How would you like to lose at least 2% of your savings every year?

This is the Federal Reserve’s promise to you if you are keeping your savings in the USD.

This is the Federal Reserve’s promise to you if you are keeping your savings in the USD. In trying to create average inflation of 2%, this is what your USD savings will lose in terms of purchasing power every year.

So the Russian Sovereign Wealth Fund has said, “Thanks, but no thanks!” and decided to reduce their USD holdings to 0% within the month. This is an extreme case as they are also trying to reduce the risk of sanctions from the US affecting their holdings.

However, it is also a wise choice if you care about the value of your savings. Do you?

MARKET OBSERVATION

Bitcoin Selloff Nearing Completion (Exchange Flows Chart)

Source: Woodbull charts

The tidal waves of BTC flowing into exchanges to be sold off have abated. Shorter term flows are reverting to bullish, with coins being bought and moving off exchanges. Many of the short term on-chain indicators are neutral, siding on bullish. While there is some down-side risk, expectations are sideways to bullish over the next 2–3 weeks.

Elon Musk hinted in a tweet during Asia’s Friday morning that he has broken up with BTC yet again. BTC promptly sold off 4% on the back of that but how many times can one whale inflict damage to a store of value? There’s only so much BTC he can sell, and his love/hate relationship with BTC will eventually lose his hold over the market.

Should the sell-off be shallow, the recovery will be swift, as indicated by the signs such as those above.

DAY AHEAD

Eyes on the May Nonfarm Payrolls (expected 720,000; prior 266,000), Nonfarm Private Payrolls (expected 650,000; prior 218,000), Average Hourly Earnings (expected 0.2%; prior 0.7%), Unemployment Rate (expected5.9%; prior 6.1%), and Average Workweek (expected 34.9; prior 35.0) to be released later today. Expectations of a large upside surprise are growing after the strong ADP jobs number last night and the announcement that Biden will be addressing the press 1 hour and 15 mins after the data release. Although Biden also spoke after last month’s number (which wasn’t so strong), last night’s ADP showing that private payrolls increased by 978,000 in May (expected 675,000) is fanning optimism for an upside surprise.

TRADING PLAN

1. Currencies: Keep short USD and long NZD, & CNH. USDCNH is trading close to the resistance at 6.40–6.42 level and when momentum for this USD correction wanes, it will be a good opportunity to add to shorts. Stay short USD and Long CNH & NZD.

2. Commodities: Uranium — Long Uranium and energy stocks. Stay patient and invested.

Gold — This is the dip we’ve been waiting for. Support for gold is at 1840–45, and buying against that level presents good risk vs reward to position for a rally back to new highs.

Key risks: Inflation fears which lead to higher US bond yields and a stronger USD. Geopolitical risk (US-China tension) looks to be easing for now.

3. Equities:

Equity Index: Long Nasdaq futures. Support is at 12,950–13,000. Stay long and patient.

Single Stocks: Risk assets are starting to trade better and a grind higher looks imminent. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Higher US yields due inflation fears and geopolitical worries are the key risks.

WHAT HAPPENED YESTERDAY

As of New York Close 3 Jun 2021,

US Initial claims for the week ending May 29 decreased by 20,000 to 385,000 (expected consensus 395,000). Continuing claims for the week ending May 22 increased by 169,000 to 3.771 million. Initial jobless claims fell below 400,000 for the first time since March 2020; however, the elevated level of continuing claims is apt to continue to drive the belief that enhanced unemployment benefits are acting as a disincentive to find new work. The ADP Employment Change report pointed to the addition of 978,000 private-sector payrolls in May (expected 675,000) after a downwardly revised increase of 654,000 (from 742,000) in April.
ISM Non-Manufacturing Index for May increased to 64.0% (expected 63.0%) from 62.7% in April. The dividing line between expansion and contraction is 50.0%. The May reading marks the twelfth straight month of growth for the services sector and is a record high for this series.
U.S. Dollar Index rose +0.6% to 90.48. Dollar rose to a three-week high on Thursday, bolstered by stronger-than-expected U.S. jobs data that suggested an improving labour market and reinforced signs that the world’s largest economy was on its way to recovery from the COVID-19 pandemic. In other currency news, Russia announced it would completely remove U.S. dollar assets from its National Wealth Fund (NWF — US$185 billion), while increasing the share of the euro, Chinese yuan and gold, according to Finance Minister Anton Siluanov on Thursday. The changes are expected within a month. The move did not have any immediate impact on currencies.
US 10-yr Bond yield rose 4 basis points to 1.63%. 2-year yield rose 3 basis points to 0.16%.
The stock market ended Thursday on a lower note, though the S&P 500 (-0.4%) was able to reclaim the bulk of its opening loss. The Dow (-0.1%) outperformed the other indices throughout the day while the Nasdaq (-1.0%) finished behind the broader market.
The technology sector lagged throughout the day as some of its top components sputtered. Apple (AAPL 123.54, -1.52, -1.2%), Microsoft (MSFT 245.71, -1.59, -0.6%), MasterCard (MA 361.82, -5.03, -1.4%), and PayPal (PYPL 257.79, -4.38, -1.7%) kept the sector under pressure while chipmakers also struggled, sending the PHLX Semiconductor Index lower by -1.8%. Tesla (TSLA 572.84, -32.28, -5.3%), which fell to its lowest level in two weeks after The Information reported that the company’s May orders in China were down 50% month-over-month.
AMC (AMC 51.34, -11.21, -17.9%) sold off more than 40% in the first few hours of trading on news that the company had issued more stock (11.55 million shares at approximately $50.85 raising $587 million). There was a charge into positive territory in the afternoon. The stock finished in the red while Bed Bath & Beyond (BBBY 31.90, -12.29, -27.8%) also reversed after the prior day’s surge.

HEADLINES & MARKET IMPACT

Biden proposes 15% corporate minimum tax to win Republican backing of infrastructure plan

Notable Snippet: U.S. President Joe Biden offered to scrap his proposed corporate tax hike during negotiations with Republicans, two sources familiar with the matter said on Thursday, in what would be a major concession by the Democratic president as he works to hammer out an infrastructure deal.

Biden offered to drop plans to raise corporate tax rates as high as 28% and instead set a minimum 15% tax rate aimed at ensuring all companies pay taxes, sources said. In return, Republicans would have to agree to at least $1 trillion in new infrastructure spending, one source said. And Biden has not given up on seeking as much as $1.7 trillion.

THEMATIC CONTEXT: “ We believe there is more than meets the eye in this development as America embarks on the grandest monetary experiment in the form of Modern Monetary Theory (MMT). In the grand scheme of this experiment, taxes are not needed to pay for the deficit spending (because in MMT, a government with a sovereign printing press can issue as much fiat currency as it wants), it is instead a feature used to control the after effects of such money printing. There are predominantly two ways to quell inflation if it runs hot. 1. Raise Interest Rates, making Government Bonds more attractive so money gets sucked out of the private sector, 2. Raise Taxes. 1. is politically inexpedient given that no one is more short USDs and bag holders of USTs than the US government itself with current Debt/GDP of more than 100%. This leaves the US with choice number 2. When push comes to shove and higher taxes in the US alone will cause a brain and talent drain as companies will find more friendly pastures to set up. The conversation that Yellen is having with the rest of the world is showing that the US on a sovereign level is systematically fragile at the moment and the release valve will have to be a much weaker USD.” — 6th Apr 2021

Russia Cuts Dollar Holdings From $119 Billion Wealth Fund Amid Sanctions

Notable Snippet: Russia said it will eliminate the dollar from its oil fund to reduce vulnerability to Western sanctions just two weeks before President Vladimir Putin holds his first summit meeting with U.S. leader Joe Biden. The National Wellbeing Fund will shift its dollar holdings into euros, yuan and gold, Finance Minister Anton Siluanov said.

THEMATIC CONTEXT: “One of China’s primary ambitions apart from being a Tech powerhouse, is to wean itself off the Dollar standard in oil settlement as this will remove one of its last standing vulnerabilities. This can only be done when China’s currency too has a “hegemony” status where countries are willing to settle commodities (hence the digital RMB initiative). This very much explains Chinese ambitions in resource rich countries, waterways and continents and a primary goal of their Belt & Road initiative. In the grand scheme of things, we continue to be very bullish on the CNH and continue to be short the USD/CNH.” — 21st Apr 2021

Biden administration will expand union rights for 46,000 TSA officers

Notable Snippet: The U.S. Homeland Security Department said on Thursday that 46,000 Transportation Security Administration (TSA) officers will be eligible for expanded union rights and the department will move to boost pay for frontline airport screeners. Unions have sought the move for two decades. Since 2011, the officers representing 70% of TSA’s workforce have had labour union representation but lacked certain protections other unionized government employees have, including some collective bargaining rights. The announcement is the latest by the Biden administration in support of workers’ rights to unionize and is consistent with an executive order signed by President Joe Biden, DHS said.

THEMATIC CONTEXT: “We suspect that inflation is going to be anything but transitory in the longer term as the trajectory of domestic and geopolitical policies are not in the interests of lowering costs through globalization, but one of protectionism and instigation to form new alliances. We have 1. Reshoring of supply chains and building up of strategic reserves, 2. Return of the Labour Union in America, 3. Unlimited Fiscal spending fuelled by the Sputnik Moment in tech and 4. Rise of economic factions that are not in sync with a US led unipolar world.” — 17th May 2021