TRACKRECORD DAILY
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TRACKRECORD DAILY

What does the disappointing US jobs number mean?

This jobs number does show that the Fed can remain patient

The US Non-Farm Payrolls showed that only 194,000 jobs were added in September, way lower than the expected increase of 450,000. Although the unemployment rate dropped to 4.8% (expected 5.1%), it was largely due to more people dropping out of the workforce as shown by the lower Labour force participation rate at 61.6% (vs expected 61.8%).

Although the US Federal Reserve may still press on with its tapering plans, this jobs number does show that the Fed can remain patient as they are far from making “further substantial progress” in achieving its full employment mandate.

What it truly means is that, for now, the US economy is nowhere close to overheating and if the Fed continues to believe that inflation is transitory, there’s really no rush in trying to tighten monetary conditions for now.

MARKET OBSERVATION

The Unseen Effect of Energy Shortage

Beyond what we use to power our everyday lives (food & energy), there lies resources we often take for granted that are needed to run the industries that fuel our daily needs. One such resource is fertilisers.

With the energy shortage and erratic weather conditions, the fertiliser industry is beginning to face a supply crunch as producers start to halt/reduce production. This will inevitably lead to higher costs for food producers and add to the current worsening pressures of supply side inflation.

WEEK AHEAD

FedSpeak galore this week with a slew of Federal Reserve officials scheduled to speak — Monday: Evans (current voter, known dove); Tuesday: Clarida (current voter, known dove), Bostic (current voter, known hawk); Wednesday: Brainard (current voter, known dove), Bowman (current voter, known dove); Thursday: Bostic (current voter, known hawk), Barkin (current voter, known hawk); Friday: Williams (current voter, slight dove). Expect soundbites and headlines of their thoughts on the tapering process and the disappointing jobs number from last Friday.

US inflation data (CPI) will be out on Wednesday, followed by PPI on Thursday & Retail Sales on Friday. Meeting Minutes from the Federal Reserve’s meeting last month will be out on Wednesday. Australian Labour Data will be released on Thursday.

TRADING PLAN

1. Currencies:

Keep short USD and long NZD, & CNH. The disappointing US job numbers did not really do much for the FX markets, and we remain stuck in a range.

2. Commodities: Uranium & Energy — Energy shortage, supply constraints. Stay invested.

Key risks: Higher US bond yields, the Evergrande situation and Fedspeakers’ thoughts on the tapering process and if the disappointing US job numbers last Friday changed their views. .

3. Equities:

Equity Index: Long Nasdaq futures. Stay patient and look to buy dips.

Single Stocks: The TrackRecord Model Portfolio expresses the various investment themes we currently believe in. Some themes are well underway and some are just in the beginning stages of explosive upside in the weeks ahead.

Key risks : Higher US bond yields, Evergrande situation and Fedspeakers on the tapering process in the days ahead especially after the disappointing job numbers on Friday.

WHAT HAPPENED YESTERDAY

Market movement as of New York Close 8 Oct 2021 (10 Oct 2021 for BTC/USD)
  • Headline US Non-Farm payrolls (NFP) increased by just 194,000 (expected 450,000), badly missing expectations and seemingly supporting the case for the Fed to delay its taper announcement past November. Unemployment rate improved to 4.8% (expected 5.1%) from 5.2% in August, but it was largely due to the Labour Force Participation rate falling to 61.6% (expected 61.8%) from the previous month’s 61.7%. Noteworthy as well is that Average Hourly Earnings rose 0.6% month-on-month (expected 0.4%), reflecting lingering supply-driven inflation pressures.
  • The U.S. Dollar Index decreased -0.16% to 94.07. The weaker dollar helped GBP remain steady on Friday, putting it on track to close out the week up +0.6%, its best weekly performance in 5 weeks, as interest rate hike expectations offset worries about a fuel crisis and labour shortages.
  • Inflation concerns/expectations continued to drive oil prices ($79.40, +1.09, +1.4%) and long-term interest rates higher, which fueled the gains in the S&P 500 energy (+3.1%) and financials (+0.5%) sectors. Notably, WTI crude futures briefly topped $80 per barrel for the first time since 2014 while the 10-year Treasury bond yield increased 3 basis points to 1.61%, while the 2-yr yield remained unchanged at 0.32%.
  • S&P 500 decreased -0.19% on Friday in a tight-ranged session, as investors contemplated the Federal Reserve’s policy course following the release of the mixed September employment report. The Nasdaq (-0.51%) and Russell 2000 (-0.8%) underperformed, while the Dow Jones Industrial Average (-0.03%) was relatively unchanged.

HEADLINES & MARKET IMPACT

British industry warns of factory closures without help on fuel costs

Notable Snippet: Britain’s most energy intensive manufacturers, including producers of steel, glass, ceramics and paper, have warned the government that unless something is done about soaring wholesale gas prices they could be forced to shut down production.

Wholesale gas prices have increased 400% this year in Europe, partly due to low stocks and strong demand from Asia, putting particular pressure on energy intensive industries.

THEMATIC CONTEXT: “Traditional energy is here to stay and the ESG “dream” of having the world run on Solar, Wind and Hydro is far fetched from a practical point of view. The only energy source that can truly sustain such large energy demands while remaining “Green” is nuclear power and for that reason, we believe uranium to be the most mispriced/underpriced asset in the coming supercycle. In the meantime, traditional energy supply/demand imbalance will only be brought forward, leading to an interim bull (years) market in the traditional energy space. We remain heavily invested in this theme.” — 16th Feb 2021

COMMENTS/IMPACT: The cure for higher prices is higher prices. And this is what we will get in this energy supercycle.

Delhi chief minister warns of power crisis due to coal shortage

Notable Snippet: Delhi Chief Minister Arvind Kejriwal on Saturday warned of a power crisis in the Indian capital due to a coal shortage, which has already triggered electricity cuts in some of the country’s eastern and northern states.

“Delhi could face a power crisis,” Kejriwal said in a tweet in which he also shared a copy of a letter to Prime Minister Narendra Modi flagging a shortage of fuel in power plants in and around Delhi. A crippling coal shortage has caused a supply shortage in states such as Bihar, Rajasthan and Jharkhand, with residents in the regions experiencing power cuts stretching to up to 14 hours a day.

THEMATIC CONTEXT: “Each time an organization or a country makes claims such as “It will consign the internal combustion engine to history.”, the more bullish we get for traditional energy as it shows how tight the funding situation for new exploration will be (back-end oil futures curve is not registering this yet, hence the energy game is still early for energy equities). The transition to green energy is great, but no one talks about the “cost of transition” because it will first entail very high energy prices (due to lack of funding), this combined with massive requirements for new infrastructure and materials demand will cause inflation to remain high on an absolute basis for a good period of time. We remain well positioned for this outcome.” — 15th July 2021

COMMENTS/IMPACT: We have been heavily positioned in energy and warning about this acute problem since 2020, it seems that things are playing out as projected. Hold on to your hats as traditional energy will be back in vogue.

Analysis: Russia’s Gazprom feels the heat over Europe’s red-hot gas prices

Notable Snippet: Europe’s biggest gas firms say the continent’s top supplier Gazprom is fulfilling its long-term contracts yet the Russian energy giant remains at the centre of a dispute about whether it could do more to ease the price pain in a red-hot spot market.

The rocketing gas price, with the European benchmark up almost 600% this year, fuelled by low inventories and surging demand in Asia and elsewhere as economies recover from the COVID-19 crisis, has put Gazprom in Europe’s crosshairs.

THEMATIC CONTEXT: “Given the ongoing energy deficit, it is hard to subtract Russia from the global energy power balance and Putin understands this and is using Russia’s resources as a geopolitical tool. As more ESG mandates starve funding for energy, Russia’s clout in the region will only grow stronger as Europe is now fully dependent on Russian Natural Gas. We believe that this is a structural tailwind for some Russian equities we are invested in.” — 16th July 2021

COMMENTS/IMPACT: The West needs to protect its own interest in an increasingly multi-polar world The effect of supply chain deals are not just felt by the two parties but beneficiaries also extend to those who are reliant on the network, increasing the value of localized companies and businesses for those who will take the effort to look deeper into domestic issues.

SENTIMENT

FX

STOCK INDICES

Phan Vee Leung
CIO & Founder, TrackRecord

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