TRACKRECORD DAILY
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TRACKRECORD DAILY

How likely is the Fed to hike 0.50% in March?

Should more Fed voters tilt towards a more gradual approach, the recovery in risk assets should gather momentum.

This is the question that is on the mind of most investors and punters recently. Market prices currently show a 100% probability of a 0.25% rate hike in March and a 65% probability of the US Federal Reserve being more aggressive and hiking interest rates by 0.50% instead.

The probability of a 0.50% reached 90% after hawkish comments from Fed voter Bullard last week when he said he wants a 0.5% hike in March and sees a 1.00% rise in policy rates by July. Since then, the odds have eased off the highs because of the increased risk of a Russian invasion in Ukraine.

This probability will shift according to the hawkishness of the comments of the various Fed officials who are scheduled to speak this week. Should more Fed voters tilt towards a more gradual approach, the recovery in risk assets should gather momentum.

TRADING TIP

When it rains, it pours

Once a trend starts to be established in markets, the trend will have a high tendency of following through. However, the tendency differs among different markets and also different asset classes.

This tendency is especially true for volatility. Once volatility spikes, it is likely to go up higher and faster, as the market scrambles to adjust their risk positions that were sized according to the lower volatility regime.

That is why you often hear of the adage “Do not be on the wrong side of volatility.” Because once it comes, you will be wiped out of the market pretty quickly and easily.

DAY AHEAD

US Producer Price Index (PPI) will be out later today. Market expects PPI to rise 9.1% Year-on-year, slowing down from the torrid pace of last month’s +9.7% rise.

TRADING PLAN

1. Currencies:
Keep short USD against CNH. Stay short.

2. Commodities: Uranium & Energy — Stay long.

3. Equities:

Equity Index: Market expectations of an aggressive Fed hike in March is starting to seem overblown.

Single Stocks: Energy stocks in the TrackRecord Model Portfolio are starting to outperform.

Key risks: Expectations of Fed rate hikes, the Ukraine situation and news of the Omicron strain remain key drivers.

WHAT HAPPENED YESTERDAY

Market Movement As of New York Close 14 Feb 2022
  • The U.S. Dollar Index rose +0.3% to 96.35. US 2-year Bond Yield rose 8 basis points to 1.58% as the CME FedWatch Tool continued to price in more than six rate hikes this year. The 10-yr yield rose 6 basis points to 1.98%. St. Louis Fed President Bullard (FOMC voter) reiterated his hawkish stance in a CNBC interview, arguing that the Fed should front-load tightening and that the central bank’s credibility is on the line with respect to fighting inflation.
  • S&P 500 declined -0.38% on Monday, as the market remained preoccupied with the Russia-Ukraine situation and a continued rise in interest rates. The Dow Jones Industrial Average and Russell 2000 both declined -0.5%, while the Nasdaq rose +0.1%.
  • Growth stocks outperformed on a relative basis despite the higher rates, and energy stocks performed terribly despite the higher oil prices. Rebalancing activity might have driven the discrepancies in addition to concerns that elevated oil prices could eventually hurt demand.
  • The crypto markets were pretty much in a range yesterday with most making trading within a 2% range. Bitcoin rose 1.1% to 42,535 while Ether rose 2% to 2,928.

HEADLINES & MARKET IMPACT

‘A very scary concept’: Energy ministers fearful of oil prices surpassing $100 a barrel

Notable Snippet: “I think what is happening to the market is a geopolitical tension and that is what is driving primarily the prices. It is very difficult to predict when it comes to geopolitics,” he added, referring to the Russia-Ukraine crisis.

Oil producer group OPEC and its allies, a group known as OPEC+, have struggled to ramp up production in recent months, despite pledging to gradually unwind record supply cuts. The UAE is a member of OPEC.

When asked whether OPEC+ had a plan in the event Russia invades Ukraine, al-Mazrouei replied: “I don’t think we need to escalate more than what is said. What we hear is there is no intention for invasion and that, I think, is comforting.”

“I would be in that camp that is not seeing that happening,” he said, adding that he hoped diplomacy between Russia and Europe would prevail.

WHAT WE THINK: The OPEC+ producers are implying that they do not see a need to ramp up production despite the ongoing energy crisis and perhaps are enjoying the high prices. The triple digit territory is indeed plausible this year and we remain well positioned for it.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.

Here’s the outlook for bitcoin as geopolitical tensions heat up and interest rates rise

Notable Snippet: The bitcoin narrative could be tested this week as investors monitor tense developments between Ukraine and Russia and weigh the possibility of the Federal Reserve hiking interest rates by 50 basis points, or 0.5 percentage point, in March.

The largest cryptocurrency by market capital currency has long been regarded by early investors and enthusiasts as a safe haven asset — one that ideally could offset risk in investors’ portfolios and limit exposure to negative shocks.

However, in recent months bitcoin has been trading like equities, specifically like riskier growth-oriented stocks.

However, “the change in the landscape made bitcoin fragile to the U.S. stock market volatility, so bitcoin investors may not be able to feel at ease until the situation at the Russia-Ukraine border starts to settle down,”

WHAT WE THINK: It seems like the bitcoin winter has been on for too long and may continue to remain so. However, we should note that there are a lot of leveraged longs in Bitcoin and the recent weakness has led to some of the leveraged speculators being stopped out. This should mean positions will be lighter in the months ahead.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.

Texas sues Meta’s Facebook over facial-recognition practices

Notable Snippet: The Texas attorney general’s office sued Meta’s Facebook on Monday, alleging that the social media giant violated state privacy protections with facial-recognition technology that collected the biometric data of millions of Texans without their consent.

The lawsuit accuses Facebook of capturing biometric information from photos and videos that users uploaded without consent, disclosing the information to others and failing to destroy it within a reasonable time.

“This is yet another example of Big Tech’s deceitful business practices and it must stop. I will continue to fight for Texans’ privacy and security,” Attorney General Ken Paxton said in a statement.

WHAT WE THINK: The tirade against Facebook continues. Perhaps Mark Zuckerberg’s Metaverse may not come to fruition but instead land in the hands of the web 3.0 projects that aim to decentralise the data we share. This risk is what is weighing on Meta Platform (FB) stock for now.

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SENTIMENT

FX

STOCK INDICES

Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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