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Will inflation finally be transitory?

That should begin to happen towards the end of the year…

The US Federal Reserve calls inflation transitory and the European Central Bank calls it temporary, but when will it start being so? That should begin to happen towards the end of the year as the low base of Covid impacted price data that is being used for year-on-year comparisons start to drop out of the series.

Until that happens, the markets are now conditioned to ignore high numbers and as such, the market impact of high prints is likely to be limited. However, an unexpected low print will most likely boost risk sentiment and trigger a rally in risk assets as investors come to accept the reality that any significant tapering of ultra-easy policies of the two major central banks is going to be gradual and unlikely to be anytime soon.

MARKET OBSERVATION

Don’t be that Guy

Yesterday, the cryptocurrency market had a spike of volatility when the newswire reported that Walmart was going to accept Litecoin as a form of payment in its stores, and that led to a 30% in the cryptocurrency which was immediately reversed when Walmart denied the headline as a hoax.

Other cryptocurrencies suffered (or enjoyed, depending on how you fared in the debacle) the same volatility spike with the more well-known cryptocurrency, Bitcoin, spiking 5% and falling off 7% before grinding back to the level it was before the fake headline was released.

Although that is yet another example of how volatile the cryptocurrency is and how vulnerable it can be to random headlines, it also shows that the story that some credible conglomerate will adopt a cryptocurrency as a form of payment is not as nonsensical as before.

Of course, you can dismiss it as another stupid fake headline of some fake use case in the Wild, wild west of the cryptocurrency market. However, with more and more financial institutions beefing up their cryptocurrency capabilities and offering, such a day will soon be at hand.

I’m remember the days when my grandmother dismissed the TV as an idiot box (and it actually is), and my mother dismissed the internet as a waste of time (and a few years later, she was a top scorer in Candy Crush), and I don’t intend to be the guy who dismiss cryptocurrencies and blockchain technology as just something for money launderers and scammers.

Spend some time to check out the revolution in the applications/use cases that are being created in this space. Don’t be that guy.

DAY AHEAD

Of focus today will be the US CPI which is expected to grow at +0.4% month-on-month (lower than the +0.5% of previous month). However, given how PPI has increased from previous readings and how the market is now seeing inflation in everything , CPI will be expected to beat expectations. As such, a lower than expected reading will likely trigger a risk rally.

TRADING PLAN

1. Currencies:

Keep short USD and long NZD, & CNH. FX went nowhere fast and is likely to remain this way for now.

2. Commodities: Uranium & Energy — Price action starting to look explosive. Nothing to do but stay invested.

Key risks: Spread of the delta strain, comments from Fedspeakers which may affect the tapering timeline and US inflation numbers.

3. Equities:

Equity Index: Long Nasdaq futures. Slight retracement continues and soon, this will be the dip to buy. Stay long and patient. Look to buy dips on approach of support levels at 13950–14000.

Single Stocks: Prepare for the eventual melt-up in the stock market. Check out our TrackRecord Model Portfolio and see which stocks in the energy & uranium sector which are already outperforming and will continue to explode higher in the weeks ahead!

Key risks : Spread of delta strain, the Fed tapering timeline and the US inflation data.

WHAT HAPPENED YESTERDAY

Market movements as of New York Close 13 Sep 2021
  • The FX market was relatively muted on Monday with the USD Index just -0.01% lower.
  • The 2-yr yield and 10-yr yield decreased 2 basis points to 0.21% and 1.33% respectively.
  • The S&P 500 (+0.2%), Dow Jones Industrial Average (+0.8%), and Russell 2000 (+0.5%) closed higher after hitting a high early after markets opened and faded for the rest of the day. Nasdaq 100 closed lower by -0.04% despite the initial rise of 0.1%.
  • Energy stocks had a strong rally due to the more than 5% spike in Natural Gas futures to a 7.5 year high. Oil rose nearly 1% as well, as the market continues to cope with nearly 50% of US oil production in the Gulf of Mexico remaining offline after Hurricane Ida. The approach of Tropical Storm Nicholas could hinder restoration efforts.
  • House Democrats proposed a raise in top tax rate on capital gains and qualified dividends to 28.8% in order to fund the 3.5 trillion budget plan. (Top federal rate on long-term capital gains is increased from 20% to 25% with an existing 3.8% surtax on net investment income.) This proposal differs from the one floated by the White House calling for a combined rate of 43.4% on those whose income exceeds $1 million.

HEADLINES & MARKET IMPACT

Britain urges net zero global shipping emissions by 2050

Notable Snippet: Britain, host of this year’s COP26 climate change summit, called on Monday (Sep 13) for net zero global shipping emissions by 2050 and the launch of non-polluting commercial vessels by 2025.

The United Kingdom government wants to “chart a course” for cleaner shipping, Transport Secretary Grant Shapps said on the first day of London’s International Shipping Week maritime event.

COMMENTS/IMPACT: Shipping will be one of the hardest industries to achieve net zero emissions given the sheer size of ships. Expect demand for rare earths to soar as shipping companies strive to find a way to sustainably electrify this industry.

Australia steps up COVID-19 vaccine roll-out as bookings for children begin

Notable Snippet: Australia will expand its COVID-19 vaccination drive on Monday (Sep 13) to include around 1 million children aged 12 to 15 as it secures additional supplies in a bid to step up the pace of its inoculation amid a surge in infections.

The country is scrambling to control a third wave of the coronavirus from the highly infectious Delta variant and has locked down its largest cities, Sydney and Melbourne. It is also accelerating an initially sluggish vaccine roll-out.

COMMENTS/IMPACT: As the vaccination rate in Australia increases, we can expect restrictions to be lifted once again and for Covid to be the new normal like in Singapore and Denmark.

‘Ignore China at your peril’: Ad mogul Martin Sorrell on Beijing’s tech crackdown

Notable Snippet: British businessman Martin Sorrell has warned that it’s unwise for companies to completely ignore China despite the challenges that exist in the country.

“It is the world’s second largest economy,” Sorrell told CNBC’s “Squawk Box Europe” on Monday. “It’s going to be the world’s largest economy in a few years, not on a per capita basis, but on an absolute basis, and you ignore it at your peril.”

Beijing has cracked down on multiple companies this year, prompting a sharp sell-off in Chinese stocks. Regulators are specifically clamping down on areas such as gaming and data-sharing.

Sorrell said the actions of the Chinese government on privacy, data, education and gaming shouldn’t come as a surprise given China made it quite clear in its 45-year plan that it had concerns.

COMMENTS/IMPACT: It is inevitable. Despite the recent crackdowns, we think China is a place to put your money in as the country strives for innovation in order to beat its strategic rivals.

SENTIMENT

FX

STOCK INDICES

Phan Vee Leung
CIO & Founder, TrackRecord

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