TRACKRECORD DAILY
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TRACKRECORD DAILY

Is it unnaturally quiet?

As the new administration settles in and gets down to business, regardless of policy direction, the changes in direction are going to be less sudden and less random. The result is that markets will seem to be much quieter than before as there are less headlines to react to.

When the US President was conducting policy by Twitter, the randomness of markets was much higher because things can change on a dime based on whatever tweet or headline that hits the wires.

As the new administration settles in and gets down to business, regardless of policy direction, the changes in direction are going to be less sudden and less random. The result is that markets will seem to be much quieter than before as there are less headlines to react to.

This will result in lower volatility over time and that is good for risk assets.

MARKET OBSERVATION

World’s 2nd Largest Uranium Miner (Cameco) Restarts Mine

On Saturday, Cameco restarted Cigar Lake uranium mine. Let’s take a step back and take a look at the 30,000 foot view. We have a long term bullish thesis on the structural supply/demand deficit in the uranium market. That view was well developed before Cameco announced their first shutdown of Cigar last July. Stated otherwise — we never even accounted for the removal of over 15 million pounds of uranium supply caused by two production interruptions at Cigar for a total of over ten months.

Will this restart announcement “knee cap” the market over the intermediate to long-term? The simple answer is, “No.” Will some investors react emotionally feeling that this market’s nearly vertical move from December 3, 2020 onward has been too far, too fast? Quite possibly.

To summarize why we are not unsettled by this event, let us quickly review why we think “market structure” is materially different at this time than it was last July 2020 when Cameco announced its failed restart attempt at Cigar (only to be thwarted by rise in Covid cases):

  • The dramatic rise of ESG investments and the acceptance of nuclear power as a critical element of addressing climate change.
  • Run on uranium pounds in the market by both pre-development uranium companies and Yellow Cake (one of largest physical uranium investment companies) .
  • Governments around the world articulating “Carbon Neutrality” targets that must rationally include nuclear. The global support for a cleaner energy will support nuclear power.
  • China announcements of dramatic increases in their nuclear build outs over the next 5–15 years.
  • The “awareness factor” regarding the uranium sector is vastly different presently than it was last summer, with western governments and the US actively pursuing nuclear as part of their carbon neutral policy.

If there is a sector pullback we expect it to be short-lived. Moreover we suspect that larger institutions who have not achieved their planned full allocation to the sector will be there to take advantage of sector weakness.

WEEK AHEAD

As the Dollar recedes on some scepticism around the aggressive bets of an early Fed tightening, US inflation (Tue) and Retail Sales (Thu) numbers due in this week could reignite those expectations. There could be a further boost to the global recovery outlook if Chinese GDP (Fri) figures point to strong growth in the first quarter. In the UK, the monthly GDP print might not be able to provide much respite for the sagging pound and the kiwi might have a hard time too if the Reserve Bank of New Zealand (Wed) indicates a full recovery is a long way off. The AUD, on the other hand, will be looking to stretch its tepid rebound should Australian employment (Thu) continue to rise.

TRADING PLAN

1. Currencies : Keep short USD and long NZD, & CNH. Stay patient.

2. Commodities : Silver — Neutral for now.

Key risks: Spikes in US bond yields may lead to a stronger USD and weaken risk sentiment. .

3. Equities :

Equity Index: : Long Nasdaq futures. Stay long.

Single Stocks: As expected, the market is starting the new quarter on a positive note, certain sectors which have been trending higher will resume their strong rallies. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

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

WHAT HAPPENED YESTERDAY

As of New York Close 9 Apr 2021,

MARKET MOVEMENTS

  • US Producer Price Index for final demand increased +1.0% month-over-month in March (expected +0.5%). The index for final demand, excluding food and energy, jumped +0.7% m/m (expected +0.2%). On a year-over-year basis, the index for final demand was up +4.2% (highest since September 2011), versus +2.8% in February. The index for final demand, excluding food and energy, was up +3.1% yr/yr, versus +2.5% in February. The key takeaway from the report isn’t in the headline numbers. They are important, but the key takeaway is the pipeline pressures evident in the index for processed goods for intermediate demand (an intermediate good is a good or service used in the eventual production of a final good or finished product), which increased +4.0% m/m in March (largest jump since August 1974), and in the index for unprocessed goods for intermediate demand, which surged +9.3% m/m (highest since November 2006). Those large increases point to inflation issues that are apt to linger for producers and which could potentially spill over into consumer prices.
  • US Treasury market, the 10-yr bond yield settled 3 basis points higher at 1.67%, but slightly lower than where it was trading immediately before, and after, the PPI data. The 2-yr yield increased 2 basis points to 0.16%. The U.S. Dollar Index increased +0.1% to 92.17.
  • S&P 500 (+0.8%) and Dow Jones Industrial Average (+0.9%) set intraday and closing record highs on Friday, with the benchmark index topping the 4100 level for the first time. The Nasdaq (+0.5%) overcame an early decline to close positive. The Russell 2000 (+0.04%) sneaked into the green amid a strong finish in the broader market.
  • Heavily-weighted S&P 500 information technology (+1.0%) and consumer discretionary (+1.2%) sectors boasted strong performances from Apple (AAPL 133.00, +2.64, +2.0%) and Amazon (AMZN 3372.20, +72.90, +2.2%) as the tech giants continue to outperform.

HEADLINES & MARKET IMPACT

Exclusive: China’s antitrust regulator bulking up as crackdown on behemoths widens

Notable Snippet: Beijing’s plan to bulk up the State Administration for Market Regulation (SAMR) comes as China revamps its competition law with proposed amendments including a sharp increase in fines and expanded criteria for judging a company’s control of a market. On Saturday, the watchdog slapped a record $2.75 billion fine on Alibaba after an antimonopoly probe found the e-commerce giant had abused its dominant market position for several years.

SAMR’s enhanced powers come as Chinese President Xi Jinping weighed in last month on the need to “strengthen antitrust powers” to rein in the behemoths that play a dominant role in the country’s consumer sector.

Europe needs a more ambitious COVID recovery plan, says France’s Beaune

Notable Snippet: The European Union must shoot for a more ambitious COVID-19 recovery plan than the landmark 750 billion euro stimulus agreed last summer after the epidemic’s first wave, French European Affairs Minister Clement Beaune said on Sunday.

Beaune said Europe must not repeat errors made after the global financial crisis a decade ago and this time should underpin the recovery with investment, in fifth-generation (5G) wireless networks, green and digital technologies, among others. “The economic response has to be more ambitious,” he said.

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

ECB must accept no further delay in lifting inflation: Panetta

Notable Snippet: The European Central Bank should accept no further delay in lifting inflation back to its target as the current outlook is unsatisfactory and persistent misses risk damaging the economy, ECB board member Fabio Panetta told Spanish newspaper El Pais. The ECB has already undershot its nearly 2% target for eight years and its projections indicate that it will continue to miss for years to come as the bloc struggles to absorb the slack left behind a pandemic-induced recession.

“Waiting will be even more costly,” Panetta argued. “It would make it more difficult to re-anchor inflation expectations and we would risk a permanent reduction of economic potential.”

SENTIMENT

FX

STOCK INDICES

Phan Vee Leung
CIO & Founder, TrackRecord

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