Market Update & Fund Summary 10/August
US and European Market
The US market has entered a correction since August, meanwhile, US bonds get downgraded by Fitch to AA+. This is the second time the US gov bond has been downgraded since 2011 (1st time was by SP Global). The decision has not yet impacted the fundamental drivers of the economy and markets.
What a month for the bond market. The 10-year Treasury yield rose to a fresh high for the year, flirting with last year’s cycle peak of 4.31%. While the bond market has already priced in the additional 50 bps Fed rate increase, the equity market only follows slightly. We keep our view that the economic downturn is underway and the turning point will arrive in the coming quarter.
Treasuries remain the world’s premier safe asset. That is not because of the U.S. debt’s credit rating, but because of the Treasury market’s enormous liquidity and market depth, allowing international investors to store money and invest in the government debt of the largest economy, whose currency is the world’s reserve. For now, there is no other asset class to act as a realistic alternative. The new additional treasuries the US gov gonna issue should not be a concern for bond investors but rather for equity investors. The divergences between the market iv and individual iv, top stocks gain and general gain, MA200 and current S&P500 level, etc. have extended to new levels. Therefore the current correction should not become a surprise.
The job data as usual, shows mixed signals and seems very artificial. Non-farm payroll added 187,000 jobs in July, slightly less than economists expected and the smallest gain since December 2020, while the unemployment rate ticked down to 3.5%, the lowest since the 1960s. From here, we believe the huge divergence from historically low unemployment to the dying PMI data has reached a dead end. From September on, the job data has nowhere to go but weaker. And because employment is logging data, once it’s turning we might find ourselves already in a deep recession.
Besides all, the Federal gov interest expenses concerning the market. It surpassed the 2008 recession level and now chasing up the 2000. It’s not hard to conclude that Fed either act soon or let America crash again;).
Indices Update
As we discussed, fundenmantally US market is in a volatile time. VIX is picking up; divergence has reached a new high; market risk is pressing. We do not hold/recommand any US index atm.
Although, we continue seeing opportunities in the European market. CAC’s MAs are regressing to the current level. If it breaks up 7500, we eye on 8000; but if it falls from here, we will build our positions on 7109. DAX offers a simliar sentiment, and 15610 is a good level to swing play.
If The FTSE 100 touched its bolling band the week ago which was at 7252, 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.
VALE:
We added some additional positions of HDB and maintain it as a strong buy at 13.22
JD:
If positions can average down to around 33.65 would be a strong supporting level.
FX Market & Currency Hedging
As we predict last month, GBP/USD reversed after breif touching a new ytd high at around 1.30, to around 1.27 now. We continue to 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 above $80 this month due to the supply countries new cutting plan and the inflation fear dims. We suggest investors to take advantages of the volatility and apply the mean reversion strategies. Consider supporting level at 65/67/69 if going long, and short once it breaks 85.
It isn’t a good time to enter Gold market because its price largely affected buy uncertain rate decisions and fluctuating FX market. Can short once it enters the 2000 zone (can build short positions from 2080).
Natural Gas consolidating in between 2.2 and 2.7 berfore reaching the half year high of 3 dollar, we continue to short its volatility and therefore suggest the price stability soon.
Soybean: As we predicted a gloom furture of Chinese econmy, Soyabean market had its blood bath over a month from 1410 to 1300s. 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. Long from 1285.