More added to the Wall of Worry
While the fundamentals of relentless money printing will push asset prices higher over the longer term, the shorter term could see much volatility from various risk factors on the geopolitics front.
As if the struggle with Covid was not enough, violence in the Mid-East has escalated in recent days with Israel now retaliating against Hamas (for shooting missiles into Jerusalem) with airstrikes of their own. This is yet another risk factor added to the mix.
The weakness in stocks eventually led to risk reduction in the cryptocurrency market as well. While the fundamentals of relentless money printing will push asset prices higher over the longer term, the shorter term could see much volatility from various risk factors on the geopolitics front.
However, with correct sizing, dips will be opportunities to get long risk assets and short USD.
The Energy Stack Keeps Growing
Historically, whenever humanity finds a new energy source, it doesn’t replace the previous one, but instead adds to it:
Humanity burned biomass for energy, and then we added coal but didn’t stop burning biomass. Then we added oil, but coal stayed around as well, especially in emerging markets. India and China are still growing their coal usage each year. Then we added natural gas, but still used oil. Then we added nuclear power and hydroelectric, but we’re also still growing our natural gas usage as well. Hydroelectric, solar, and wind energy have been additive onto that as well. The “peak oil” narrative will come around with a vengeance one day with higher energy prices, and we believe that it’s starting at the very moment. We have just added a specific stock that capitalises on this day of reckoning to our Model Portfolio and it’s likely to be explosive in the weeks ahead. Find out what this is with our TrackRecord Community Membership here.
There are no notable events for the day ahead. Risk will be driven by virus cases and US tech stock jitters.
1. Currencies: Keep short USD and long NZD, & CNH. The resistance for USDCNH is at 6.55–6.57 and support is at 6.38–40. 6.40 is a good level to reduce some shorts, and get ready to sell back on any rallies that occur. Support for NZD is at 0.7140–50. The weakness in US stocks is not really strengthening the USD and that is a good sign.
2. Commodities: Uranium — Long Uranium stocks. Stay patient.
Key risks: Higher US bond yields leading to a stronger USD and geopolitical risk (US-China tension)
Equity Index: Long Nasdaq futures. Price action have been weak in recent days, but stay patient.
Single Stocks: Fundamentals continue to favour the continued rally of risk assets in the weeks ahead. 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 10 May 2021,
- US 2-yr bond yield increased 2 basis points to 0.16%. The 10-yr yield increased +3 basis points to 1.63%. The U.S. Dollar Index was little changed at 90.22. GBP was the biggest gainer among the G10 currencies, rallying as high as $1.416, the highest since Feb. 25 2022. It was up +1.02% at $1.413. This was despite Scotland’s leader saying that another referendum on independence is inevitable after her party’s resounding election victory. CAD was +0.36% stronger on the day to $1.209, the highest since September 2017. In the wake of rising commodity prices in recent days.
- The Israeli military retaliated to missile attacks on Jerusalem from militants in Gaza with airstrikes in Hamas-ruled Gaza areas for the first time since 2014. The escalation in violence dented risk sentiment as fears of more clashes ahead of religious celebrations in the days ahead.
- S&P 500 fell -1.0% on Monday, as negative momentum accelerated in the heavily-weighted growth stocks with selling interest leaking into the broader market late in the day. The Nasdaq (-2.6%) and Russell 2000 (-2.6%) both dropped -2.6%. The Dow Jones Industrial Average was up as much as +0.9% intraday at all-time highs above the 35,000 level, but it retraced from that level and closed lower by -0.1%.
- Growth stocks were heavy on no specific macro catalyst, but some investors blamed the negative reaction to Citigroup downgrading Alphabet (GOOG 2340.66, -57.03, -2.4%) and Facebook (FB 305.97, -13.11, -4.1%) to Neutral from Buy, and the rotation towards cyclical stocks as potential catalysts.
HEADLINES & MARKET IMPACT
Notable Snippet: U.S. gasoline prices at the pump jumped 6 cents in the latest week, according to the American Automobile Association (AAA), and could soon be headed for the highest level since 2014 due to a cyber attack that shut down the country’s biggest fuel pipeline system. That prospect had U.S. motorists and small businesses worried about the hit to their wallets. A ransomware attack forced Colonial Pipeline to shut down its system on Friday in an outage expected to last a full week or more.
Notable Snippet: U.S. regulators authorized Pfizer (PFE.N) and BioNTech’s COVID-19 vaccine for use in children as young as 12 and said they could begin receiving shots as soon as Thursday, widening the country’s inoculation program as vaccination rates have slowed significantly. This is the first COVID-19 vaccine to be authorized in the United States for ages 12 to 15. Vaccinating younger ages is considered an important step for getting children back into schools safely. U.S. President Joe Biden has asked states to make the vaccine available to younger adolescents immediately.
Biden issued a statement hailing the authorization as “a promising development in our fight against the virus.”
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.” — 20th Mar 2021
Notable Snippet: Israel carried out airstrikes in Palestinian territory after militants in Gaza fired a barrage of rockets at Jerusalem for the first time since 2014, raising fears of a wider conflict following days of clashes between Palestinians and Israeli police in the contested holy city of Jerusalem. Israel’s military said Monday that it had begun striking targets in Hamas-ruled Gaza in response to more than 150 rockets from Gaza. The targets included eight Hamas operatives and a Hamas terror tunnel. Israel also bolstered its troops on the border with Gaza.
Phan Vee Leung
CIO & Founder, TrackRecord