What’s the next big move?
There are developments that we need to keep an eye on if inflation stops being a threat
It is interesting to note that China is now making a big push to boost their growth and stop the rise of unemployment. News that Covid restrictions are being eased could be part of the policy package that is geared towards achieving these objectives.
If trade barriers start to be removed, and China starts to be reintegrated into the global supply chain, inflationary pressures could be alleviated in a significant manner in the months ahead.
These are developments that we need to keep an eye on because if inflation stops being a threat, the market will reprice expectations of future US Federal Reserve policy path dramatically.
TRADING TIP
Profits takes time
Financial markets are usually buzzing with activity and prices can often be gyrating throughout the day. That fools many traders into thinking that they should always be involved in every move.
In their mind, they are always thinking of all the things that they could have bought and sold and profited handsomely in the process. In actual fact, the cost of trading is a big drag on trading returns.
It takes time for markets to correct dislocated prices. Do not expect instant gratification if you wish to be profitable over the long run. The key is to find good risk vs reward opportunities and let market forces take the time to correct the anomalies.
DAY AHEAD
The Eurozone Consumer Price Index (CPI), a measure of inflation, later today is expected to show that prices rose +7.8% year-on-year. If the actual number undershoots, the ECB may tone down on its hawkishness in future meetings.
TRADING PLAN
1. Currencies:
EUR — Short the EUR. Resistance is at 1.0770–80.If this level should break, risk reduction is required.
2. Commodities: Uranium & Energy — Stay the course. Stay invested.
3. Stocks:
US Stock Index: Stock market was closed for Memorial Day holiday. With no new bearish news, the recent shift in sentiment for the better is likely to prevail.
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
- *The US markets were closed for Memorial Day.
- Federal Reserve Official Waller (current voter, hawkish) stated that he supports rate hikes of +0.50% at the next few meetings and expects interest rates to be raised beyond the neutral rate by year end to quell inflation.
- On a day of no substantial news, the crypto market staged a sudden recovery of up to +17.8% (Cardano, ADA). Bitcoin prices climbed +7.7% while Ether soared +10.3%. Last week’s bottom be capitulation lows for now if risk sentiment continues to improve.
HEADLINES & MARKET IMPACT
EU resolves impasse over Russia oil import embargo
Notable Snippet: European Union leaders said they had agreed on Monday to cut 90% of oil imports from Russia by the end of this year, resolving an impasse over the bloc’s toughest sanction yet on Moscow since the invasion of Ukraine three months ago.
Diplomats said the agreement would clear the way for other elements of a sixth package of EU sanctions on Russia to take effect, including cutting Russia’s biggest bank, Sberbank (SBMX.MM), from the SWIFT messaging system.
“This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine. Maximum pressure on Russia to end the war,” he said.
The leaders agreed that the oil embargo would include exemptions for Hungary — a landlocked country that relies heavily on crude piped from Russia and which had been the main holdout for a deal — and others concerned about the economic impact of the move.
WHAT WE THINK: This is a major development in the Ukraine war situation. While this is beneficial to our positions in the energy sectors, we may see difficulty in the implementation of this embargo throughout the region.
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Beijing, Shanghai start to reopen as Covid cases drop
Notable Snippet: Major Chinese cities Beijing and Shanghai began to relax Covid controls over the weekend as the local case count dropped.
Nationwide, the number of new cases with symptoms on the mainland fell to 20 on Sunday, down from 54 a day earlier. The capital city of Beijing reported eight new Covid cases for Sunday, while Shanghai recorded six.
The loosening of restrictions comes about two months after Shanghai, China’s largest city, ordered people to stay in their apartments for mass virus testing. Beijing city had begun tightening Covid controls about a month ago, but only locked down some neighbourhoods.
On Sunday, Shanghai authorities said businesses could start to reopen without having to apply for approval starting Wednesday.
The city also announced a raft of measures to support businesses, especially those that had minimal layoffs.
WHAT WE THINK: The easing of restrictions in China’s 2 largest cities should result in a sudden spike in demand in the country. If cases should continue dropping, we should see a buzzing activity in the economy and China reaching near its growth target. China coming back online could be a huge boost to the world economy and easing of supply chains bottlenecks.
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Putin ready to facilitate unfettered grain exports from Ukraine’s ports: Kremlin
Notable Snippet: President Vladimir Putin said on Monday (May 30) that Russia was ready to facilitate the unhindered export of grain from Ukrainian ports in coordination with Turkey, according to a Kremlin readout of talks with President Tayyip Erdogan.
The United Nations, which says a global food crisis is deepening, is trying to broker a deal to unblock Ukraine’s grain exports though Western leaders have blamed Russia for holding the world to ransom by blockading Ukrainian ports.
“During the discussion of the situation in Ukraine, emphasis was placed on ensuring safe navigation in the Black and Azov seas and eliminating the mine threat in their waters,” the Kremlin said of Putin’s call with Erdogan.
“Vladimir Putin noted the readiness of the Russian side to facilitate the unhindered sea transit of goods in coordination with Turkish partners. This also applies to the export of grain from Ukrainian ports.”
WHAT WE THINK: This is a positive developments on the supply chain situation as well. If the situation continues to improve we should see fears of food shortages ease worldwide. Nevertheless, the cut in food supplies should send governments worldwide to start to implement policies for food security.
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SENTIMENT
FX
STOCK INDICES
Best,
Phan Vee Leung
CIO & Founder, TrackRecord
