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Next Phase of All-Time Highs Begins

Since the announcements, the market capitalisation of Apple has risen by 34% and Tesla by 86% pretty much on not much new information.

The next phase of the melt-up has begun in earnest. Keep to the plan, stay on the path. Be vigilant, but stay resolute.

TRADING PLAN

  1. Gold & Silver -Slow and steady does it. Keep to the path
  2. AUD -

AUD/USD — Broken above .7250–60 decisively and that is now the new support. Trades strong, keep long.

AUD/NZD — Near term support at 1.0880–90 held. Keep long..

3. EUR/JPY — Back to top end of recent range of 124.40–50 to 126.40–50. Reduce the longs we added close to near term support at 12500–10. Keep long, trade range, rinse and repeat.

Key risk of higher US yields leading to a stronger USD remains. RBA policy meeting could provide some short term volatility in AUD as they are likely to express displeasure on AUD strength but are unlikely to act on it.

WHAT HAPPENED YESTERDAY

Market Movements as of New York Close 31 Aug 2020
  • Dollar hit a more than two-year low and a fourth straight month of losses on Monday in the wake of the U.S. Federal Reserve’s policy shift on inflation. Powell’s remarks last week reinforced a downward trend in the dollar. The Fed’s stimulus to offset the economic effects of the coronavirus pandemic has driven risk assets higher and hurt the safe-haven Dollar.
  • Mega-cap tech powered the Nasdaq Composite to a 0.7% gain and to new record highs on Monday. The S&P 500 set an intraday record high but declined 0.2% amid relative weakness in the broader market. The Dow Jones Industrial Average fell 0.8% (Apple’s 4-for-1 split, which took effect yesterday, dropped its price to about $129.04 and boot its weight in the Dow average all the way down to 16th from the top), and the Russell 2000 fell 1.0%. Dow is a price-weighted index while S&P500 & Nasdaq are market-capitalization weighted indices, hence Apple’s weight in Dow is significantly less than before but remains the same for the S&P500 & Nasdaq.
  • Apple (AAPL 129.04, +4.23, +3.4%) and Tesla (TSLA 498.32, +55.64, +12.6%) rose 3% and 12%, respectively, as investors continued to bid shares higher following their stock splits today. Amazon (AMZN 3450.96, +49.16, +1.5%) gained 1.5% after its drone delivery unit received FAA certification.
  • Separately, CNBC reported that a TikTok deal could be announced as soon as tomorrow.

Front-runners Microsoft (MSFT 225.53, -3.38, -1.5%), Walmart (WMT 138.85, -1.45, -1.0%), and Oracle (ORCL 57.22, -0.66, -1.1%) declined at least 1.0% today.

  • Zoom (ZM) forecasts sales surge as video conferencing becomes a daily routine. The company said revenue rose 355% to $663.5 million, topping analysts’ average estimate of $500.5 million. The company’s gross profit rose to 71% from 68%, but remains far below the 80% range Zoom operated at before free users flocked to the service. ZM is up 22.34% in After-Market trading (a point to note, we have been advocating ZM as a buy since Feb 2020, we continue to believe Tech Infrastructure has multiples to gain).

HEADLINES:

FED TO RESUME DISCUSSION OF NEXT POLICY STEPS, CLARIDA SAYS

With a new policy framework in place, the Fed will turn to debating possible next steps in the fight against the economic fallout of the coronavirus pandemic, Fed Vice Chair Richard Clarida said on Monday.

That discussion is expected to include possible promises by the Fed to link interest rate decisions directly to a return to full employment, and the possible expansion of its monthly asset purchases to further boost the economy.

The central bank’s work, Clarida indicated, isn’t done. Now that the long-run policy document is set, the Fed will begin studying changes to its Summary of Economic Projections, the “dot plot” of policymaker forecasts, which may be the vehicle to flesh out issues like how long an averaging period the Fed will use.

Thematic Context: “We can move very quickly with the Democrats on these issues. We’ve moved quickly before, and I see no reason why we can’t move quickly again,” Mnuchin said. “And if there are issues that take longer, we’ll deal with those as well.” — 27th July 2020

“We believe Mnuchin, and this impasse is a movie we have seen before. A deal will come, or the markets will force it out of their hands. Any dips in the Nasdaq is a gift to be bought.” — 3rd Aug 2020

“Either Congress passes the bill, or the markets will force it out of their hands via a selloff. We maintain that any meaningful retracements (approx -10%) in Nasdaq can be bought.” — 9th Aug 2020

2ND U.S. SHALE BOOM’S LEGACY: OVERPRICED DEALS, UNWANTED ASSETS

Oil and gas companies pumped over $156 billion into corporate takeovers and land deals during the second U.S. shale boom, in a massive bet that good times would continue and crude prices would rise. Many of those deals have become financial albatrosses.

That leaves few companies with the money or the appetite to buy distressed assets. Another 150 North American oil and gas producers could face bankruptcy by the end of 2022, according to Rystad Energy, if crude prices remain near current levels.

The shale revolution turned the United States into the world’s largest crude producer, pumping out more than 12 million barrels per day (bpd) at its peak. The industry beat forecasts again and again for production growth, but rarely for financial returns.

Now, many of the 2016 to 2019 shale deals are financially unworkable due to low oil prices, according to six people familiar with the transactions.

Thematic Context: “U.S. Shale is running into a debt wall and it no longer makes sense to do Shale when offshore tech has advanced in the past 10yrs to make breakeven cost of Oil lower. 40% of US nat gas is associated Shale Production, as more Shale comes offline in 2021 >, rising demand is meeting declining production. It is a long term trend we are looking at.

Shale is go fast and go home, they are easy to explore but also depleted fast, you need quick debt rollovers to explore new sites. Offshore drilling is much more sustainable but OPEX previously was a lot higher. Now it’s cheaper, so it makes less sense for banks to be willing to lend to Shale guys. Natty Gas is also riding strong on the Green Narrative. Perfect setup for a Nat Gas bear market to come to an end.” — Slack 25th Aug 2020

U.S. ANNOUNCES TAIWAN INITIATIVE, DECLASSIFIES DOCUMENTS, CITING CHINA PRESSURE

The United States said on Monday it was establishing a new bilateral economic dialogue with Taiwan, an initiative it said was aimed at strengthening ties with Taipei and supporting it in the face of increasing pressure from Beijing.

Washington also said it had declassified six Reagan-era security assurances given to Taiwan, a move analysts said appeared intended to show further support for Taipei. The announcements come at a time of increasing Chinese threats towards Taiwan, and when relations between Washington and Beijing have sunk to their worst level in decades while Trump campaigns for re-election in November with a tough approach to China his key foreign policy platform.

“We will continue to help Taipei resist the Chinese Communist Party’s campaign to pressure, intimidate, and marginalize Taiwan,” Stilwell (State Department’s top diplomat for East Asia) said.

The United States, like most countries, has official relations with Beijing, but not Taiwan, which is claimed by Beijing as Chinese territory. However, Washington is bound by law to help Taiwan defend itself and is its main arms supplier.

DAY AHEAD

RBA

  • The comparatively mild hit to the Australian economy has meant the RBA hasn’t been required to do as much as other central banks to restore growth and doesn’t see a need for any further policy action for now. Thus, it’s almost certain the RBA will keep policy unchanged. However, the Aussie may not necessarily be out of the woods as there is some evidence the second wave, which has put the country’s second most populous state back into lockdown, dented the recovery in August. Should policymakers display any fresh caution about the outlook, the Aussie could face some selling pressure.

SENTIMENT

FX

STOCK INDICES

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