TIP OF THE ICEBERG?
Spending far less time watching markets and twitter as I’m thoroughly enjoying being back in Hong Kong, and don’t intend to stop making the most of it!
Short one…
Last week’s action…
Lower yields and flatter curves saw USD lead gains in FX and Equities to pullback. Copper and Crude however finished positive amid the sell-off in cyclical sectors.
Negative news sentiment…
Til recently, I have not been convinced by the bearish drivers for a sizeable sell-off while the narrative of a slower and data-dependent Fed was fresh post-NFP. While that has faded, concerns for the path of growth/recovery are becoming more notable:
1. Covid news has been increasingly negative due to new variants putting the effectiveness of vaccines back into question, and likely to increase vaccination hesitancy.
Looking at wk/wk case numbers, infections are turning down though there are spikes in Deaths. I would not be alarmed by this as I’d expect the public to respond cautiously to these developments. There could be some potentially positive news with respect to 3rd booster shots being effective but it’s too early to get excited with new variants emerging and vaccination debate becoming more polarized on a global scale, and this in itself will in no doubt keep uncertainty levels high.
2. Bottlenecks have persisted for quite some time to the point this must, at the least, be beginning to really hurt businesses up and down the supply chain, and continued congestions will keep extremely high price pressures in place. To add to this, there is also likely to be another month or two where we could expect a few more tropical storms in the near-term:
3. Perhaps more significant is the lack of positives for the market to continue marching higher especially as tensions are heating up between the Biden administration and the GOP.
Views and Trade ideas for the week…
Granted, market is looking grim… But I don’t think we see some kind of deflationary bust/crash like some (without naming names) would have you believe. Instead I think we will chop-a-long relatively sideways for the next few weeks.
For my book, I’ve shed a big chunk of my RTY exposure trailing out on the sell-off towards the end of last week. I still remain short NQ and long AUD and NOK with healthy entry points.
Last week’s retracement in EEM and other similar instruments to hold? If so I think it’s a good clue of resilient investor sentiment.
AAPL and GOOG made a healthy retrace to where we could see renewed demand but failing that, we could see a little more capitulation from late longs and broader market weakness.
EMFX especially USDZAR looks interesting for a positioning squeeze where its looking to make a break higher after some basing price action.
USDCAD short particularly appeals to me this week so long as Crude CL maintains 68/69.00 area as support and in view of data expectations this week — CPI to highlight strong inflationary pressures? Expectations broadly weak so positive surprises could squeeze the recent influx of CAD sellers.
Have a great week!
