Chief Investment Officer
Summary: This month have seen big rotation from junk to quality. Inflation is here, but how does it impact our investment?
Marketwise I am concerned that on the day market tanked (yesterday) we also saw high frequency of “inverted hammers” – technical warning of exhausting tops… Europen stoxx, european banks, QQQ, and other… (a few of them below…)
HOWEVER…
We know the reaction function from Fed: More of the same!!!!
They (FED) are now so wrong, that they will end up being right, meaning…
The emergency measures should have been removed as the state of play no longer is one of: Emergency… as Stanley Druckenmiller pointed out today in WSJ, but focusing solely on Fed’s non mandates of equality and full employment. They have created inflation and a risk of inflation overshoot, which will be met by rising rising marginal cost of capital post Treasuries General Account reduction into August (*) and much slower growth without employment following through. Creating a dire need to stimulate more! Fed being Fed and Biden being a MMT President will mean more transfer income is coming in Q4… Q4/Q1/2022 will also see China finally rotate into being synchronic with rest of world… setting up even more inflationary world.
https://www.bloomberg.com/opinion/articles/2021-05-10/markets-are-in-for-an-interest-rate-surprise
Conclusion
The market is moving to quality over junk. This means frothy part of market is and will see repricing, the mega cap and companies with pricing power remains bid.
Inflation is now becoming visible to consumers as the two component they see and feel is rising fast. Agriculture / food prices is up >30% YoY according to FOA and energy prices is up 60/70% …inflation is and will always be driven more by expectations than realised inflation hence inflation is here.
We have no strong colour on next 10% move but feel its time to balance portfolio to long volatility, some cheap puts and staying committed to broken supply chains and underinvestment into energy and logistics.
US Real rates dropping – sign that inflation risk is rising more than marginal cost of money
A inverse hammer in Copper…
Bloom Energy / one of the most hyped stocks in GREEN transformation last year…
PLUG / the most hyped stock in 2020…
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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