Promising signs out of China
Supply chain disruptions that have been plaguing the plaguing the world may soon be over.
China’s cabinet announced a package of 33 measures covering fiscal, financial, investment and industrial policies to revive its pandemic-ravaged economy and it will inspect how provincial governments implement them.
This follows the recent nationwide conference call with government officials where Vice Premier Li Keqiang reiterated that economic growth is the highest priority, and that the government will be implementing measures to ensure that unemployment does not continue to rise.
Covid restrictions continue to be eased and if this should continue, supply chain disruptions that have been plaguing the world due to repeated lockdowns in China may soon be over. This will be a big help to easing the inflationary pressures that are resulting from supply chain disruptions globally.
If the market starts to believe that inflation has peaked, risk assets are likely to recover strongly as the fear of aggressive policy action by the major central banks starts to ebb.
TRADING TIP
What is obvious may not be right
Often in trading , you will have a strong thesis on how an event will play out . And sometimes it may even seem obvious to you that the event will only go according to what you have in mind . As such , for such a thesis you will have trades with a size bigger than usual.
Bigger trades usually come with more emotional burden , causing the trader to be less objective in his views and less flexible in adapting to new information.
However , always pay attention to what the prices and what the news flow are telling you. When everything is going against what you thought was obvious , learn to recognise it quickly and do not cling to your position. Even if you might be right eventually , survival and profitability is more important.
DAY AHEAD
The Bank of Canada is likely to announce another rate hike of +0.50% to address inflationary pressures.. Lagarde is due to speak in a panel discussion titled “Central banks and the green transition: what’s next?” at the Green Swan Conference and may give hints of central bank policy.
TRADING PLAN
1. Currencies:
EUR — Short the EUR. Resistance is at 1.0770–80. This level is holding for now.
2. Commodities: Uranium & Energy — Stay the course. Stay invested.
3. Stocks:
US Stock Index: Stock market traded actively within the expected daily range and ended slightly in the red.
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks: Federal Reserve policymakers’ comments will dictate how the market perceives the future policy path for now. The Ukraine-Russia war rages on, but the market impact is limited for now.
WHAT HAPPENED YESTERDAY
- Eurozone Consumer Price Index (CPI) showed that prices climbed +8.1% (vs +7.8% expected and +7.4% prior) on a Year-on-Year basis, hitting a record high. The core CPI number (which excludes price increases in energy and food) was record breaking as well, hitting a high of +3.8% (vs +3.5% expected and prior).
- US Treasury yields rose on a day filled with fears of inflation and economic slowdown. The US 2yr Treasury Yields rose +0.06% to 2.53 while the 10yr Yields climbed +0.11%.
- The US stock market had a turbulent end to the choppy trading month of May. The S&P fell -0.63% (intraday highs: +0.24%, Intraday lows: -1.28%), the Dow Jones dropped -0.67% (intraday highs: +0.08%, Intraday lows: -1.38%) while the Nasdaq declined -0.31% (intraday highs: +0.64%, Intraday lows: -1.57%).
- Meta, the company previously known as Facebook, announced that it will change its stock ticker from FB to META before the market opens on June 9.
- The crypto market had mixed movements across different cryptocurrencies yesterday . Bitcoin remained resilient, increasing +0.2% on the day while Ether fell -2.8%. Solana also saw a decline of -3.0% while Cardano soared +9.9% on the day with the Vasil hard fork upgrade approaching.
HEADLINES & MARKET IMPACT
China announces detailed stimulus measures to support virus-hit economy
Notable Snippet: China’s cabinet announced a package of 33 measures covering fiscal, financial, investment and industrial policies on Tuesday to revive its pandemic-ravaged economy, adding it will inspect how provincial governments implement them. (Details will be given to members on chat forum)
The stimulus package, which was flagged by China’s State Council in a routine meeting last week, underscores Beijing’s shift toward growth, after COVID-19 control measures pounded the economy and threatened Beijing’s 5.5% growth target for the year.
Platform companies are also encouraged to make breakthroughs in areas including cloud computing, artificial intelligence and blockchain technologies, the State Council said, the latest sign that China is easing a crackdown on e-commerce platforms and tech giants.
China will also expand private investment, accelerate infrastructure construction and stimulate purchases of cars and home appliances to stabilise investments, according to the measures.
WHAT WE THINK: It seems that China is hellbent on achieving its growth target for the year. Once the Covid spread seems to be under control, it should be time for Chinese equities to see brighter days.
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U.S. supports shipment of Russian grain, fertilizer to ease food insecurity, UN envoy says
Notable Snippet: The U.S. ambassador to the United Nations said the Biden administration supports the shipment of Russian grain and fertilizer to address increasing global food insecurity sparked by the war in Ukraine.
Linda Thomas-Greenfield told reporters at U.N. headquarters that there are no U.S. sanctions on Russian shipments of grain and fertilizer, but she said companies are “a little nervous” and have been holding back.
Thomas-Greenfield said the United States is prepared to give “comfort letters” to grain and fertilizer exporters and insurance companies in an attempt to get badly needed agricultural products out of Russia.
She said the Biden administration is “very supportive” of efforts by U.N. Secretary-General Antonio Guterres to allow grain exports out of Ukraine by train and the Black Sea, as well as his work to ensure Russian food and fertilizer have unrestricted access to global markets.
WHAT WE THINK: This is a much needed aid for the situation in food worldwide. Should efforts continue to be made, we should see inflation numbers subside faster and quicker.
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Apple iPhone manufacturer says China lockdowns aren’t hurting supply chain as much as feared
Notable Snippet: Foxconn, a major assembler of Apple’s iPhones, said the impact of China’s Covid lockdowns on its operations wasn’t as bad as expected, Nikkei Asia reported Tuesday.
In late March, China ordered a series of lockdowns in some major cities after it saw a surge in coronavirus cases. Not long after, Foxconn said it would pause its operations in Shenzhen, a Chinese manufacturing hub where the company produces some iPhones, iPads and Macs.
Apple spooked investors last month when it warned that fiscal third-quarter sales could be hurt by as much as $8 billion as a result of several challenges, including supply chain constraints.
Foxconn Chairman Liu Young-way said the company has seen a more limited impact from the lockdowns than it anticipated, and it raised its outlook for the current quarter and the full year as a result, Nikkei said. Key manufacturing facilities have been operating at normal levels and product development is ongoing, the company said, according to Nikkei.
WHAT WE THINK: With China’s lockdowns out of the way soon, companies that have been providing poor guidance due to supply chain disruptions may see earnings beat in the next quarter and the rebound may soon be in sight.
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SENTIMENT
FX
STOCK INDICES
Best,
Phan Vee Leung
CIO & Founder, TrackRecord
