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Rate hikes in spite of the War

The market took this message positively as it signals that the Fed remains confident with the economy.

That’s the key message from US Federal Reserve Chair Powell in his testimony before the Congress yesterday. He all but confirmed that there will be a 0.25% interest rate hike in March, and the committee will discuss balance sheet reduction without finalising on a plan yet. HE also said a 0.50% hike was possible in future meetings.

The Fed is intent on starting the rate hike cycle despite the uncertainty of the war. The market took this message positively as it signals that the Fed remains confident with the economy.

An interesting data point last night, the ADP jobs number showed +475K jobs were added in Fed (vs expected +375K). The number for Jan was revised from a loss of -301K jobs to a +509K jobs added instead. This just shows that this data point has no real informational value and is worse than a random guess of what the jobs market is doing. In fact, it shows that my pet goldfish is about as accurate as these statisticians at evaluating the health of the jobs market.

And the even more interesting thing is, my goldfish would do it for free, if it hasn’t been dead since before the 2008 crisis.


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 you to be less objective in your 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 stubbornly cling to your losing position.

Even if you might be right eventually, survival is more important.


Developments on the Russia-Ukraine front remain in focus. Federal Reserve Chair Powell testifies for the second day before the Congress, but there’s unlikely to be anything substantially different from his comments yesterday.


1. Currencies:
Keep short USD against CNH. Stay patient.

2. Commodities: Uranium & Energy — The trend is just beginning its next phase. Stay long and strong!

3. Equities:

Equity Index: Volatility remains high, but downside support continues to get stronger.

Single Stocks: Energy stocks in the TrackRecord Model Portfolio will outperform strongly in the months ahead.

Key risks: The Ukraine situation is the main focus of markets for now.


Market Movement As of New York Close 2 Mar 2022
  • Russia’s advance on Ukraine remains relatively slow. Russia’s economy continues to be battered as more restrictions get imposed. The European arm of Russia’s Sberbank has been ordered to close and Maersk suspends shipping to Russia are a few of such instances.
  • In response to Russia’s foreign minister Sergei Lavrov’s comments about a third world war being nuclear and destructive and Putin’s orders to prepare its nuclear arms, the Pentagon has cancelled its test launch of its intercontinental ballistic missile this week. The delay was meant to avoid “any misunderstandings” and to signal to Putin that the US is not in favour of engaging in nuclear brinkmanship.
  • In yesterday’s State of the Union address, Biden announced that he will ban Russian aircrafts from entering US airspace and impose stronger restrictions against the oligarchs of Russia.
  • US Treasury Secretary Yellen has also come forth to comment that the US will continue to impose severe sanctions on Russia over the ongoing war.
  • In his testimony yesterday, Federal Reserve Chairman Powell said that he is inclined towards a 25 basis points rate hike in March despite the uncertainty in Ukraine. On the balance sheet reduction, he said that the Fed will make progress but not finalise a plan. The 2-yr yield and 10-yr yield rose +19 basis points and +14 basis points to 1.50% and 1.86% respectively reversing much of the fall from the previous day.
  • The U.S. Dollar Index declined by -0.05% to 97.36 as risk aversion waned off yesterday. ADP employment change came in at 475k (vs 388k expected). Shockingly, the January count was revised from the -301k decline in jobs to a whopping gain of 509k.
  • The stock markets rose again even though the US started to step up its restrictions against Russia, in a sign that the market is starting to adapt to the new normal. The S&P 500 increased +1.86%, Dow Jones went up by +1.79%, the Nasdaq rose +1.670% while the Russell 2000 faced the steepest incline of +2.67%.
  • The momentum in crypto markets stalled as Powell’s comments of a March rate hike hit the wires. Bitcoin fell -1.2% to 43,901 while Ether fell -0.9% to 2,946.


U.S. delegation arrives in Taiwan as China denounces visit

Notable Snippet: A delegation of former senior U.S. defense and security officials sent by President Joe Biden arrived in Taipei on Tuesday on a visit denounced by China and happening in the midst of Russia’s invasion of Ukraine.

The visit, led by one-time chairman of the Joint Chiefs of Staff Mike Mullen, comes at a time when Taiwan has stepped up its alert level, wary of China taking advantage of a distracted West to move against it.

WHAT WE THINK: In light of what’s happening in Ukraine, Taiwan is likely to be watching apprehensively because there is a possibility that Xi will want to reunify the country during his tenure. The US places the Asia Pacific as a geostrategic region they wish to secure, and we suspect that any moves from China will receive a much swifter response from a now more united West. This is a crucial development to watch as the Chinese are learning many things from the West’s response to Russia, like the ability to weaponize the SWIFT system that is a byproduct of USD hegemony etc. The Chinese CBDC and alternative economic loops will be fast-tracked in time to come, with huge ramifications on the global trade order.

Biden touts infrastructure, Ukraine support on Wisconsin trip

Notable Snippet: Fresh from his State of the Union speech, U.S. President Joe Biden visited the battleground state of Wisconsin on Wednesday and reiterated his support for the Ukrainian people while touting the billions of dollars in public infrastructure investments he helped secure at home.

A day after delivering the State of the Union address, Biden trumpeted his infrastructure law and visited a bridge in Superior, Wisconsin. He called the $1 trillion bipartisan infrastructure law secured last year one of the most sweeping in U.S. history which will create thousands of jobs rebuilding the nation’s highways, bridges and airports.

WHAT WE THINK: We suspect that governments will refocus their efforts toward national security, and these will be directed by unprecedented fiscal measures that draw parallels to the Marshall Plan and Manhattan Project. This urgency is exacerbated by the Russian-Ukraine conflict, whose effects have yet to materialise. The Cold War 2.0 that ensues will ensure that the deglobalization track will be deeply entrenched and economic factions will become much more definitive; this will mean that commodity exports will likely circulate within a closed-loop economic system. Say goodbye to the Just-In-Time manufacturing process and profit optimization schemes because building robust redundancies into systems will be a matter of survival for countries and organisations. At the moment, there is a massive spread between Optimization (current system) and Redundancy focused systems. This spread is where we want to be heavily invested in and positioned for the next decade.

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World’s largest container lines suspend shipping to Russia

Notable Snippet: The world’s three biggest container lines on Tuesday temporarily suspended cargo shipments to and from Russia in response to Western sanctions on Moscow following its invasion of Ukraine, in a further blow to trade with the country.

Swiss-headquartered MSC, the world’s biggest container shipping company by capacity, said in a customer advisory that as of March 1 it had introduced “a temporary stoppage on all cargo bookings to/from Russia, covering all access areas including Baltics, Black Sea and Far East Russia”.

WHAT WE THINK: Russia is getting cancelled on all fronts, and so far, there hasn’t been any de-escalation attempts from the proverbial “adults in the room”. This makes us question the prerogative of the conflict and if there is a grand architect orchestrating a bigger plan. We will continue to find clues as to where this leads us.

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Phan Vee Leung
CIO & Founder, TrackRecord

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