Enter the Dragon (again)
Supply chain disruptions that have been plaguing the world due to China’s Covid-zero policies may start to ease.
The Chinese government is starting to ease Covid restrictions in Beijing and Shanghai after an extended period of aggressive lockdowns. With the government now committed to boosting growth and reducing unemployment, the supply chain disruptions that have been plaguing the world due to China’s Covid-zero policies may start to ease.
When the Chinese government sets itself on a path to achieve an objective, their speed and resolve often surprises even the most “clued in” of so-called experts. Expect the announcements of more growth-boosting policies and expect this from the highest level of the government.
Trading Tip
Not About how often You Win
How do you think traders make a windfall? The answer to this question by the layman will most likely be having a high win rate. After all, it seems like common sense, right? The more times you win, the more you earn.
However, if you were to ask a profitable trader, the reply will be confusing. Risk management. This will be the common answer that successful traders will give. Why should risk management play such a large role? After all these traders are picking the right trades all the time, no?
The thing is, they often don't. Most of these traders pick the wrong trades more often than the right one. However, their excellent risk management allows them to profit a lot more when they are right than they lose when they are wrong.
As a result, they just need to be right a few times to rake it in and achieve the windfall that all aspiring traders dream of. You don’t need to win often; you just need to win big when you win, and lose small, when you lose!
Week Ahead
Tuesday: The Reserve Bank of Australia is expected to hike interest rates by 0.40% in its monetary policy meeting and is likely to remain hawkish given the high inflation numbers of late.
Thursday: The European Central Bank is expected to announce the end of its bond purchases and signal that interest rates will likely be hiked in the 3rd quarter. ECB President Lagarde’s press conference after the policy meeting will be closely monitored on her views on whether the hike will be in 0.25% or 0.50% increments.
Friday: US Consumer Price Index (CPI, a measure of inflation) will likely show that prices are continuing to rise at 8.3% vs last year. A softer number will boost risk sentiment as that may give the US Federal Reserve some comfort and be less aggressive in hiking interest rates.
Trading Plan
1. Currencies:
EUR - Short the EUR. Resistance is at 1.0770-80. This level is holding for now.
Key resistance/support levels -
Next resistance is at 1.0770-80. ECB’s policy meeting on Thursday should set the tone for the direction in the days ahead.
2. Commodities:
Uranium & Energy - Stay the course. Stay invested.
3. Stocks:
US Stock Index: Strong US job numbers renewed fears that the US Federal Reserve will continue to be aggressive on hiking interest rates. Risk sentiment weakened as a result.
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
Cleveland Fed President Loretta Mester (current voter, hawkish) voiced her support for 0.50% rate hikes at the next two Fed meetings. She added that there is currently a lack of evidence to show that inflation has peaked and if it continues, she will most likely go forward with a 0.50% rate hike in September as well. She also said that a pause in September is unlikely.
US Nonfarm Payrolls (NFP, which measures the change in employed people) increased by 390k in May (vs 325k expected), shrinking from the +436k the previous month. The unemployment rate stayed at 3.6% (vs 3.5% expected) while the labour force participation rate stayed increased to 62.3% as expected.
US Treasury yields climbed across the board as better than expected NFP numbers should keep the Fed hawkish. The US 2yr Treasury Yields inched higher by +0.01% while the 10yr Yields rose +0.04%.
On Saturday, Elon Musk backtracked on his initial email sent on Friday about a 10% job cut in Tesla, saying that total headcount for the company should rise over the next year while salaried staff remains unchanged. This happened after Tesla fell 9.2% on the news of the initial email.
The US stock market weakened as fears of a hawkish Fed returned. The S&P fell -1.63%, the Dow Jones dipped -1.05% while the Nasdaq dropped -2.67%.
The crypto market traded slightly higher over the weekend after it slid down with the US stock markets on Friday due to the weak risk sentiment.
Headlines & Market Impact
Lawmakers are racing to pass tech antitrust reforms before midterms
Notable Snippet: Known among staff and lawmakers as the self-preferencing or anti-discrimination bill, the legislation would prohibit dominant tech platforms like Amazon, Apple and Google from giving preferential treatment to their own services in marketplaces they operate. If passed, it could prevent Google from having its own travel recommendations at the top of search results, for example. Or Amazon might have to ensure its own products are ranked by the same criteria as competitors’ products.
The bill has overcome intense lobbying from the tech industry, and there are increasingly signs it will move forward before the August recess.
Advocates feel there’s little time to spare. They cite the probability that with Republican control of the House following the November vote, the party would follow current caucus leaders who have signalled that antitrust reform would be a lower priority. In the digital space, Republican House leaders have been focused more on content moderation and privacy issues.
What we think: The attack on Big Tech continues and will likely continue even after the midterm elections. We may see slowing revenue growth among these companies and more smaller players rise up as the playing field becomes levelled.
Beijing to allow indoor dining, further easing Covid curbs
Notable Snippet: Beijing will further relax Covid-19 curbs by allowing indoor dining, as China’s capital steadily returns to normal with inflections falling, state media said on Sunday.
Beijing and the commercial hub Shanghai have been returning to normal in recent days after two months of painful lockdowns to crush outbreaks of the omicron variant.
Normal work will resume and traffic bans will be lifted on Monday in most areas of Beijing, the newspaper reported. Employees in some areas have been required to work from home.
Residents will need to show a PRC test taken within 72 hours to enter public spaces and take public transport, as part of steps to normalise COVID testing, the newspaper reported.
What we think: As we said before, China will achieve what they want if they set their heart on it. It seems that they are starting to come to grips with the Covid situation and we should see demand grow soon.
Why the global soil shortage threatens food, medicine and the climate
Notable Snippet: The United Nations declared soil finite and predicted catastrophic loss within 60 years.
The impact of soil degradation could total $23 trillion in losses of food, ecosystem services and income worldwide by 2050, according to the United Nations Convention to Combat Desertification.
“We have identified 10 soil threats in our global report … Soil erosion is number one because it’s taking place everywhere,” Ronald Vargas, the secretary of the Global Soil Partnership and Land and Water Officer at the Food and Agriculture Organisation of the United Nations, told CNBC
What we think: This should reach the policymakers soon enough and we will see drastic measures to mitigate the impact similar to what we see with the green energy movement. Many opportunities will be created. Stay tuned.
Sentiment
FX
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Best,
Phan Vee Leung
CIO & Founder, TrackRecord
