TRACKRECORD DAILY
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TRACKRECORD DAILY

What if growth continues to falter?

If the slowing of growth should persist, it could derail the Federal Reserve’s plans to start tapering their bond buying programme.

Though the slowing economic growth numbers (US annualised GDP quarter-on-quarter growth was 2.0% vs expected 2.6%) could be a blip and a temporary setback, this is something that needs to be monitored.

If the slowing of growth should persist, it could derail the Federal Reserve’s plans to start tapering their bond buying programme. For now, the hurdle for that to happen is high, but should the slowdown in economic growth lead to a weakening of the jobs market, the reasons for tapering could quickly be reconsidered.

Also, if this should be accompanied by an undershooting of inflation data against market expectations, the inflation hawks will likely see their hopes for higher interest rates be crushed fairly quickly.

TRADING TIP

When should one give up trading?

This question has probably gone through the minds of many traders as they faced seemingly unbearable drawdowns and repeated periods of losses. Well, sometimes trading is indeed that difficult and draining.

When going through such periods, a trader should take a break from trading and work out what went wrong with his trades and change his thesis or trading process accordingly.

However, if the trader is not able to work out what went wrong, he might not have the humility or mental dexterity required for trading. And if he is not able to inculcate those values, perhaps trading is not a suitable endeavour for him.

DAY AHEAD

The Federal Reserve’s preferred measure of inflation will be released later today. Markets are unlikely to react to huge upside surprises anymore but huge downside surprises may provide some fuel for risk assets. Canadian PPI and GDP will be released today as well. Given the recent increase in energy prices, Canada, being a major oil exporter, should see its GDP lifted.

TRADING PLAN

1. Currencies:
Keep short USD and long NZD, & CNH. FX is still caught in a tight range. Stay short.

2. Commodities: Uranium & Energy — Stay invested.

Key risks: Higher US bond yields, and stock market price action.

3. Equities:

Equity Index: Long Nasdaq futures. Stay long.

Single Stocks: TrackRecord Model Portfolio themes are well underway. Get involved and stay involved. `

Key risks : Higher US bond yields, and stock market price action.

WHAT HAPPENED YESTERDAY

Market movements as of New York Close 28 Oct 2021
  • On the infrastructure spending plans, President Biden announced the framework for the $1.75 trillion budget reconciliation bill that he urged Congress to support. While Democrats remained divided on the bill, investors are hopeful that an agreement could happen soon so that the House could vote on the $1 trillion bipartisan infrastructure bill.
  • US Advance Q3 GDP report indicated real GDP increased at an annual rate of 2.0% (expected 2.4%), down noticeably from the 6.7% growth rate reported for the second quarter, as personal spending growth decelerated to just 1.6% from 12.0% in the second quarter. The GDP Price Deflator was up 5.7% (expected 5.5%) after increasing 6.1% in the second quarter. The silver lining, however, was that headline print was better than feared by some accounts and the news was backward-looking.
  • The U.S. Dollar Index fell -0.47% to 93.36. US 2-year Treasury Bond yield remained unchanged at 0.50% and the 10-yr yield increased 3 basis points to 1.57%.
  • S&P 500 (+0.98%) and Nasdaq (+1.15%) rallied to record closes on Thursday, bolstered by better-than-expected earnings reports, mega-cap strength, and infrastructure optimism. The Dow Jones Industrial Average gained +0.68% while the Russell 2000 rose +2.0%.
  • Dow components Merck (MRK 86.55, +5.01, +6.1%) and Caterpillar (CAT 204.09, +7.96, +4.1%) were two earnings standouts along with Ford Motor (F 16.86, +1.35, +8.7%). MasterCard (MA 333.03, -2.69, -0.8%) and Comcast (CMCSA 51.90, -0.54, -1.0%), however, failed to excite shareholders with their EPS beats.
  • Amazon shares dropped more than -4% in extended trading on Thursday after the company reported weaker-than-expected results for the third quarter and delivered disappointing guidance for the critical holiday period. Earnings: $6.12 vs $8.92 per share expected. Revenue: $110.81 billion vs $111.6 billion expected.
  • Apple shares fell 3.5% in extended trading after its revenue missed expectations ($83.36 billion vs. $84.85 billion expected). The miss in revenue was largely attributed to supply constraints on the company’s key products arising from chip shortages. Worse supply constraints are expected in the December quarter but the release of the new Macbooks in October could alleviate the company’s woes.
  • Separately, Facebook (FB 316.92, +4.70, +1.5%) confirmed a name change to “Meta” and a ticker change to “MVRS,” starting Dec. 1.

HEADLINES & MARKET IMPACT

U.S. climate credibility on the line as Biden heads to COP26

Notable Snippet: Biden had hoped to showcase legislation designed to fulfill a U.S. pledge to cut greenhouse gas emissions 50–52% by 2030 compared to 2005 levels, seeking to provide an example that would encourage other nations to take bold, quick action to protect the Earth.

The plan includes hundreds of billions of dollars of investments in clean energy, but some aspects such as a program that would reward electricity companies for investing in renewables and penalize those that did not, have been cut from a bill to fund his social and climate change agenda.

THEMATIC CONTEXT: “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

“Maybe the UN is also long traditional energy and trying to backstop the rally in energy prices. At such an acute situation where energy supplies are already at record lows, the UN is urging institutions to stop financing traditional energy developments. This will lead to a record squeeze in time to come. In addition, politicians are trying to decarbonize supply faster than they can decarbonize demand. In order for prices to fall, demand needs to be destroyed, which leads to a growth problem well before anyone gets a chance to raise rates.” — 28th Oct 2021

WHAT WE THINK: There is no coherent plan for developed world economies to reach carbon neutrality and this will exacerbate the traditional energy crunch issue. We are heavily positioned for the inflationary cost of transition.

India rejects net zero carbon emissions target, says pathway more important

Notable Snippet: India on Wednesday rejected calls to announce a net zero carbon emissions target and said it was more important for the world to lay out a pathway to reduce such emissions and avert a dangerous rise in global temperatures.

India, the world’s third-biggest emitter of greenhouse gases after China and the United States, is under pressure to announce plans to become carbon neutral by mid-century or thereabouts at next week’s climate conference in Glasgow.

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

WHAT WE THINK: China and India understand (at least from a Macro policy perspective) the difference between Baseload Power (Traditional Energy and Nuclear) and Transient Power (Hydro, Solar, Wind). Their policies are well designed around baseload power sustainability as massive growth requires energy stability and the transition towards clean energy must not tamper with this stability. The only way to do that is to continue building out Traditional Energy plants, while concurrently constructing Nuclear plants to ensure a smooth transition when the time comes. As we have mentioned before, China and India are backstopping two of our biggest trades, being positioned for a Traditional Energy supply deficit and a Nuclear renaissance.

U.S. House Democrats to subpoena Big Oil in climate deception probe

Notable Snippet: A United States House committee will subpoena major oil company executives for documents on what company scientists have said about climate change and any funds spent to mislead the public on global warming, the head of the panel said on Thursday (Oct 28).

Democrat Carolyn Maloney, chair of the House Committee on Oversight and Reform, announced the subpoenas at the close of a hearing in which energy industry chiefs were grilled over climate change.

“We need to get to the bottom of the oil industry’s disinformation campaign with these subpoenas,” she said.

WHAT WE THINK: This is a development to watch as rising food prices might urge the CCP to take more drastic measures to clamp down rising commodity prices and this will lead to short term volatility for our commodity exposure.

SENTIMENT

FX

STOCK INDICES

Phan Vee Leung
CIO & Founder, TrackRecord

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