TRACKRECORD DAILY
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TRACKRECORD DAILY

Just when we thought it was safe to get back into the waters…

Risk reduction is the order of the day till the dust settles.

After the US Federal Reserve’s decision to raise policy interest by 0.50% on Wednesday that led to the biggest daily gain for the stock market on the day of a Fed meeting in a decade, investors were likely to have been lulled into a false sense of security that it was safe to be bullish stocks again.

At least, we were. The price action was strong, and the rally was broad as risk assets celebrated Fed Chair Powell’s dismissal of a more aggressive 0.75% hike.

Within a day, the sentiment somehow soured. Many commentators attribute the move to fears of recession, but the world did not change that much in 24 hours. Sometimes, there are just no good reasons, and market moves are inexplicable until the reasons become obvious in hindsight.

When we don’t know what exactly is driving the market, caution is a must. Risk reduction is the order of the day till the dust settles.

TRADING TIP

Don’t Fall off the Roller Coaster

As traders, we will face harrowing days filled with wild swings. Such days can even feel like weeks or months due to the massive price swings in both directions. In these situations, traders will be hit with a flurry of emotions and may even become unsure of what to do.

It is imperative that you keep your emotions in check when faced with such days. Having a trading plan with target levels and stop loss levels ahead of time helps. Sizing your trades in anticipation of the possibility of such wild days will keep you in the game. And keep your hair on your head!

DAY AHEAD

US Labour Data will be out today. The data point will be important given that the Federal Reserve is hiking on a basis of a healthy labour market.

TRADING PLAN

1. Currencies:

EUR — Short the EUR. The reprieve for the EUR was short-lived, it is behaving as it should for a weak currency.

2. Commodities: Uranium & Energy — Stay the course.

3. Stocks:

US Stock Index: The US stock market fell hard on no real news. The price action is very poor. Caution is required.

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

Key risks: Today’s US employment data will be key to market sentiment. US Federal Reserve policymakers’ comments will dictate how the market perceives future policy path for now. The Ukraine-Russia war rages on, but the market impact is limited for now.

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WHAT HAPPENED YESTERDAY

  • Despite a day lacking real news, the market sold off aggressively on what financial pundits are attributing to as the “fear of recession”.
  • The US 2 year Treasury Bond yield rose +0.05% while the 10 year yield saw an increase of +0.12% to 3.05%. The 10-year yield rose as high as 3.10% during the day, hitting a high last seen in 2018
  • The US stock market faced a massive capitulation after reports of disappointing earnings and future guidance from e-commerce stocks hit the wires. The S&P 500 plummeted -3.56%, the Dow Jones Index dropped -3.12% while the Nasdaq collapsed by -5.06%
  • The crypto market plunged along with the US stock market. Bitcoin sank -7.9% to 36,563 while Ether fell -6.6% to 2,747, giving up the gains from the previous day. Polkadot and Cardano saw losses greater than 10%.

HEADLINES & MARKET IMPACT

Tokyo consumer prices rise at fastest pace in 7 years

Notable Snippet: Core consumer prices in Tokyo, considered a leading indicator of Japanese price trends, rose 1.9% in April from a year earlier, marking the fastest annual pace in seven years, government data showed on Friday.

The increase in inflation, driven mostly by food costs and the dissipating effect of past cellphone fee cuts, underscores a common view among economists that Japan will see price rises accelerate to the central bank’s 2% target in coming months.

“The nationwide (core) inflation may rise above 2% in April-June…as the picture has been the same in recent months — food price hikes have been widening,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

The Bank of Japan (BOJ) last week raised its forecast for this year’s inflation rate but kept its ultra-loose monetary policy unchanged, stressing its resolve to maintain massive stimulus until inflationary pressures were accompanied by wage rises and stronger demand.

WHAT WE THINK: It is unlikely that the BoJ will start on an aggressive tightening spree even if inflation starts to fall into their expected range. More factors have to be considered before we see tighter monetary policy.

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

E-commerce stocks plummet as consumers pull back online spending

Notable Snippet: Shoppers are eager to head back to brick-and-mortar stores, while inflation is stoking fears that consumers are pulling back their spending on some items to still afford the essentials.

That combination spells bad news for many e-commerce-focused retailers, and their stocks tumbled amid a broader market sell-off Thursday as investors feared their growth could be screeching to a halt and profits could be harder to come by.

Wayfair’s stock dropped 26%, touching a fresh 52-week low, after the online furniture retailer reported wider-than-expected losses in the first quarter and logged fewer active customers.

Etsy shares tumbled 17% on the heels of the online marketplace issuing disappointing guidance for the second quarter. Shopify stock fell nearly 15% after it forecast that revenue growth would be lower in the first half of the year, as it navigates tough Covid pandemic-era comparisons.

Shares of The RealReal and Farfetch both fell around 11% Thursday, while those of Peloton and Revolve each dropped about 9%, and Warby Parker and ThredUp fell 8%. Poshmark, an online site for shopping secondhand, saw its shares end Thursday down about 4%.

WHAT WE THINK: The capitulation in the US stock market was a result of poor earnings from these online retailers. This should just be a result of a change in consumer behaviour as Covid worries start to fade away. Given that retail sales have been rising over the past few months, this should not be much of an issue.

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

Bank of England hikes interest rates to 13-year high, sees inflation hitting 10%

Notable Snippet: The Bank of England on Thursday raised interest rates to their highest level in 13 years in a bid to tackle soaring inflation.

In a widely expected move, policymakers at the BOE voted for a fourth consecutive rate hike since December at a time when millions of U.K. households are grappling with skyrocketing living costs.

The Bank’s Monetary Policy Committee approved a 25-basis point increase by a majority of 6–3, taking the base interest rate up to 1%. The Bank said the members in the minority preferred to increase interest rates by 0.5 percentage points to 1.25%.

Like many central banks around the world, the BOE is tasked with steering the economy through an inflation surge that has been exacerbated by Russia’s unprovoked onslaught in Ukraine.

WHAT WE THINK: The UK will be stuck between a rock and a hard place as the economy faces a slowdown but also inflationary pressures from the war in Ukraine. The fear of stagflation will start to worry investors if the situation should persist.

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

SENTIMENT

FX

STOCK INDICES

Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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