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Is it time to panic?

Markets were jittery yesterday as delta strain cases continue to rise across the globe.

Markets were jittery yesterday as delta strain cases continue to rise across the globe. This was always on the card, and in the short term, it will put pressure on reflation trades. Investors who have gotten ahead of themselves in pricing in extremely bullish cases of reopening of the economy were reducing their risk in the frenzy.

However, the longer-term impact of a delay in the end of this crisis is a delay in the tapering of ultra-easy monetary policies especially in the US and Europe. Money printing will continue unabated.

The world will need to come to realise that the pandemic is far from over, but we are now in a better spot than last year, given that vaccination does supposedly reduce the severity of the infection.

Long term trends will remain intact, and short-term retracements are part of the process. The key is to manage your risk such that you don’t get stopped out when the volatility rises.

Stay cautious but stay the course.


China Gets The Energy Story

source: BofA Report

Thematic Context: “Each time an organization or a country makes claims such as “It will consign the internal combustion engine to history.”, the more bullish we get for traditional energy as it shows how tight the funding situation for new exploration will be (back-end oil futures curve is not registering this yet, hence the energy game is still early for energy equities). The transition to green energy is great, but no one talks about the “cost of transition” because it will first entail very high energy prices (due to lack of funding), this combined with massive requirements for new infrastructure and materials demand will cause inflation to remain high on an absolute basis for a good period of time. We remain well positioned for this outcome.” — 15th July 2021

China understands (at least from a Macro policy perspective) the difference between Baseload Power (Traditional Energy and Nuclear) and Transient Power (Hydro, Solar, Wind). Their policies are well designed around baseload power sustainability as massive growth requires energy stability and the transition towards clean energy must not tamper with this stability. The only way to do that is to continue building out Traditional Energy plants, while concurrently constructing Nuclear plants to ensure a smooth transition when the time comes. As we have mentioned before, China and India are backstopping two of our biggest trades, being positioned for a Traditional Energy supply deficit and a Nuclear renaissance.


There are no key events for the day ahead. Risk will be driven by Delta variant situation and Dollar strength.


1. Currencies:

Keep short USD and long NZD, & CNH. Remain short USD vs NZD & CNH. The risk aversion triggered by worries about the spread of the delta strength has led to USD strengthening. Stay cautious but keep short for now.

2. Commodities: Uranium — Fundamentals remain intact and the current correction is an opportunity. Stay long and patient.

Key risks: Strong economic data (especially improvement on the job front) that can cause a spike higher for US yields that will lead to a strong USD. Spread of the delta strain could worsen the risk aversion sentiment.

3. Equities:

Equity Index: Long Nasdaq futures. Risk aversion is driving stock indices lower. Dips approaching 13,950–14,000 should be good opportunities to add to longs. Stay long and patient. Approach of support levels at 13950–14000 will be a good opportunity to add to longs.

Single Stocks: The current dip presents numerous opportunities to take advantage of for the longer-term move. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Spread of the delta strain and geopolitical worries are the key risks.


Market movements as of New York Close 19 Jul 2021
  • Reports continued to discuss the global spread of the Delta variant, which fit nicely with the prevailing narrative that growth prospects will continue to face headwinds as efforts are taken to contain the virus. The Treasury market remained a signpost for growth concerns, as the 10-yr yield dropped 12 basis points to 1.19%. 2-yr yield decreased 4 basis points to 0.21%.
  • The U.S. Dollar Index increased +0.2% to 92.84. The Dollar climbed to a more than three-month peak against a basket of major currencies, but has come off its highs as JPY (+0.32%) advanced with the decline in risk appetite. The Delta variant of COVID-19 is now the dominant strain worldwide, accompanied by a surge of deaths around the United States almost entirely among unvaccinated people, U.S. officials said on Friday. GBP was down -0.7% at $1.3671 after UK Health Minister Sajid Javid announced over the weekend he tested positive for COVID-19 and was in self-isolation. That forced Prime Minister Boris Johnson and Finance Minister Rishi Sunak into quarantine, pushing GBP down to a three-month trough against the dollar earlier in the session. The EUR was down -0.1% at $1.1797, after dropping to a three-month low of $1.1764, ahead of this week’s European Central Bank meeting.
  • The risk-off sentiment was exacerbated when the Chief Scientific Adviser to the UK Government, Vallance, said that 60% of the hospitalised covid patients are vaccinated. This set off a round of panic selling as it increased fears that even vaccinations will not put an end to repeated bouts of lockdowns. However, fears ebbed hours later when he clarified that he meant 60% were from the unvaccinated population.
  • WTI crude futures dropped -7.4%, or $5.34, to $66.42/bbl, as investors factored in expectations for weaker demand with a confirmation from OPEC+ that it will increase production, starting next month.
  • The stock market declined sharply on Monday with index losses ranging between -0.90% (Nasdaq) and -2.1% (Dow Jones Industrial Average), as risk sentiment remained pressured by growth concerns. The Russell 2000 (-1.5%) entered correction territory, which is typically defined as a -10% decline from a recent high. S&P 500 (-1.6%) close above its 50-day moving average (4240) after falling below it during the session.
  • Losses were spread across all 11 S&P 500 sectors and all 30 Dow components. The energy (-3.6%) and financials (-2.8%) sectors took the brunt of the damage and extended recent losses while the consumer staples sector (-0.3%) declined just 0.3%.
  • NVIDIA (NVDA 751.19, +24.74, +3.4%) was a bright spot with a 3% gain, as were several of the stay-at-home stocks like Peloton (PTON 118.43, +7.89, +7.1%), DoorDash (DASH 175.50, +8.14, +4.9%), and DocuSign (DOCU 289.48, +7.43, +2.6%).


Wall Street ends sharply lower as Delta variant sparks new lockdown fears

Notable Snippet: A surge in Delta variant infections sparked a broad sell-off on Wall Street on Monday as investors feared renewed COVID-19 shutdowns and a protracted economic recovery. Many of the new outbreaks were in parts of the country where COVID-19 vaccinations have lagged, prompting political leaders to ramp up pressure on reluctant Americans to get the inoculations.

President Joe Biden, citing higher rates of COVID-19 in states with low vaccination rates, said during a speech that the nation’s economic recovery hinged on getting better at controlling the pandemic.

THEMATIC CONTEXT: “Countries should not rest on their laurels because viruses do not take days off. As countries with successful vaccine drives continue to open up while those who are slow to inoculate and are nonchalant about safety practices fall back into the doldrums, we will see a bifurcation in economic activity even across developed world economies and we suspect this will show up in FX rates. As such we continue to be more constructive towards Asia Pacific currencies like the CNH, SGD and AUD.” — 20th Mar 2021

“Is this a sign of things to come? We suspect that the Delta variant will prove to be a challenge in the coming weeks, although most developed world countries at this point in time are fighting this from a better vantage point due to vaccine efficacy and better response policies. This is a development to monitor closely and any changes will affect Cyclicals and Energy to a reasonable degree.” — 19th July 2021

“Measures taken by countries on a Macro level will impact already sensitive social sentiment and we suspect that as Delta variant spreads, this will be the worst time for central banks and governments to talk about talking about tightening credit conditions. In fact, we have been banging the table that the entire credit tightening situation is a farce and merely showboating. The time to unveil the actual show is here and we suspect that assets will resume its trajectory in time.” — 19th July 2021

China orders power plants to build 7-day coal inventories -sources

Notable Snippet: China’s state planner has ordered power plants to build their coal inventory to the equivalent of at least seven days of consumption by July 21, three sources with knowledge of the matter told Reuters on Monday. The order came as the government strives to ensure electricity generation at coal-fired power plants amid surging power consumption from industrial and residential users.

The sources pointed to a statement issued on Sunday, seen by Reuters, in which the National Development and Reform Commission (NDRC) asked major coal-fired power plants to submit by midday on Monday (0400 GMT) details of how they would lift inventory, and to complete the stockpile build by Wednesday.

THEMATIC CONTEXT: “Traditional energy is here to stay and the ESG “dream” of having the world run on Solar, Wind and Hydro is far fetched from a practical point of view. The only energy source that can truly sustain such large energy demands while remaining “Green” is nuclear power and for that reason, we believe uranium to be the most mispriced/underpriced asset in the coming supercycle. In the meantime, traditional energy supply/demand imbalance will only be brought forward, leading to an interim bull (years) market in the traditional energy space. We remain heavily invested in this theme.” — 16th Feb 2021

China frictions steer electric automakers away from rare earth magnets

Notable Snippet: As tensions mount between China and the United States, automakers in the West are trying to reduce their reliance on a key driver of the electric vehicle revolution — permanent magnets, sometimes smaller than a pack of cards, that power electric engines. Most are made of rare earth metals from China.

Rare earth magnets, mostly made of neodymium , are widely seen as the most efficient way to power electric vehicles (EVs). China controls 90% of their supply. Prices of neodymium oxide more than doubled during a nine-month rally last year and are still up 90%; the U.S. Department of Commerce said in June it is considering an investigation into the national security impact of neodymium magnet imports.

THEMATIC CONTEXT: “We believe rare earths will be in a supercycle in the years ahead as it is essential to the “Green Narrative” that underpins most ESG (ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities) investment mandates that are being adopted by institutions globally. Additionally, in the context of deglobalization, rare earth miners and supply chains outside of China will only become more valuable over the next decade.” — 1st Oct 2020




Phan Vee Leung
CIO & Founder, TrackRecord

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