Gold is shining bright
Gold is trending higher despite the stable USD and a relatively high USD interest rate environment.
Gold continues to break to new all-time highs, trading as high as $2,288.4 yesterday. The grind higher is likely due to the uncertain geopolitical situation in Europe as well as in the Middle East and persistent buying of gold from China as they seek to diversify their reserves away from USD.
Gold is trending higher despite the stable USD and a relatively high USD interest rate environment. This trend is likely to accelerate if the US Federal Reserve should start to cut interest rates and the USD starts to weaken. As such, don’t try to get in the way of the trend.
Trading Tip
You are not an Oracle!
In the unpredictable world of trading, it's easy to get caught up in trying to predict market movements. However, your focus should not be on what the markets will do next, but rather on how you plan to respond to these changes.
Instead of using your energy on guessing the next market move, concentrate on what's within your power: your reaction and risk management. By focusing on your preparedness and actions, you enhance your control over outcomes, making your trading journey more predictable should things go awry.
Day Ahead
The Euro Area inflation rate is expected to show that prices rose +2.6% Year-on-Year in March as it did in February. The core rate is expected to decline slightly to +3% on an annual basis from +3.1%. The unemployment rate is expected to remain at 6.4% in Feb as it did in Jan.
The US ADP Employment Change is expected to show that +130k jobs were added to the economy in March, down from +140k in February.
Trading Plan
1. Currencies:
Neutral
2. Commodities:
Uranium & Energy - Stay invested for now.
3. Stocks:
US Stock Index: The US stock market continues to show signs of weakness due to broad based risk aversion.
(For more timely info on our Trading plan, click HERE)
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks: Comments from US Federal Reserve officials about their views on the possibility of interest rate cuts in the months ahead could influence risk sentiment.
What Happened Yesterday
The US JOLTS Job Openings showed an increase of jobs openings to 8.756 million in Feb (vs 8.75 million expected) from 8.748 in Jan (revised from 8.863 million).
The US Treasury Yield curve inversion declined to 0.34% as the US 2-year bond yield fell -0.02% to 4.70% while the 10-year yield rose +0.03% to 4.36%.
The US stock futures traded sideways through the Asian trading hours. However, it then started to weaken when the London session began. As a result, the S&P 500 futures was down -0.66% when the New York session began.
The US stock market opened -0.75% lower from Monday. It stayed in negative territory through the New York session as risk sentiment remained weak. The S&P 500 was down -0.72% (high: -0.68%, low: -1.14%), the Dow Jones fell -1.00% lower (high: -0.78%, low: -1.30%) while the Nasdaq slipped -0.94% (high: -0.86%, low: -1.59%).
Gold continues to make new all time highs with a break above the 2,280 level yesterday. Silver is currently trading at highs not seen since March 2022 before the Federal Reserve embarked on its interest rate hiking spree.
The crypto market continues to face heavy selling pressure amid the weak risk sentiment in the broader market. Both BTC and ETH lost around 6% on the day and dragged the overall market lower.
Headlines & Market Impact
Intel discloses $7 billion operating loss for chip-making unit
Notable Snippet: Intel (INTC.O)on Tuesday disclosed deepening operating losses for its foundry business, a blow to the chipmaker as it tries to regain a technology lead it lost in recent years to Taiwan Semiconductor Manufacturing (2330.TW).
Intel said the manufacturing unit had $7 billion in operating losses for 2023, a steeper loss than the $5.2 billion in operating losses the year before. The unit had revenue of $18.9 billion for 2023, down 31% from $27.49 billion the year before.
Intel shares were down 4.3% after the documents were filed with the U.S. Securities and Exchange Commission (SEC).
During a presentation for investors, Chief Executive Pat Gelsinger said 2024 would be the year of worst operating losses for the company's chipmaking business and that it expects to break even on an operating basis by about 2027.
Gelsinger said the foundry business was weighed down by bad decisions, including one year ago against using extreme ultraviolet (EUV) machines from Dutch firm ASML (ASML.AS). While those machines can cost more than $150 million, they are more cost-effective than earlier chip making tools.
Partially as a result of the missteps, Intel has outsourced about 30% of the total number of wafers to external contract manufacturers such as TSMC, Gelsinger said. It aims to bring that number down to roughly 20%.
Intel has now switched over to using EUV tools, which will cover more and more production needs as older machines are phased out.
"In the post EUV era, we see that we're very competitive now on price, performance (and) back to leadership," Gelsinger said. "And in the pre-EUV era we carried a lot of costs and (were) uncompetitive."
What we think: Even though Intel seems to be behind in terms of its manufacturing prowess, the change to EUV as well as the US government’s aid to the company should allow the company to turn its business around in the years ahead.
Ray Dalio explains why he is still investing in China
Notable Snippet: His recent post follows a 4,000-word essay shared last week, which discussed the possibility of a “100-year storm” in China and warned of a “lost decade” if Beijing repeats the mistakes of Japan in the 1990s.
In his follow-up, Dalio defended his decision not to abandon the Chinese market “when things get tough,” claiming he is neither “a fair-weather friend” nor “a fair-weather investor.”
“Investing in China has been a success for me in all the ways that I hoped to be successful, including demonstrating to investors how they can do well in both bear and bull markets,” the head of the world’s largest hedge fund said.
″[T]here is no such thing as a bad market; there is only bad decision making. I find the markets in China good for my type of decision making,” he added.
In his post last week, Dalio listed depressed prices, wealth gap, climate change and conflict with the U.S. as major challenges facing China's economy.
China’s problems, however, are “manageable by Chinese leaders if they do their jobs well,” Dalio said, adding there have been signals that Beijing will begin quantitative easing along with debt restructuring soon.
“The time to buy is when everyone hates the market and it’s cheap ... especially when it looks increasingly likely that the economic leadership is about to do something,” Dalio said.
“Like all countries throughout history, they can restructure the financial system economy to be productive. They can also manage how to deal with political, geopolitical, nature, and technology forces well,” he added.
What we think: Unlike other economies, the political situation in China makes it much easier and faster to implement policies given lesser red tape and horse trading. As such, should the right policies come in place to boost China, we believe that the effects will trickle through the economy fast enough.
Fed officials still expects rate cuts this year, but not anytime soon
Notable Snippet: Cleveland Federal Reserve President Loretta Mester said Tuesday she still expects interest rate cuts this year, but ruled out the next policy meeting in May.
Mester also indicated that the long-run path is higher than policymakers had previously thought. Her fellow policymaker, San Francisco Fed President Mary Daly, also said Tuesday she expects cuts this year but not until there’s more convincing evidence that inflation has been subdued.
The central bank official noted progress made on inflation while the economy has continued to grow. Should that continue, rate cuts are likely, though she didn’t offer any guidance on timing or extent.
“I continue to think that the most likely scenario is that inflation will continue on its downward trajectory to 2 percent over time. But I need to see more data to raise my confidence,” Mester said in prepared remarks for a speech in Cleveland.
Additional inflation readings will provide clues as to whether some higher-than-expected data points this year either were temporary blips or a sign that the progress on inflation “is stalling out,” she added.
“I do not expect I will have enough information by the time of the FOMC’s next meeting to make that determination,” Mester said.
Mester’s comments would seem to rule out a cut at the April 30-May 1 FOMC meeting, a sentiment also reflected in market pricing. Mester is a voting member of the FOMC but will leave in June after having served the 10-year limit.
San Francisco Fed President Daly said that three reductions this year is a “very reasonable baseline” though she said nothing is guaranteed. Daly also is an FOMC voter this year.
“Three rate cuts is a projection, and a projection is not a promise,” she said, later adding, “We’re getting there, but it’s not going to be tomorrow, but it’s not going to be forever.”
What we think: We are gradually seeing decreased probabilities of a rate cut in the May meeting. Fed officials remain highly data-dependent and their tone will change if data start to diverge from expectations.
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Best,
Phan Vee Leung
CIO & Founder, TrackRecord