance in yesterday’s trading session.
  • The US stock market continued its march higher as some companies released their earnings reports with a boost from Meta’s earnings the day before. The S&P 500 rose +2.47%, the Dow Jones Index climbed +1.85% while the Nasdaq rose strongly with gains of +3.48%.
  • The crypto market tracked the performance in the equity markets yesterday. Bitcoin increased +1.3% to 39,746 while Ether rose +1.7% to 2,937.


U.S. economy shrinks in first quarter; trade, inventories mask underlying strength

Notable Snippet: The U.S. economy unexpectedly contracted in the first quarter amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government, but the decline in output is misleading as domestic demand remained strong.

The first decrease in gross domestic product since the short and sharp pandemic recession nearly two years ago, reported by the Commerce Department on Thursday, was mostly driven by a wider trade deficit as imports surged, and a slowdown in the pace of inventory accumulation.

Gross domestic product fell at a 1.4% annualized rate last quarter, the government said in its advance GDP estimate. The economy grew at a robust 6.9% pace in the fourth quarter. Economists polled by Reuters had forecast GDP growth rising at a 1.1% rate. Estimates ranged from as low as a 1.4% rate of contraction to as high as a 2.6% growth pace.

WHAT WE THINK: The shrinkage in the US economy may make it harder for the Federal Reserve to continue its trajectory of tightening if it should persist. Tightening more than needed may result in a reversal of the effects of quantitative easing the Fed has been conducting in the past 2 years.

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Poland says countries paying for Russian gas in roubles should be penalised

Notable Snippet: The European Union should penalise countries that use roubles to pay for Russian gas, Poland’s climate minister said, following Moscow’s decision to cut off supplies to Poland and Bulgaria over their refusal to do so.

“Today what is missing is full sanctions on gas, that would solve the problem with Gazprom, the problem with following sanctions 100 per cent. We expect these sanctions,” Anna Moskwa told private broadcaster Polsat News late on Wednesday (Apr 27).

The main EU member states resisting tougher gas sanctions on Russia are Austria, Germany and Hungary, she added.

German power utility Uniper told the newspaper Rheinische Post on Thursday that it would transfer payments for Russian gas to a Russian bank and no longer to a Europe-based bank.

WHAT WE THINK: It will be difficult for all of Europe to wean off Russian energy. Such sanctions will just result in supply side inflation. Even if the bloc completely turns towards energy from other producers, higher energy prices will still result.

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Putin warns West of lightning retaliation for intervention in Ukraine

Notable Snippet: Russian President Vladimir Putin warned of lightning-fast retaliation if countries interfere in Ukraine, while US President Joe Biden was set to comment on Thursday (Apr 28) in support of Ukraine’s fight against “Russia’s brutal war”.

Russia has told the United States to stop sending arms to Ukraine, saying large Western deliveries of weapons were inflaming the conflict.

Addressing lawmakers in St Petersburg on Wednesday, Putin said the West wanted to cut Russia up into different pieces and accused it of pushing Ukraine into conflict with Russia.

“If someone intends to intervene in the ongoing events from the outside, and create strategic threats for Russia that are unacceptable to us, they should know that our retaliatory strikes will be lightning-fast,” said Putin, according to a video of his address supplied by Russian media.

WHAT WE THINK: Putin is starting to get disturbed by the presence of the Western Bloc in Ukraine and any developments on this front is something to keep an eye on. Stay alert and tread carefully.

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Phan Vee Leung
CIO & Founder, TrackRecord

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