Market Update & Fund Summary 10/July
US and European Market
The US market has reached new yearly high again, while it’s been fluctuating weeks in the alarming position.
The job and service data remains resilient, which offers more chances to let the yield staying higher for longer. The stronger than expected labor market data drove the US 10 year bond yield to over than 4% at highest over a year.
While the bond market has already priced-in the additional 50 bps Fed rate increase, equity market only follows slightly. We keeps our views that the economic downturn is underway and the labor market softening will arrive in the coming quater.
By breaking down the data in the last month, although the unemployment rate remains resilient Non-farm payroll and manufactory related data (i.e. PMI) emerged weakening trend. Total nonfarm jobs added in June were 209,000, below expectations of 230,000 and well below last month’s 306,000. Meanwhile, the average hourly wage gains continue to remain elevated at 4.4%, versus expectations of 4.2%.1 The Fed would like to see wage growth head toward 3.5% to remain consistent with a 2.0% inflation target. The weekly jobless claims figure moved higher, while total job openings moved lower, heading below 10 million once more. Both measures tend to be more forward-looking indicators of the labor market and point to some easing ahead.
Overall, the labor and service data are lagging data. We continue to suggest that it is where the market peaking once labor and service data weakening begins.
The gap between ISM service and manufacturing has extended last month, showing a softening industrial demand and sticky service need. Over 70% of GDP in the US are consist of services, so the healthy demand for services currently has shown up in better economic growth and resilient consumer confidence broadly. But, any deepening slowdown in one area will affect the other and vice versa. Long as the ISM manufacturing keeps its current pace, the economy is heading to a recession inevitably.
Although, we continue seeing some gamble opportunities in the FTSE. The FTSE 100 touched its bolling band the week ago which was at 7242, which is at its bull/bear reversion point. Once it breaks 7306 (MA120), the uptrend will be coming in a short window. And US market obviously has better chance than rest European indices so we don’t do any relevant recommendation at this point.
Stock Pool Update
We use Quant method with financial indicators to screen stocks, and we suggest investors do their own research with FCF modelling & fundamental analysis and consider the risk involved in
We stopped recommending any technology sector stocks at this stage base on the reason that risk/reward was too low and we believe any mentally stable adult shouldn’t be doing so.
HDB:
We added some additional positions of HDB and maintain it as a strong buy at 62.82
TSCO:
If positions can average down to around 217.65 would be a strong supporting level.
FX Market & Currency Hedging
GBP reached a new ytd high and breaks the resistance of USD at around 1.30, 52 weeks high to EUR. We recommand investors to hedge against GBP if exposed to any British asset.
As our model shows GBP won’t go any further (due to the market priced-in a possibly incorrect interest rate, and mortgage stress), and will correct to 1.25 level soon enough.
Commodities
Crude Oil has reached $76 this month due to the State strong buying power and the inflation fear dims. We suggest investors to take advantages of the volatility and apply the mean reversion strategies. Consider supporting level at 65/67 if going long, and short once it breaks 80.
It isn’t a good time to enter Gold market because its price largely affected buy uncertain rate decisions and fluctuating FX market.
Natural Gas consolidating in between 2.2 and 2.7, we continue to short its volatility and therefore suggest the price stability.
Soybean: One of big buyers of Soybean is China, and due to obvious reasons its just unclear how will China’s economy be doing at Q3 and even the current season. Based on the PMI data and M1 M2 gap we continue to be bearish on Chinese economy.