Tread carefully tomorrow
Swings can be wild if volumes are lower than usual, so it is important to size your trades appropriately to account for the risk.
Tomorrow is Good Friday, and most developed markets will be closed for the long weekend (Singapore, London, New York, Australia etc). As such, trading activities are likely to be subdued and volumes will likely be lower than usual.
However, the US PCE Price Index, the US Federal Reserve’s preferred measure of inflation, will be released and that is a very important set of data that will influence the Fed’s confidence on whether inflation is under control (headed decisively towards their 2% target) and the timeline that they can start cutting interest rates.
As such, volatility can be quite pronounced if the data diverges significantly from market expectations. Swings can be wild if volumes are lower than usual, so it is important to size your trades appropriately to account for the risk.
Trading Tip
Winning with a Minority
One of the most counterintuitive yet powerful strategies in trading is learning the art of inaction. Surprisingly, if traders were to sit on their hands and refrain from over-trading, their profitability could significantly increase. The common misconception that success in trading requires being right more than half the time is misleading. In reality, the secret to consistent profitability lies in devising a strategy where being correct only 20 to 30 percent of the time can still yield substantial returns.
This approach emphasises the importance of risk management, where the focus is not on the quantity of winning trades, but the quality and profitability of those few wins. Patience, discipline, and a well-thought-out risk-to-reward ratio are crucial. By accepting and applying this mindset, traders can transform their approach, leading to enhanced performance and financial success despite a lower win rate.
Day Ahead
The US GDP Growth Rate is expected to show an +3.2% increase in GDP on a quarterly basis in Q4’23, down from +4.9% in Q3’23.
The revised data for the US University of Michigan Consumer survey will be released. The inflation expectations components could create some volatility if they diverge significantly from expectations.
Trading Plan
1. Currencies:
Neutral
2. Commodities:
Uranium & Energy - Stay invested for now.
3. Stocks:
US Stock Index: Strength in the US stock market was primarily driven by the Dow due to the US FDA approval of Merck’s (+4.96%) new therapy for treating pulmonary arterial hypertension.
(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
Fedspeak:
Waller (current voter, known hawk): “Fed may need to maintain the current rate target for longer than expected.” “Needs to see more inflation progress before supporting a rate cut.” “Needs at least a couple of months of data to be sure inflation is heading to 2%.”
(Waller continues to echo his previously known stance.)The US Treasury Yield curve inversion widened to 0.34% as the US 2-year bond yield fell -0.02% to 4.54% while the 10-year yield slipped -0.04% to 4.20%.
The US stock futures drifted higher through the Asian and London trading sessions with the S&P 500 futures up +0.37% when the New York session began.
The US stock market opened higher from Tuesday. It then experienced some slight weakness in the early New York session before risk sentiment improved and allowed the US stock market to climb higher. The S&P 500 was up +0.86% (high: +0.88%, low: +0.20%), the Dow Jones climbed +1.22% lower (high: +1.24%, low: +0.46%) while the Nasdaq rose +0.39% (high: +0.73%, low: -0.23%).
The crypto market was pretty much subdued in the Asian and London hours. However, as the New York session approached, Bitcoin and Ether rose to 71,800 (+2.5%) and 3,663 (+2.1%) respectively. The climb in prices was then reversed when news of the SEC’s claim that Coinbase’s engagement in unregistered sales of securities could advance and be heard by a jury at trial. Bitcoin and Ether fell more than -4.5% from the highs and continued trading at lower levels.
Headlines & Market Impact
Coinbase must face US securities regulator's lawsuit, judge says
Notable Snippet: A federal judge in Manhattan on Wednesday said the U.S. Securities and Exchange Commission's lawsuit against Coinbase (COIN.O) can move forward, but dismissed one claim the regulator made against the largest U.S. cryptocurrency exchange.
U.S. District Judge Katherine Polk Failla partly granted Coinbase's motion to dismiss the SEC's lawsuit which alleges the company is flouting its rules.
While the decision is a partial win for Coinbase in what could be a lengthy and expensive court battle, it largely blesses the SEC's approach to cryptocurrency and agrees with other judges who have sided with the regulator.
A spokesperson for the SEC said the agency was "pleased that yet another court has confirmed that, while the term 'crypto' may be relatively new, the framework that courts have used to identify securities for nearly 80 years still applies."
The SEC sued Coinbase in June, saying the firm facilitated trading of at least 13 crypto tokens that should have been registered as securities and was operating illegally as a national securities exchange, broker and clearing agency without registering with the regulator.
Failla allowed most of the lawsuit to proceed, but dismissed the SEC's claim that Coinbase acted as an unregistered broker via its wallet application.
Coinbase has argued that crypto assets, unlike stocks and bonds, do not meet that definition, a position held by the vast majority of the crypto industry.
Failla rejected that argument, saying the SEC has a plausible claim that at least some of the digital assets listed on the exchange are securities.
What we think: This lawsuit is important because it will have implications on what cryptocurrencies are deemed securities and as a result, what can be traded by the general public on unregulated crypto exchanges.
US urges allies to bar firms from servicing key chip making tools for China
Notable Snippet: The United States is asking allies to stop domestic companies from servicing certain chip making tools for Chinese customers, a U.S. commerce department official said on Wednesday, as it ramps up efforts to hobble China's chipmaking capabilities.
"We are working with our allies to determine what is important to service and what is not important to service," said export controls chief Alan Estevez, speaking to reporters at an annual conference.
"We're pushing for not servicing those key components and these are discussions we are having with our allies."
Washington has been locked in a years-long technology war with Beijing, seeking to stop China from making more advanced chips that could be used to strengthen its military.
The Biden administration announced new restrictions on shipments of American-made chipmaking tools to advanced Chinese chip factories in 2022, and convinced key chipmaking tool producers Japan and the Netherlands to follow suit with their own controls.
The U.S. rules made it difficult for U.S. companies to continue servicing tools that Chinese firms bought prior to the new regulations, but the Dutch and Japanese rules did not include similar restrictions.
That has spurred U.S. officials to convince allies to mirror U.S. curbs.
What we think: The US continues its efforts to hamper China’s advancement in chipmaking. This is a situation that bears monitoring and could risk increasing tension between the two superpowers in the months ahead.
China’s economy is on track for ‘strong’ March performance, survey says
Notable Snippet: China’s economy is ending the first quarter on a “strong” note, according to a business survey published by the China Beige Book on Thursday.
“The economy clearly improved in March, thanks to better industrial activity and stronger retail spending,” said Shehzad H. Qazi, chief operating officer at the China Beige Book, a U.S.-based research firm.
The China Beige Book said it surveyed 1,436 businesses between March 1 and 23, split roughly between state-owned and non-state-owned firms.
“China Beige Book’s March data show the economy poised for a strong end to Q1,” the report said. “Revenue growth accelerated atop last month while pricing gains boosted margins.”
The China Beige Book found that businesses have pulled back their borrowing due to higher interest rates, but also observed signs of a pause on the lending side.
“Market observers have largely missed the substantial policy easing we’ve tracked over the past year, and now some lenders may be hitting the brakes,” the report said.
“Hiring recorded its longest stretch of improvement since late 2020,” the report said, noting every sector except for services saw job growth pick up.
Retail spending increased in all sub-sectors, except for luxury goods, the report said.
What we think: Positive economic news from China is rare these days. However, the government’s efforts to boost growth will eventually bear fruit.
Sentiment
FX
Stock Indices
Best,
Phan Vee Leung
CIO & Founder, TrackRecord