TRACKRECORD DAILY
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TRACKRECORD DAILY

Sell-Offs and Missed Chances

We are now left with a world full of speculators rueing their missed chance of buying the dip. So significant dips will likely be supported unless there’s a big change in fundamentals.

With the panic selling of overleveraged speculators done, order is now restored in the precious metals market. With bond yields stabilising, there was no real reason to fight the fundamentals. Like clockwork, Gold, Silver and Tech stocks resumed their grind higher.

Now that the market has seen what happens after a big sell-off happens, we are now left with a world full of speculators rueing their missed chance of buying the dip. So significant dips will likely be supported unless there’s a big change in fundamentals. The fundamentals as we know it, will likely remain the same for a long while yet.

TRADING PLAN

  1. AUD — Range of 0.7100–0.7190 for now. The day before we said “from the low end of the range to the top end, reduce some and wait for the dip or the break.” Now we are back to the low end of the range, so it’s only right to buy back some and wait for the grind higher again. Risk is RBA’s dovish comments on preferring a weaker AUD might cause it to trade lower, but the governor also refused to say that the currency is overvalued. Hence policies are not likely to be implemented to weaken the currency.
  2. Gold & Silver — Stability restored, weak hands washed out and short term speculators who think they can trade the highs and lows of everything have all gotten short in anticipation for another wash-out. Seems the right recipe for the grind higher to resume, and so it has.
  3. EUR/JPY — The previous resistance at 125.40–50 broke the day before and now serves as the support. The break was indeed significant with EURJPY grinding higher all day. Prudent to reduce some longs at 126.40–50 to wait for a dip to support.

WHAT HAPPENED YESTERDAY

As of New York Close 13 Aug 2020,

MARKET MOVEMENTS

  • U.S. Initial claims for the week ending August 8 decreased by 228,000 to 963,000 (consensus 1.150 mln) from last week’s revised reading of 1.191 mln (from 1.186 mln). Continuing claims for the week ending August 1 decreased by 604,000 to 15.486 mln from last week’s revised reading of 16.107 mln (from 16.090 mln). This is the first sub-one million reading in nearly five months and the market seems cheered by it. However, at 963,000, weekly initial claims are still about four times as large as what the market had been accustomed to prior to the surge in late March.
  • A report from Politico suggested that there is little hope among negotiators of reaching a Covid stimulus deal by September. House Speaker Pelosi (D-CA) said she will only resume talks with White House officials if they are willing to agree to at least a $2 trillion deal. Dollar slid on Thursday against some major currencies such as the euro, Swiss franc, and sterling, weighed down by the impasse in Congress.
  • Apple (AAPL 460.04, +8.00, +1.8%) set a fresh record high in a momentum trade, helping the information technology sector (+0.04%) eke out a gain despite a pullback in the semiconductor stocks (Philadelphia Semiconductor Index fell 1.1%) and an 11% decline in Cisco (CSCO 42.72, -5.38, -11.2%) following its disappointing quarterly guidance.
  • Funding for the U.S. Postal Service and to shore up election infrastructure became a major sticking point in congressional talks on coronavirus relief, as Trump vowed to block any money to facilitate mail-in voting. On Wednesday, Trump accused congressional Democrats of not wanting to negotiate over a U.S. coronavirus aid package as Republican and Democratic negotiators traded blame for a five-day lapse in talks over relief legislation.

HEADLINES:

IN CHINA, FEARS OF FINANCIAL IRON CURTAIN AS U.S. TENSIONS RISE

A sharp escalation in tensions with the United States has stoked fears in China of a deepening financial war that could result in it being shut out of the global dollar system — a devastating prospect once considered far-fetched but now not impossible.

Those concerns have galvanised some in Beijing to revive calls to bolster the yuan’s global clout as it looks to decrease reliance on the Dollar.

Some economists even float the idea of settling exports of China-made COVID-19 vaccines in yuan, and are looking to bypass dollar settlement with a digital version of the currency.

“Yuan internationalisation was a good-to-have. It’s now becoming a must-have,” said Shuang Ding, head of Greater China economic research at Standard Chartered and a former economist at the People’s Bank of China (PBOC).

Thematic Context: As the old adage goes, “the enemy of my enemy is my friend”, in an increasingly polarized world caught in a Thucydides trap (US vs China) which could possibly split the world monetary order into two hegemonic zones,

  1. Pro-china aligning with One Belt One Road initiative (commodities priced in RMB) and
  2. Pro-U.S. aligning with Blue Dot Programme (commodities priced in USD).” — 28th June 2020

INDIA ANNOUNCES $500 MILLION FOR MALDIVES PROJECT TO COUNTER CHINA INFLUENCE

India announced a $500 million package to fund a project in the Maldives on Thursday to help it connect the capital Male to three nearby islands, stepping up New Delhi’s diplomatic efforts in a region China has also been focusing recently.

The Indian Ocean island nation, popular with tourists for its beaches and turquoise waters, has become a focal point in China’s Belt and Road Initiative aimed at building trade and transport links across the region.

Thematic Context: “The India-China conflict is key to watch as this event is a huge tailwind wind to the anti-china rhetoric that is gripping most of the western and “democratic world”(i.e. Australia, Philippines etc). India is the perfect counterweight to China in terms of size (almost equivalent) and demographics (superior demographic, largely young vs an aging Chinese population). Watch out for the Trump administration to throw its weight behind the situation and ramp up the rhetoric against China. In addition, India Might be the beneficiary of the reshored supply chains out of China for the western world.”

For India to be the perfect counterweight, it first needs a competitive economy that will enable it to build up and sustain a sufficiently competent military which can serve as a deterrent to China’s geopolitical agenda. India may see an economic renaissance funded by “Cheap Dollars” out of this situation, leading to the rise of another emerging market superpower. -“ 22nd June 2020

TRUMP HOLDS UP VIRUS AID TO BLOCK FUNDING FOR MAIL-IN VOTING

Trump said on Thursday he was blocking Democrats’ effort to include funds for the U.S. Postal Service and election infrastructure in a new coronavirus relief bill, a bid to block more Americans from voting by mail during the pandemic.

Trump later said at a news briefing that if a deal was reached that included postal funding, he would not veto it.

The amount of money in question is less than 1% of either party’s current proposed aid package for Americans struggling because of the pandemic. Senate Republicans have floated a $1 trillion response while the Democratic-controlled House of Representatives passed a $3 trillion bill in May.

DAY AHEAD

US Retail Sales

  • Forecasts are for retail sales to have risen by 1.7% m/m in July, slowing sharply from the prior month but nevertheless enough to produce a year-on-year gain. Also due on Friday are industrial output figures for the same month as well as the preliminary print of the University of Michigan’s consumer sentiment index.
  • Worse-than-expected readings in the retail sales data could heighten concerns about a slowing recovery, weighing on already depressed Treasury yields and pressuring the Dollar further. However, a positive surprise would not necessarily do the USD any favours either as it would only fuel the prevailing risk appetite, thus diminishing its safe-haven appeal.

SENTIMENT

FX

STOCK INDICES

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