Volatile times
News of explosions at Iran nuclear sites this morning due to Israeli attacks caused some wild swings in the market during Asian morning trading hours today.
News of explosions at Iran nuclear sites this morning due to Israeli attacks caused some wild swings in the market during Asian morning trading hours today. US 10-year bond yield fell from 4.64% to a low of 4.50%, as it is typical when investors seek safe havens (hence bond prices rise, and yields fall) in times of uncertainty. Gold rose more than 1.5%, stock futures between 1.5-2%, oil spiked more than 4% and bitcoin fell -6% to hit below $60,000.
Subsequently, the market recovered partially and when Iran denied there was any Israeli attack and that their nuclear sites were safe. This is despite confirmation from US officials that there was an Israeli attack. The conflicting information added to market confusion.
The situation remains highly uncertain, but it seems like Iran is trying to de-escalate and trying not to be put in a situation in which they’re forced to retaliate again. We can never be sure what’s going to happen next but it’s a certainty that volatility will remain high. Stay nimble and try not to commit too much to a position so that you can take advantage of the crazy moves that are bound to happen.
Trading Tip
Survival Over Profitability
There may come a time when concerns about your positions arise due to unexpected market circumstances or emerging developments. This is a natural response considering the volatile and unpredictable nature of markets. However, when worry becomes a constant companion, it can significantly impact your mental well-being.
Once you reach such a point, it becomes crucial to reduce your risk, especially in underperforming positions. Being unwilling to accept losses is a mindset that can lead to financial ruin.
At this stage, it becomes paramount to regain your composure and prevent complete market wipeout. If you hold a long-term belief in your perspective, you can always re-enter the position when positive momentum returns.
Day Ahead
Nothing noteworthy on the horizon today.
Trading Plan
1. Currencies:
Neutral
2. Commodities:
Uranium & Energy - Stay invested for now.
3. Stocks:
US Stock Index: The US stock market traded weaker on the day as there were comments from Fed officials that interest rate cuts are not likely to happen soon, and that there might even be rate hikes if progress on inflation stalls. The market continues to trade on the backfoot due to the prevailing tensions in the Middle East.
(For more timely info on our Trading plan, click HERE)
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks: The situation in the Middle East remains highly tense and uncertain. Escalation will weaken risk sentiment further. Comments from Fed officials about their views on the possibility of interest rate cuts in the months ahead could influence risk sentiment.
What Happened Yesterday
Fedspeak:
Bostic (current voter, known hawk): “Inflation is going where we want it to go, but it's slow.” “We won't be able to reduce rates until towards the end of the year.” “Open to a rate hike if inflation progress stalls.”
Williams (current voter, slight hawk): "I don't feel urgency to cut rates." "Eventually interest rates will need to be lower." "Rate cuts will be determined by economic activity."
(Bostic expectations of rate cuts at year end remains but the fact that he is now open to rate cuts is bad news. Williams is reiterating that there is no need to change rates for now.)
The US Treasury Yield curve inversion remained at 0.34% as the US 2-year bond yield and the 10-year yield rose +0.05% to 4.98% and 4.64% respectively.
The US stock futures traded within a small range through the Asian and London trading sessions The S&P 500 futures was up +0.20% when the New York session began.
The US stock market opened slightly higher from Wednesday. It then attempted to climb higher in the early New York session before it succumbed to hawkish comments from Fed officials and fell in the latter half of the session. The S&P 500 finished -0.22% lower (high: +0.69%, low: -0.40%), the Dow Jones was almost unchanged at +0.06% (high: +0.88%, low: -0.19%) while the Nasdaq fell -0.57% (high: +0.56%, low: -0.67%).
[Earnings, aftermarket hours]
TSMC (NYSE: TSM, -4.85%) stock price fell despite beating revenue and profit expectations in Q1 '24 as TSMC scaled back its outlook for a chip market expansion as the smartphone and personal-computing markets remain weak. Net revenue: 592.64 billion New Taiwan dollars ($18.87 billion) vs NT$582.94 billion expected. Net income: NT$225.49 billion vs NT$213.59 billion expected.
Netflix (Nasdaq: NFLX, -0.51%) added 9.33 million net new subscribers (vs 5.1 million expected). Revenue: $9.37 billion vs $9.27 billion expected. Earnings: $5.28 vs $4.51 expected. However, the stock price fell as Netflix warned that it would stop reporting subscriber tally.Explosions were heard in Isfahan in central Iran, in the As-Suwayda Governorate of southern Syria, and in the Baghdad area and Babil Governorate of Iraq. A U.S. official confirmed to ABC News Israeli missiles have hit a site in Iran, indicating that this might be a retaliation following the strikes by Iran last weekend. However, Iranian authorities mentioned that the explosion was merely a result of the activation of Iran’s Air Defense Systems a few hours later and that their nuclear sites are safe.
Market Reaction:
- Stock futures fell during Asian morning trading hours (S&P 500: 4963.50, -1.66%) following the initial reports but has since bounced to being down just -0.92% and reduce the losses after Iran reiterates their nuclear sites are safe in an attempt to de-escalate the conflict.
- Gold spiked to a high of 2,417.92 (+1.63%) but has since fallen from the highs to 2,383.50 (just +0.19% on the day).
- Brent Oil spiked to a high of 89.95 (+4.10%) but has since fallen to the 88 level (+2.2% higher on the day).
- US 2 year yield fell as low as 4.88% from 4.99% but is currently at 4.93%. US 10 year yield fell to 4.50% from 4.64% but is now at 4.56%.
- Bitcoin fell to 59,691(-6.1%) but has since recovered to the 62,180 level (-2.2% on the day).
The crypto market managed to climb higher yesterday to the 64,000 level possibly due to the imminent Bitcoin halving.
Headlines & Market Impact
Japan’s March inflation slows to 2.6%, eyes are now on Bank of Japan move
Notable Snippet: Japan’s core inflation slowed in March due to mild rises in food prices while staying comfortably above the central bank’s 2% target, government data showed on Friday.
The nationwide core consumer price index (CPI), which excludes fresh food items, rose 2.6% in March from a year earlier after rising 2.8% in February. It matched the median market forecast.
The “core core” index, which excludes both fresh food and energy costs and is closely watched by the Bank of Japan as a key gauge of broader inflation trends, rose 2.9% after increasing 3.2% in February. It was the first time since November 2022 that the index fell below 3%.
Japan’s National Consumer Price Index (CPI) for March climbed 2.7% YoY as expected, compared to a 2.8% uptick in February, according to the latest data released by the Japan Statistics Bureau on Friday.
What we think: The BoJ will have to balance a weakening Yen and the need to maintain inflation above the 2% target. Given the recent weakness in the Yen and inflation being comfortably above 2%, another hawkish move may be likely.
Netflix to stop reporting subscriber tally as streaming wars cool
Notable Snippet: Netflix (NFLX.O) on Thursday unexpectedly announced that it will stop reporting subscriber numbers each quarter, a decision seen as a sign that years of customer gains in the streaming wars are coming to an end.
Shares of the streaming video pioneer fell after it reported a large batch of new customers in the first quarter but gave a revenue forecast that missed analyst targets. The stock was trading at $585.41 after-hours, down 4.2% from its closing price.
Netflix said its ad-supported streaming plans helped attract 9.3 million new customers, nearly double the consensus forecast of analysts polled by LSEG. That brought its global total to 269.6 million at the end of March.
Netflix executives have urged investors to focus on revenue and operating margins when assessing the company's progress, rather than customer additions. Netflix said it will stop disclosing subscriber additions each quarter starting with the first quarter of 2025, and instead will announce them only when major milestones are reached.
"This change is really motivated by wanting to focus on what we see are the key metrics that we think matter most to business," co-Chief Executive Greg Peters said in a post-earnings video.
Analysts said the decision to end quarterly reporting of subscriber numbers would likely rankle investors and make it harder for Wall Street analysts to model the company's business, going forward. They also said it was unclear what would drive new sign-ups once Netflix has pulled in as many users as possible from its crackdown on password sharing.
Other companies similarly have stopped reporting familiar metrics -- monthly active users, in the case of Meta's (META.O) Facebook and social platform X, previously known as Twitter -- as growth slowed.
"The movement to no longer disclose quarterly subscriptions from next year will not go down well, more so given (subscriber) growth that the streaming king has seen over the last year," said PP Foresight analyst Paolo Pescatore.
In a letter to shareholders, Netflix said it would fuel future growth by working to improve the variety and quality of its entertainment and scale its advertising business. Netflix, which once eschewed commercials, is preparing to host its second annual presentation to advertisers in New York.
What we think: This announcement is likely due to Netflix strategy to embrace advertising, allowing it to increase revenue while subscriber tallies dwindle or remain stagnant.
Canada's capital gains tax rise will further knock productivity, say economists
Notable Snippet: Canada's plan to raise taxes on the savings of wealthy people and corporations is likely to hold back investment, potentially adding to the productivity malaise that has held back economic growth in recent years, say economists.
In a bid to increase revenue to pay for housing and other programs, Canada's annual budget on Tuesday proposed increasing the share of capital gains that is subject to taxation to two-thirds from one-half for people with annual investment profits greater than C$250,000 ($181,752) as well as for companies and trusts.
Raising capital gains taxes could discourage savings, say economists, a key driver of business investment, which fell in the fourth quarter for the sixth time in the last seven quarters and has been unable to sustain a move above the 2014 peak.
"The Canadian economy needs savings and it's the relatively wealthy that now have less incentive to save — or more incentive to move those savings out of the country," Derek Holt, head of capital markets economics at Scotiabank, said in a note.
"Less reward after-tax is likely to discourage risk-taking. Discourage investment. Discourage anything that might address Canada's productivity problems."
What we think: The tax hike is a disincentive for savers to take the risk of investing. This will be a negative for the economy in the longer run.
Sentiment
FX
Stock Indices
Best,
Phan Vee Leung
CIO & Founder, TrackRecord