Macro Dragon WK # 30: Asia kicks off the new week solidly in the red, given last wk's EQ risk off, stronger USD, higher bond prices & volatility, as well as divergences in the commodity complex
Summary: Macro Dragon = Cross-Asset Quasi-Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon WK #30: Asia kicks off the wk in the red, as last wk's poor equity price action continues...
Top of Mind…
- TGIM & welcome to WK #30…
- WK #29 was a tough one for equities, oil, value & growth bulls. How much of this is a function of the noise from summer in the Northern Hemisphere, as well as concerns around slowing growth (China) & Delta variant surging (Asia, EM, Europe, US) or just overall correction is always impossible to say.
- There was nowhere to hide in either value (BP 292.25 -6.0%, XLE energy etf $48.68 -7.9%, JETS airlines etf $22.42 -6.5%) or growth (ABNB $134.31 -10.2%, COIN $225.01 -11.4%, ARKK etf $116.53 -7.2% ) were down significantly.
- The WSB complex was also very much on the backfoot, with the likes of AMC $34.96 clocking -24% for the wk on the best volume in 3wks (6x the 12m avg. volume). We are now c. -44% from its ATH of $62.55, the name is still up +1,549% YTD.
- There were few equity exceptions finishing the wk in the green – notable to see three of the FANGS, Microsoft, Google & Apple finish up anything from +0.90% to +1.75%. The China Tech HK listed names also did well last wk (+3% to +7%), even though most of those gains to perhaps all are at risk of being reversed this Mon.
- Its easier to see what went up last wk: Volatility VIX +14% to 18.45, Bond prices rose (bunds are breaking out higher), the USD rose DXY 92.687 +0.60%.
- There was some divergence in the commodity complex with some of the softs such as Wheat, Corn & Soybean oil having a monster wk from +6% to +12%.
- Yet still the space was dogged by -24% pullback in lumber $536.40, Palladium $2,637 -6.2% & energy: WTI $71.81 -3.7%, Brent $73.59 -2.6%.
- So there is a time for everyone in the market. Currently the equity bears, bond + USD + Vol bulls are in limelight. And we are likely going to be in a chopsolidation until the other side of Labor Day in September when the Northern Hemisphere is fully back in from their summer.
- The majority of the charts & price levels, suggest more the same of what we saw last wk with some critical lvls being broken to the upside – German bund prices 175.29 – & to the downside – AUDUSD at sub 0.7400.
- There are some interesting trends that are worth monitoring for either mean-reversion potential, complete breakdown or for trying to buy the dip.
- Bunds have had 3 straight weekly gains of big prices; +77bp, +47bp, +56bp. So a +1.8% move in German 10yr bonds futures. For context on yields, we’ve fone from -0.155% to -0.353%. This raises the stakes for the response to the update from the ECB this Thu on their monetary policy.
- XLE energy etf is now down for 3 straight wk for a total -12% retracement. On top of that, news over the wkd seems to suggest the OPEX+ Alliance is back on track as UAE is brought back into the fold & we should be back to pre-Covid output in 2023. Looks like the agreement will see +400K barrels added a day from Aug, with a reset on the starting lvls for some of the group. So far energy is down c. -1.5% with WTI $70.82 & Brent $72.53.
- JETS etf $22.42 is now down 7wks in a row, clocking -6.5% last wk for a total retracement of -16% over the 7wks. For context, this etf was trading +$10 higher pre-covid in Feb 2020. We are -22% from post-Covid highs of $28.71.
- If an ETF is down -12% to -22% from recent post-Covid highs, it likely means there are some single stock names that are down more & worth looking at… either as relative value plays or buying the dip if one likes the theme.
- The wk ahead is likely going to be a confluence of bearish sentiment being weighed against continued earnings season in the US, with a few of the tech names out to bat this.
- Central Banks: The ECB is likely to command attention this wk, given the anticipated update on its monetary policy framework. RBA mins will be out on Tues.
- Russia is expected to hike by another 75bp to 6.25%. Whilst rate decisions out of Indonesia 3.50% e/p & South Africa 3.50% e/p are expected to be on hold – the first is struggling with the surge in the Delta variant, after never really being in a position to tackle previous strains. And the latter – perhaps failed state in all but name – has seen the trial of Zuma open pandora’s box of anger, frustration & violence that is the culmination of decades of graft & of course the adversity, stress & devastation that Covid has wrecked on the poor in SA.
- Econ data is fairly light outside of flash PMIs, there are retail sales data due in the UK, AU & CA.
- Holidays: SG will be out on Tue, with JP out over Thu & Fri.
Recent Works to Keep In Heavy Rotation
- Market adrift despite max support from Fed this week: Recent Market Call Podcast featuring SAXO's CIO & Chief Economist Steen Jakobsen & FX Strategist John Hardy, as they look at factors suppressing US yields, touch on Powell, as well as expectations around the Fed, Inflation & climate policy initiatives.
- Viva la Revolucion! Saxo 3Q Outlook is out – make some time for it, we touch on the green revolution that is here to stay & having a structural impact on European Politics.
- KVP weighs in on a potential Asia investor skew into Europe, looking at the UK as a spin-off from the conglomerate & less effective EU. As well as highlighting China Tech’s underperformance in the 1H21, vs their Global Counterparts especially in ‘Merica.
- Macro Dragon Reflections: Brazil, Commodity Rich, +210M pop, +$1.4T GDP, Hawkish BCB, 2022 Political Elections & Consistently Punching Below its Weight. Love it!
- Worth noting one of the exceptional stand-outs in WK #29, was the significant relative outperformance of BRL vs the USD, compared to the rest of the FX complex that generally lost again the US Dollar.
- Total returns on the real were +2.93% vs. the greenback. At 5.1152 USDBRL still has to break & trend lower through the 5.00 lvl – we had a false break a few wks back, which likely makes it tough to get back into. With that said Aug 3, should still see the Brazilian Central bank hiking by another +75-100bp.
- And flagged to KVP by the “Indian Jones of EM” is this chart from a tweet by @RobinBrooksIIF that highlights that the Brazilian real now has the highest carry of the major EM currencies, supplanting MXN & ZAR 14.43.
- Equities: Garnry on the Cannabis industry maturing & ready for more growth.
- Equities: Value vs. Growth, earnings season & Robinhood IPO.
- Dragon Interviews U-Tube Channel for easier play-ability…
Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.
This is The Way
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.