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Fed Powell hike as expected 75bps but sentiment is 💪 Risk-OFF

Fed Powell hike as expected 75bps but sentiment is 💪 Risk-OFF

The US dollar hit fresh lows during Powell's conference but reversed when he said that “the ultimate level of rates will be higher” than previously anticipated. That means the +5% rate is back on the table. The statement “We have a ways to go on rates” probably most important statement from speech  changed market sentiment, stocks shifted to downside and USD was higher in the day

 

Below most important statements from Powell

  • We're saying we will hike to a level that's sufficiently restrictive to tame inflation
  • The ultimate top is 'very uncertain' but CPI and labor data suggests to me it will be higher than previously thought
  • The time to slow the pace of hikes could be at the next meeting or the one after that. It will be discussed at the next meeting
  • I don't think we've overtightened
  • We had a discussion at this meeting about slowing rate hikes
  • Long term inflation expectations have moved back down
  • We don't have a lot of data on how quickly rate hikes hit an economy in a modern economy
  • If we were to over-tighten, we could use our tools to support the economy
  • It is very premature to think about pausing
  • "We have a ways to go" on rates

 

Read all statement here 

Markets saw 50 basis points in December vs. 75. They could see the finish line for the tightening cycle after two Feed Meetings.

In conclusion inflation is not dead & employment remains strong that means we will not see a policy pivot point next two FED sessions. Negative for stocks positive for the Dollar
Read more about a pivot point 

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China Markets the Good, the Bad & the Ugly

China Markets the Good, the Bad & the Ugly

The Good

Stimulus and a looser monetary policy help China to have a solid COVID-19 recovery with moderate inflation, much lower than the European and US nations. China's interest rate is on a long-term downtrend, which could create attractive opportunities for fixed-income investors.

China markets have extremely low valuations, just think that Hang Seng lost more than 50% from all time high, and its price is similar with the 1997 levels.

Valuations are attractive and they are poised for a rebound if China’s growth recovers.

China Hang Seng Chart

In a Twitter post, the hedge fund manager Michael Burry said:

“The Hang Seng recently hit 1997 levels. 25 years. Yet GDP multiplied 18 times during that time. 1997 valuations were 20 Earnings, 10x EV/Sales, 3x Tangible book. Now 7/1/1.”

Most of the global investors are underexposed to China, while China's communist party makes efforts to access foreign capital markets. The Chinese economy represents approximately 18% of the global GDP, but China A-share market only comprises 1% of the global MSCI index.

China’s economy is green energy-efficient oriented.

Efforts in seeking to achieve carbon neutrality and energy reform have the potential to create additional investment opportunities, given China's leading position in wind and solar components and materials. China is a global leader in the renewable power industry and has established a clear policy commitment in support of climate transition and the protection of natural capital.

China is on track to meet its 33% electricity consumption target from renewables by 2025 and could comfortably exceed it amid ongoing efforts to debottleneck the power grid to accommodate more renewables, analysts and clean energy project developers said.

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/092322-china-could-exceed-renewables-generation-target-of-33-by-2025

The Ugly Part

97% of Chinese provinces are spending more than they are receiving back in tax revenue.

The Chinese real estate market is in collapse. Real Estate Market was a major source of revenue for government few years ago. Land sale revenues are down 29% relative to last year while roughly 7.1 billion square feet of housing has been sold this year, the lowest amount since 2015.

China Budget freefall. Just check below the chart of Budget balance in relation with GDP.

China deficit percent of pib

Regarding the consequences, companies are fined for nonsense and illusive reasons because the China government look for ways to create cash flow through taxes and fines at the civilian level.

A vegetable vendor was fined 66,000 (9538 Euro)Yuan for selling subpar celery.

Source

http://global.chinadaily.com.cn/a/202208/30/WS630d561da310fd2b29e74de0.html

The Bad

Economic Growth for 2022 is revised down from 5.3% to 3.5%.

Taiwan Tensions with the US. War between Russia and Ukraine it’s catalyst for Chinese Communist party to invade Taiwan and that is a major concern for investors. Government bet that it will be difficult for US to economically sustain two fronts. Putin met with Xi Jinping multiple times before war with Ukraine. I personally don’t think China will invade Taiwan because the risk it’s simply too high for China.

Trade tensions & restrictions: The trade tensions and the tech war has expanded to semiconductors, as the US government imposed hard export restrictions on US chip technology.

Tech & Internet Collapse. All Chinese giant tech companies suffer from strong regulatory climate and difficult economically context.

China Tech Bubble Explode

Entrepreneurship and freedom of action for the technology market helped giants like Alibaba, Tencent or Baidu become what they are today, but last year’s climate was changed because of the US sanctions & government intervention.

Conclusion: Is China a buy?

Investment in China is very risky but is coming with huge opportunities, and we prefer small allocation of assets to Hang Seng and preferably just take high convictions stock like DQ (Daqo Energy).

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How Close Are We to a Pivot Point on Fed Policy & Stock Markets?

How Close Are We to a Pivot Point on Fed Policy & Stock Markets?

We think today that Fed and Mr. Powell will search sooner rather than later for a pivot point policy to change things because we already have a higher restrictive economic environment. We should remember that, when Fed suggested last time in 2018 that “future course of policy was predetermined on autopilot”, the stocks collapsed and Fed backtracked. Now they are trying right to introduce “data depending” on their speech, just check what they have said on Sept 30:

“Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target. For these reasons, we are committed to avoiding pulling back prematurely. Fed will proceed in a data-dependent manner.”

Fed will keep hiking until something will break up. Just check the Bank of England (BOE) intervention because of illiquidity on gilt markets, also the Bank of Japan which have announced their first intervention to support Yen against a stronger Dollar. These interventions calmed down the market but nothing is done to solve the major fundamental issues.

Just check the chart below for Pound ADR (Average Daily Range) of 500 pips. This is not a common sense movement.

GBP-USD Gilt Markets

But when will we see an inflection point for Fed?!

It’s all about the last Jobs Report which shows that is much stronger than expected, with a 263,000 monthly job gain while the Unemployment Rate had a major drop to 3.5% versus a consensus forecast of 3.7%.

Average Hourly Earnings is at the lowest point since December 2021.  Stock market Futures are decreasing and bond yields are rising in the wake of a stronger than expected NFP. Inflation expectations have been on the retreat, but Mr. Powell still needs a lower job report next month to start change the monetary policy.

If we get a hot CPI tomorrow, while considering an improving job report in November, it could mean that we can’t expect a 125-bps worth of Fed hiking starting now, until the end of the year, but a 150-bps hike on December 2022. This scenario will be very bearish for S&P with another minimum of 300 points down from here.

If we will see a lower Job Report in November and December, therefore we could expect a stronger S&P from here.

Which Sectors Are Still Performing Better than S&P and What Are Our Exposure Today?

I don’t want to dig much further on this article.

We like the Energy Sector and we still have some good stocks like: CWEN, PIF, SU, VLO, TGA. Energy sector is the only branch on green this year. I think it’s too late to take new positions on energy right now, and if we see good news about the war in Ukraine, we will close some of our positions. Clean energy solutions will not solve this crisis, but it will be a part of the longer-term solution for improving the energy independence.

We have a great exposure on precious metals Silver & Gold, meaning 30% from our Portfolio. I’m still optimistic about Gold and I recommend to buy it after Fed will start changing its policy. Gold will be the first instrument that will start to grow. Gold registers a minus 8 percent year to date, but outperformed S&P with over 15 percent. We bought Gold between 1700 and 1800 and we expect a target price of 2000-2200 in the next year.

We are very bullish on Uranium, Lithium and Silicon because of EV market catalyst. We bought CYDVF (Cypress Development Corp), SQM (Sociedad Química y Minera de Chile S.A.), and bought again DQ (Daqo Energy).

The Financial sector it’s also one of our bets and will outperform S&P 500 because of the Rate Hike. Financial is in red year to date but emergent markets will outperform the US financial sector. We acquired Banco do Brasil (BDORY) because of a strong balance sheet and a good perspective on growth.

We have few opportunities to follow in a bear market and for us it’s an option to be exposed with 30% on cash until things will change from the FED side, maybe in the end of the first quarter next year it will be good time to acquire risk assets. What is your opinion regarding Stocks? Looking forward to hear your opinions in the comment section below.

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Is still the Energy Sector a Good Bet from Now in perspective of a Market Recessions and the Current Superbuble?

Is still the Energy Sector a Good Bet from Now in perspective of a Market Recessions and the Current Superbuble?

Energy sector it’s the best performing market sector in 2022 instead of the latest evolution of Oil. Evolution of energy sector its close correlated with war between Russia & Ukraine. But we need to recap last week’s events:

Russia shut down its Nord Stream 1 natural gas pipeline last week for “maintenance” and will thereby provide Europe with a preview of how will looks winter this year. Instead of opening terminal in Estonia from Norway and new delivery from Spain, or imports from Canada & Qatar Europe can’t replace completely Russian energy and Europeans will have higher bills for energy-related products. Its expected price caps but this will result in more shortage of Gas & Oil.

There is a growing possibility in the case of a regime change in Russia that could disrupt the crude oil and natural gas markets. We support this idea because of latest development of war, Ukrainian soldiers regain 6000 KM2. Also, six of Putin’s allies have been shot or blown up, so Putin’s inner circle is becoming increasingly isolated. “Special operation” support is lowering because of Europe sanctions from 85% to 68% according to Levada.ru.

Putin support in percent

In the event that there is a ceasefire between Russia and Ukraine, post-Putin, the stock market could explode 40% to the upside. However, as long as Putin remains in power, the Ukrainian war is expected to persist in a long, and we will have high price of energy. We reduce our profitable positions this week in anticipation of pervious scenario.
After last days of Ukrainian Army advance we can see already a turning point of conflict. Just take a look of yesterday map
Ukraina russia war map  

We closed some energy positions like Alvopetro (Alvof) with +40% and Petroleo Brasil (PBA) +30% opened in March because we had important gains from price appreciation and large dividends, with higher risk of president Jair Bolsonaro intervention in companies’ administration.
We anticipate Corporate Earnings to decline except Energy. We remain skeptical that a new Iranian nuclear deal will be announced in the upcoming weeks because this will affect Bidden administration and relationship between USA and Israel.

What About US Inflation

U.S. inflation may have peaked, but at high levels thus forcing the Fed to remain restrictive. Strong dollar, high mortgage rates, lower commodity prices, lower demand, and reduced supply chain pressures are likely to help reduce inflation over the next year. The U.S. dollar should stabilize over the medium-term amid hawkishness from other central banks and slowing economic data this is positive for growth stocks in short term. Right now, CPI was published and is above expected values but market overreacted this bad news. Today’s CPI report wasn’t a game changer. A “better balance” in the labor market would be a game changer for CPI next months because higher vacancies-to-unemployment ratio fuels inflation.

Just read Societe Generale opinion below:

Societe Generale Research discusses the USD outlook and sees the currency rally close to its peak. "Aggressive fiscal reaction to higher energy prices encourages our belief that while the euro and pound won’t stage significant rallies until the we’re closer to the end of the energy crisis (and the end of the war in Ukraine), the dollar’s peak isn’t very far away," SocGen notes. "A period of EUR/USD and GBP/USD trading in low ranges is more likely than fresh 10% fall from here and it’s much more likely the next 10% move in USD/JPY is down, rather than up, too," SocGen adds.

We can see at the end of the year decline in USD and we acquired new positions on Gold, Silver and Banks European Index (EXX1), also new positions in Citi (C) Societe Generale Bank (GLE).

Right now, we have a late cycle development and we prefer equities instead of fixed income like bonds. Not all equities are good to own right now, we select just strong companies with large cash flow from sectors like Healthcare, Consumer Samples and Utilities, Renewable Energy. We favor commodity and companies that mine uranium and lithium for green Energy Industry.

Good green Companies:

ENPH

Enphase Energy, Inc.

SEDG

SolarEdge Technologies, Inc.

VWS

Vestas Wind Systems A/S

PLUG

Plug Power Inc.

FSLR

First Solar, Inc.

ED

Consolidated Edison, Inc.

ORSTED

Orsted

RUN

Sunrun Inc.

EDP

EDP-Energias de Portugal SA

968

Xinyi Solar Holdings Ltd.

541450

Adani Green Energy Limited

9502

Chubu Electric Power Company,Incorporated

BE

Bloom Energy Corporation Class A

SGRE

Siemens Gamesa Renewable Energy, S.A.

DQ

Daqo New Energy Corp Sponsored ADR

 

Best Lithium Producers

Albemarle Corporation (NYSE:ALB:US)

Jiangxi Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460)

Lithium America Corp (LAC)

Sociedad Quimica y Minera S.A. (NYSE:SQM:US)

Allkem (ASX:AKE, OTC Pink:OROCF)

Some of the problems that markets will have to face in the near future:

  • Increased food and energy prices are causing acute trade imbalances and civil disorder in the most vulnerable countries. Europe will enter to recession.
  • China, COVID pandemic continues, massively affecting its economy. Simultaneously, the Chinese property complex – key to Chinese economic growth – is now under dire stress.
  • Greatest fiscal tightening in history as governments withdraw COVID stimulus will impact companies’ margins and profitability.
  • Population decline will pose threats to economic growths. No single G7 country’s is producing new born at replacement rate.
  • Climate problems, higher temperatures, on all continents will have a major impact for agriculture next years.

We see now all vectors for an epic super-bubble because all of the assets, stocks, bonds, houses are overvalued. Right now we experience first stages with inflation and interest’s rates surge but will have sooner than later lower corporate margins and unemployment.

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Risk On -> US CPI Peak yesterday but we don't think will go too far from this value

Risk On -> US CPI Peak yesterday but we don't think will go too far from this value

US July CPI +8.5% y/y vs +8.7% expected it's the first good sign about inflation's
But let's analyze data below:

  • CPI energy -4.6% vs +7.5% prior
  • Gasoline -7.7% vs +11.2% prior
  • New vehicles +0.6% vs +0.7% prior
  • Used vehicles -0.4% vs +1.6% m/m prior
  • Owners' equivalent rent +0.6% m/m vs +0.6% prior
  • Food +1.1% vs +1.0% prior
  • Real weekly earnings +0.5% vs -1.0% m/m prior

Stocks   are up with large gains SPX over 2.13% and Nasdaq NDQ over 3% Dollar down DXY over 2%. Instead of  this small bounce in market  Sentiment we don't think will last more than few days.

 

Goldman Sachs not expect inflation to drop too far from here!

Inflation will not go too much lower because:

  • The price of cars (main component of core CPI) will stay high for months because production problems and distribution chains problems
  • Retailer excess inventory will not have any impact on prices. GS estimates currently $20 bn—this translates to 3% of annual retail spending and 0.5% of total core goods spending. That only translate to 0.1% of downward pressure on inflation  
  • We do, however, continue to expect the strong dollar and easing supply-chain constraints to weigh on import prices later this year, and in turn on consumer goods prices by the first half of 2023
  • Consumers have made changes in their shopping behaviors, like switching to cheaper brands or pivoting to dollar stores to get their essentials.
  • Covid Cases are surging in China that will affect distribution Chains

 

On others investment front investors must seek exposure to green Energy and Electric Vehicles (EV) because the Senate's deal targets clean energy and electric vehicles. The Senate has passed the Inflation Reduction Act; amid its multifaceted, approximately $370b of energy-related spending, both the clean energy theme and the electric vehicle theme are key components of the bill and the primary focuses of this commentary.

 

Electric vehicles and the broader EV value chain could experience accelerated demand from tax credits, government EV purchases, loans and grants.
Symbols like TSLA NIO RIVN QS BLNK HYILN VLDR Plug HASI NEEE will benefits from this law

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How to Protect against Strong Inflationary Environment and Higher Interest Rates?

How to Protect against Strong Inflationary Environment and Higher Interest Rates?

After big rates hike by FED and ECB, investors are hoping that in the following year, central banks will start to normalize rates, therefore Stock market show a bounce back (SPX is near 4.000).

We think it’s a short-lived bounce but a good opportunity for a Risk-Off trade. We see volatility ahead, after rate hikes, because central banks (FED & ECB) are captive to higher inflation. But inflation is caused by production constraints, wars - and rate rises don’t fix these. If inflation was caused by higher demand, than a rate hike, normally, will have a better outcome.

Getting inflation down to the magical number of 2% would mean recession without any doubt and first half year is showing us that GDP is crushed with a 1.6% contraction. Monetary policy is working with delays and the economy is just feeling the effects of one of the most aggressive hiking cycles in history. Stocks rallied 2-4% each of the last four times, the FED hiked interest rates only to fall in the following weeks. Stocks are still expensive and financial results are disappointing, but investors are thinking that this is the bottom, but we cannot embrace this idea. We will face ugly consequences because interest rates were kept too low for too long time (over a decade), central bankers are responsible for the fact that right now we have a bubble on each economy branch.

Mr. Powel must act in same way as Volcker did few decades ago in 1979 and hike until inflation will land to normal values. His last speech was a hint to more rate hikes.

Do you believe that we will face a soft landing as Powell said few weeks ago?

We believe that we will face a soft landing in the same way that inflation was transitory” last year, according to Powell (just read our January 2022 article at: https://topfxinvest.com/blog/thoughts-about-the-2022-bear-market). Mr. Powell also opined that we aren’t in a recession, demonstrating again that the leader of the most powerful central bank in the world is the last person you would want to ask about the economy. Last week, economy suffered its second consecutive quarter of negative real growth and there is little reason to expect the third quarter will be any better.

Natixis Investments Managers see higher risks of a recession in the last survey. 64% said that recession is a distinct probability, and 24% said that recession it’s inevitable. Almost six in ten (58%) believe value will continue to outperform growth for at least a few more months, while nearly one-quarter (24%) think value will be on top for a few more years.

“The End of an Era

Strategists see a world that has changed dramatically in the past six months. After a decade in which the easy money provided by quantitative easing, low rates, and low inflation propelled markets to positive gains in seven out of ten years, the world is moving on. This next normal is marked with greater volatility and greater uncertainty. The big question for most investors may well be: How long will it last?”

Natixis Managers Survey

If you want to read more about the survey: https://www.im.natixis.com/us/markets/the-end-of-easy-money

Inflation is a brutal and merciless way of resolving structural debt & imbalances of corrupted governments. We see potentially multiple series of inflation & deflationary cycles within short time frames (six month & two years) that will cause huge volatility.

According to CNBC, inflation is a top problem in US.

CNBC Inflation is a top problem

Traditional investing style (60% stocks + 40% bonds) it’s not a solution today, because bond’s market is underperforming and stocks are crushed.

Wall street Journal investing style bonds and stocks

Market crush

How to protect your portfolio during these times?!

We can protect from the financial storm that is arriving by choosing the best stocks & ETFs from few market segments that will perform in difficult times:

Commodities: since prices already dropped off and would be a good hedge against risk-off tone. Symbols: CRN, DCUSAS, WY

Carbon Emission: KRBN, CARB, GRN, NETZ

Consumer Staples Funds: WCOS, XLP, VDC, FSTA, YI 111, INC, IBA, IMB

Real Estate REIT: STOR, O, NNN, SRC, UBA, ID.UN, APR.UN

Precious METALS: ZGLDUS, ZSILUS

Low debt & Cash flow Green Energy Stocks

 

You must avoid at any price Growth Stocks & Crypto Markets.

 

 

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No Place to Hide from the Financial Storm?!

No Place to Hide from the Financial Storm?!

We analyzed the last week's performance on each asset class and found that the most resilient category from year to date is Energy, REITs and precious metals (instead of the last rally down of Gold). It’s difficult to find a place to park the money 💵 in this economic and financial outlook. According to Warren Buffet, in a recession environment everyone loses, but some of the people have a small loss and others have high loss.

Even traditional safe heavens offered little protection in the first half of 2022:

  • Bonds have historically grown when stocks have plunged, but Treasuries and municipals Bonds sold off in the first six months with -7%, S&P500 Corporate Bond Index is down 15%
  • S&P500 is 19% down today, Nasdaq100 with 28% in red, Down Jones 14,5 % in red
  • Crypto Markets Bitcoin & Ethereum have lost over 70% from high
  • Commodities without energy-related doctor Copper have lost 23% and Cotton 17%
  • Precious metals are best performers today with only 3,8 % loss
  • Few REITs that have contracts related to interest rates also performed very well: VICI +8.5%, O -3.5%, UBA -0.8%
  • Dollar outperformed marked DXY with +12%

So how did we get here?

We get here because of the high Inflation, rising interest Rates, record Energy Prices, war in Ukraine, Covid 19 pandemic and FED easy money printing in this decade. Everything seems to be a bubble.

How long will it last?

Risk off mode will persist this year and also at the beginning of 2023. History of bear markets from '49 tells us that we can stay in the red between three months and 39 months.

How much will the markets drop from Here?

S&P has fallen from 30% to 60% in 13 bear markets. We are reasonable to accept a minimum of 10% draw down from here, but because of amplitudes of the factors that generate this financial cataclysm, we must see a much more loss in Equities. We must understand the psychology of markets and individuals to know how to act.

We think we are before of the Panic stage of the markets right now (see first image). What is your opinion on this current stage? Will appreciate your opinion on the TopfxInvest Facebook Page.
Many analysts that we consulted seem to indicate that a peak of inflation will determine a bottom for stocks. We don’t think that is a true scenario because of the magnitude of the factors that start this bear market. I would be extra cautious before making any big bets on stocks and I’m a big fan right now of high dividend stocks that are resilient to interest rates hikes.

How to act right now, do we have a place to invest?

We prefer to consolidate the Gold & Silver positions, also we started selling Energy & Commodities Stocks that outperformed the market (like Daco Energy DQ, CNQ). We think that Gold will rise after the FED will finish with rate hikes and the Dollar will lose some peace of growth. We also studied the history chart of EUR/USD and when the Dollar is on Parity with Euro, will have some correction on the Dollar Index.

Chuck Berry inspired this article with “No Particular Place to Go”

An interesting topic for a future article will be: How to identify fundamentals of a market bottom or how to store Gold in efficient & safe ways?

Thanks for reading, and I’m waiting your feedback for our articles on our Facebook Page.

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Rate Hike & Recession Fears are Growing in 2022

Rate Hike & Recession Fears are Growing in 2022

The FOMC (Federal Open Market Committee) meeting consensus was for 50bp rate increase because of this week's worst CPI reading, but Fed hiked with 75bp, and market consensus agreed for other future rate increase this year, and also a 10% inflation which is on the cards right now. Markets are hit hard this week, a Risk-OFF tone was the main trading sentiment among traders.

How Dot Plot was changed:

  • June 2022 shows the median rate at the end of 2022 at 3.4%, up from 1.9% in March 2022
  • For 2023, the median Fed funds target rate is up to 3.8%, up from 2.8% in March 2022
  • In 2024, the Fed projects a Fed funds target rate of 3.4%, down 40 basis points from the end of year 2023

dot plot fed image

10 to 1 votes for 75 bp hike and Powel opening statement “Inflation is much too high” reveal large consensus and fear from actual economic environment.

Jerome Powel other key statements from yesterday meeting:

  • Consumption spending is strong
  • Housing Market is slowing
  • Tightening in financial conditions could continue to temper growth
  • Growth in business fixed investment is softening
  • Labor market is extremely tight
  • Wage growth is elevated
  • We'd been expecting to see signs of inflation at least flattening
  • We're seeing inflationary forces everywhere
  • We don't know what will happen with supply shocks and how long they will last
  • Pace of hikes will depend on incoming data
  • Does not expect 75 bps moves to be common. Either 50 or 75 bps seems most likely at the next meeting.

SP500 are at the worst levels for this year, and inflation is at the highest levels because of the Covid-19 outbreak and the war between Russia & Ukraine.
SPX 500 after rate Hike and CPI reading


Beijing and Shanghai (China) are experiencing a "strongly explosive" COVID-19 outbreak right now and this will add fuel to the fire of the Recession. Even Chinese Communist Party Media disclose some information on this new Covid-19 wave (https://www.globaltimes.cn/page/202206/1267831.shtml) but you can read more unbiased opinion at Voanews: https://www.voanews.com/a/beijing-sees-explosive-covid-outbreak-shanghai-conducts-mass-testing-/6613499.html. Authorities ordered PCR testing for all residents in 15 of Shanghai's 16 districts this weekend, and five districts have restricted residents from leaving home during the testing period.

What about recession?

Goldman Sachs SP500 forecast SP500 to 3150 according to David Kostin only if the EPS estimate moves to $225.

Morgan Stanley is looking for a "tradeable low" in the SP500 suggesting price 3,400 because "growing evidence of slowing growth and the risk to earnings”.

Our Portfolio Recommendations

Regarding our Portfolio we added some Gold this week at the price 1815 and also ZIM stock instead of Economic tailwinds. We like ZIM because they have signed new charter agreements on eco-friendly vessels to expand its services. ZIM is extremely undervalued at PER 1.83 and also, it’s a company with low debts. Company has huge cash in bank accounts of 2.8 billion $ that is equivalent to 40$ per share price. We bought at 49$ and we have a target of 75$ per share, without taking into consideration the past dividends.

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Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

Economic Growth is slowing all around the globe and inflation will grow with a moderate pace

EU inflation is 6.1% and rate hike is mandatory. From the previously forecasted values of 3%, we have a deviation of 3% which is caused by multiple factors:

  • Russia & Ukraine conflict
  • Energy Price
  • Supply Chains disruption

Goldman Sachs also cut their US economic growth forecasts from 2.6% to 2.4% this weekend.

Slowdown in growth should help lower job openings, it is also likely to raise the unemployment rate a bit.

Blankfein former chief executive of Goldman Sachs and currently senior chairman of Goldman Sachs says "firms should be prepared for a recession this year" and also:

"We're certainly heading - it's certainly a very, very high risk factor. And there's - but, you know, there's a path. It's a narrow path. But I - I think the FED has very powerful tools. It's hard to finally tune them and it's hard to see the effects of them quickly enough to alter it."

https://www.cbsnews.com/news/lloyd-blankfein-face-the-nation-transcript-05-15-2022/

FITCH says that the global recovery is to slow down in 2022 and 2023. Policy interest rates are rising, and FITCH believes that this marks an end to an era of very low borrowing costs for governments.

Remarks from Powel has changed a lot from the last year when he considered that the inflation was transitory and some pain is needed.

“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control. The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels.”

This week, CPI is lowering from 8.3% to 6% (Core CPI). This means that inflation will not decrease, it will slow the pace of growth, and the price of goods are not going to decline. The price of goods will grow with a moderate pace.

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FOMC Lift rates with only 0.50 % as expected

FOMC Lift rates with only 0.50 % as expected

FOMC Lift rates with only 0.50 % as expected

 

0.5% increased rates were taken by Markets with lots of optimism because Powell announced 75 BP hikes off the table for next two meetings. Sentiment was RISK-ON, instead of rate increases because trader's already priced in 0.5%.

Market Evolution NY Closed: 

  • S&P 500 up 122 points to 4298, or 2.9%
  • Nasdaq +3.1%
  • DJIA +2.8%
  • DXY 0.15%
  • VIX -13%  

 

Taking out of the table 75 BP hike, for next two meetings, Powel will sustain a new bounce into risk assets but I think it's short-term (1-2 weeks) until it will have new inputs from economies. Anyways, FOMC meeting, it's a fundamental shift for Risk instruments.

In the currency markets we see movement according to the risk sentiment: AUD & NZD UP and JPY & CHF down.

 

Some important remarks from Powell press conference regarding economic statement:

 

  • Inflation is much too high
  • It's essential we bring inflation down to keep a strong labor market
  • Price pressures have spread to a broader range of goods and services
  • Wages are rising at the fastest pace in many years
  • The labor market is 'extremely' tight
  • There is a broad consensus that 50 bps hikes should be on the table at the next couple meetings
  • We are prepared to adjust any of the details or our approach
  • Lockdowns in China are likely to further snarl supply chains

 

You can read all here 

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Thoughts about the 2022 Bear Market

Thoughts about the 2022 Bear Market

I have never seen in 20 years of investing such a confluence of fundamental factors pointing to a bear market scenario for stocks like this year.

First, it was the Covid19 pandemic outbreak that disrupted the supply chains, then it was the conflict between Ukraine and Russia. We’ve seen the Oil price ranging from 0 to 150$ starting with the middle of 2020 and up to 2022.

FED Chairman Jerome Powel finds that inflation it's non-transitory anymore and the EU representatives expect 7.8% inflation this year.

The war between Russia & Ukraine also fuelled the inflationary pressure. The FED already hiked the interest rate, but The European Central Bank kept its benchmark interest rates unchanged, Australia & UK also will hike it in the following months.

Stagflation is our base expectation for this year and we’re avoiding buying Growth Stocks. We’re looking forward to start investing at lower prices.

Our recommendation for January to keep the Dividends Stocks and sell the Growth Stocks was beneficial: from year to date: 

  • Vanguard High Dividend Yield Index Fund ETF (VYM) it's up with 0.9%
  • Large Caps Ishares ETF (IVW) it's worst performing in red with -14%
  • SPDR SPX 500 (SPY) registers -7% from 1 January
  • Small Caps CORE (IJR) in red with -11,4
  • Large Cap Value Stocks (IVE) -1% near to Dividend stocks
  • Mid-Cap Value Stocks (IJJ) -3%
  • SPHB (high Beta) -9%

What is the thesis behind this evolution?

The theory is that elevated risk of high inflation and slower economic growth favour the shares with relatively rich payouts.

In a recent letter to JP Morgan Chase (JPM) shareholders, Chairman and CEO Jamie Dimon warned that the war in Ukraine could collide with rising inflation to slow the domestic economic recovery and alter global alliances for decades to come.

"They (referencing Ukraine and inflation) present completely different circumstances than what we've experienced in the past-and their confluence may dramatically increase the risks ahead. While it is possible, and hopeful, that all of these events will have peaceful resolutions, we should prepare for the potential negative outcomes."

What are our expectations for this year:

  • 50 points rate hike in the EU in May, maybe 75 points if the Energy Sector and food prices will grow much more from now.
  • The global economy, even before the rate hikes, is deteriorating far faster than the consensus expects.
  • We expect consumer confidence to suffer in the months ahead and we will continue monitoring the indices.
  • Food shortages and rising food prices can converge to a possible global food crisis in 2023 and social uprisings.
  • Globalization is dead, and also the global cooperation between the major actors: USA, Russia and China for decades from now.
  • European inflation is at the worst levels in the last 75 years - and the ECB will have no choice but to raise rates faster than the consensus expects.
  • Europe will be in Recession from the middle of 2022.

In a recession environment nobody wins but what counts is who loses the least.

According to what we mentioned above, we prefer to invest in bank Indexes in Europe, because the banks are likely to benefit from a rate increase scenario that will happen this and in the next year, and we will avoid investment banks. We acquired the EXX ETF this month.

Also, we maintain our bullish view on grains and we consider now that it was a mistake to close some of our positions in March https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 

We want to close some Energy positions with profits this year on CNQ, PBR, TPZ, PIF, ALVOF.

I see carbon Emissions contracts as a very good hedge against inflation and we acquired last month CARB ETF & NETZ stock in Canada.

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FED Rate Hike by 25 Basis Points on Yesterday

FED Rate Hike by 25 Basis Points on Yesterday

The rate hike was priced in and the market was on RISK-ON mode yesterday. Main question for the FED yesterday was, what percent will be the hike?  

To stop inflation 0.5% was a better idea to hike but voters don't want to risk a recession with actual conflict between Ukraine-Russia. The surprise is 7 hikes in the dot plot instead of 5 hikes. The 10 years yield is now lower versus pre-rate decision level. Regarding the war in Ukraine, Powell said “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity. The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”

Regarding the US Economy, we have below stances: “Indicators of economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.” You can read full press release here:


Surveying the FOMC's 18 members, the dot-plot showed that 12 FED officials predicted at least seven total rate hikes in 2022. On the high end, one FED official expects the central bank to raise rates above 3% during the year, from the level around 0.25% currently in force.

Please check below the dot plot below:

fed dot plot 15 March 12 of 18 saw 0.9% in 2022, 11 of 18 saw 1,9% into 2023 annual median at 1.6%. Median interest rates for 2024 is 2.1%

Macroeconomic implications:

Energy Financials Sectors will outperform, we consider that it's a good time to buy bank's stocks and sell High growth stocks like tech. Instead of a short term rebound for Nasdaq's & S&P500, we see down in the long run. I can't see inflation slowing down in the long term and 0.25 it's not enough to calm but the FED was forced by the actual Geopolitical climate.

Euro will be much weaker in the long run than the dollar. Unfortunately for the EU, in the Eurozone there are plenty of headwind that affect growth: price of energy, war between Ukraine & Russia.

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The Russia-Ukraine War will Dominate Markets this Week

The Russia-Ukraine War will Dominate Markets this Week

After high Inflation in US and Europe, the Covid-19 pandemic outbreak, a new event like war between two major countries affected the markets. War between Ukraine and Russia pushed this morning Gold over 2000$, Oil to 124$, Soybeans 1686$ and Corn to 775$. During war times precious metals, Oil and Grains perform well instead of risk assets like stocks.

Gold pop UP!US OIL POP UP

High level of sanctions from the Western Economies will destroy the Russian economy in the medium term. The Putin regime will fall in the near future because you can't win a war completely isolated from western world and you can't govern with terror and mass-media censorship.

According to the last Russian laws, you can get 15 years in jail if you transmit information from the battlefield that is not what the regime wants. All social media are closed, also internet websites like BBC, CNN, The Guardian etc. If the Putin regime it's not quickly removed, the Russian people will live like in the North Korea.

Also, some important brands like Toyota, Ford, BMW, Mercedes, VW, Oracle, SAP, Mazda, Nike, PayPal, Apple, IBM, DELL, Mitsubishi have closed the doors to the Putin regime. The Russian currency is moving down by over 30%, and the Moscow stock market is closed for three days in a row.

With the US & EU already facing the highest inflation in over four decades, triggered by the Covid lockdowns and restrictions, and the February CPI release this week anticipated to show an escalation during the previous month, the real possibility of an economic recession is even larger.

Therefore, the Federal Reserve's upcoming policy meeting on Mar. 15-16, will start a new interest rate hike cycle and it's not advisable to be exposed on the growth stocks. We still own high dividend stocks in the energy and finance sectors and also, we are keeping our Gold & Silver positions. We anticipate further weaknesses in stocks this month.

The United States and European allies are exploring banning imports of Russian oil, Blinken said on Sunday, and the White House coordinated with key Congressional committees moving forward with their own ban.

"A boycott would put enormous pressure on oil and gas supply that has already felt the impact of increasing demand. Prices are likely to rise in the short term, with a move toward $150 a barrel not out of the question Such a move will put further pressure on global economies, pushing inflation higher, leaving central banks debating how quickly rate hikes should be implemented." according to some analysts from CMC Markets.

"The war has clearly increased the risk of a stagflation scenario for the euro zone, where you will have a stagnating economy and much higher inflation on the back of high energy prices," said Carsten Brzeski, global head of macro at ING.

We stand with the Ukrainian people that fight for their freedom and we want to help mothers with children that are refugees. Right now, we are facing a real drama on the Ukrainian border as the refugee and their children are staying over three nights on -15°C without food and water.

It's estimated that there will be over 10 million refugees this year, if the conflict does not stop soon. 

ukrainian refugees

If you want to help refugees, you can donate on these links:

https://www.unicef.org.uk/donate/donate-now-to-protect-children-in-ukraine/ 

https://donation.dec.org.uk/ukraine-humanitarian-appeal

https://donate.unrefugees.org.uk/ukraine-emergency/~my-donation

https://donate.redcross.org.uk/appeal/ukraine-crisis-appeal

https://www.icrc.org/en/where-we-work/europe-central-asia/ukraine

https://www.savethechildren.org.uk/

https://donate.careinternational.org.uk/page/100263/donate/1?ea.tracking.id=e75_orgsocial

https://www.peopleinneed.net/

https://msf.org.uk/

https://donate.unhcr.org/int/en/ukraine-emergency

You can help Ukraine Army here:

https://savelife.in.ua/donate/        

https://www.portmone.com.ua/r3/uk/terminal/index/index/id/118103/

Слава Україні! (Slava Ukraini!)

Glory to Ukraine!

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ECB Valleroy: The decision on rate hikes is not needed before June meeting

ECB Valleroy: The decision on rate hikes is not needed before June meeting
  • The decision on rate hikes is not needed before June meeting
  • Any speculation about calendar of future lift-off is at this stage premature
  • We will retain our full optionality about pace of normalization
  • Its calendar will remain a gradual, state-dependent and open in moving from one stage to the other
  • Keeping net asset purchases open ended from October would not be appropriate
  • APP purchases would end in Q3
  • another way to enhance optionality could be to remove the word "shortly" from the forward guidance on asset purchases
  • Optionality would mean that lift-off could possibly take more time if warranted

Decision on partial troop withdrawal has been taken added some optimism on markets (SP500 +1,58% NDQ +2,58) but we still have questions about inflation and growth

Oil & gold come back to previous levels

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Inflation is growing: CPI=7,5% with 0,2% over estimate - Stocks Down - Risk Off

Inflation is growing: CPI=7,5% with 0,2% over estimate - Stocks Down - Risk Off

Yesterday was a special day for trading markets because of rising in CPI. Stocks were up with over 2% percent at the start of the US session but reversed sharply with over 5%. Inflation surprised markets expectations but more interesting was FED Bullard (a voter in monetary Policy's) reaction to CPI:

He sees a 100-basis point increase by July 1.

50 BPs in March but will defer to Powell.

Would favour changing rates between meetings.

FED balance sheet reduction may require asset sales.

What is in CPI to justify the reaction above?!

Highest reading in 40 years

m/m CPI 0.6% vs 0.5%

Real weekly earnings -0.5% vs +0.1%

Core inflation:

  • Ex food and energy +6.0% vs +5.9% y/y expected
  • Prior ex food and energy +5.5%
  • Core m/m +0.6% vs +0.5% exp
  • Prior core m/m +0.6%

  1. Housing +0.7%
  2. Owners rent +0.4%
  3. Food +0.9%
  4. Energy +0.9%
  5. Gasoline -0.8%
  6. Medical care +0.6%
  7. Apparel +1.1%
  8. Services +0.4%

Only Ice scream is 👇

You can read detailed report here 

What are the reasons for these readings?

First Supply chain bottlenecks because Covid outbreak and accelerated economic growing from 2015 just look at SPX500

Citi Bank now sees 50 basis point Fed

What will happen from here?

I'm expecting inflation to peak in April-May and rates to go near to 4% in the future. Are we at the starting point of a depression?!

We intend to grow up our exposure on Gold & defensive stocks.

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Risk Tone is improving This week

Risk Tone is improving  This week

After the meeting between Putin and Macron, the markets have regained some losses from the first month of the year.

Macron: "Putin told me that he would not be behind any escalation in Ukraine". Instead, the meeting is not solving the problem between the Russia and Ukraine, but markets have anticipated a lower narrative tone in the future.

Putin Macron meeting

Better than expected, Atlanta FED GDP now rises to 0,7 from 0.1 also fuels a positive Risk tone.

Atlanta GDPNow forecast

Some good news from the inflation front announced by ECB Villeroy also helps stocks. Villeroy said:

 “Inflation hump should be temporary.

French inflation is to gradually diminish within a month.

I guarantee we will do what is needed for inflation to return to around 2% over time.”

Stocks are up SPX500 0,84%, NDQ 1,21% DJI +1% and VIX -5.67%.

Instead of some support in stocks, investors are concerned about the tightening announced in March from FED.

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Risk-off tone will persist in February: ADP & EU Inflation in focus

Risk-off tone will persist in February: ADP & EU Inflation in focus

 The ADP job data surprised to the downside this month: - 301K versus +200K estimate.

All economic branches were down this month:

  • Goods -27K
  • Manufacturing -21K
  • Services -274K
  • Transportation and Utilities -62K
  • Leisure and Hospitality -154K
  • Construction -10 K (Also Canadian Building Permit felt -0.3 over estimate)
  • Education & Health Services -15 K
  • Small firms -144K decline
  • Medium firms -59K decline
  • Large firms -98K decline

The fell was the largest since April 2020 because Omicron outbreak, according to FED officials.

BOE has increased official bank rate by 0.25 points to 0.5%, today.

Eurozone inflation hits new record 5,1% CPI versus 4,4% expected (Highest since 30 years), that will put more pressure on ECB today.

Bidden sent 3k US Soldiers to Romania Poland and Bulgaria.

IMF Chief Georgieva: Geopolitical tensions make uncertain outlook for global economy.

Regarding our portfolio, we shrink our exposure to growth stocks and closed some losing positions on companies that have large debts or lower growth expectation (ASAN, BILL, W, NVCR, RDFN), and further, we closed two days ago our grains exposure with 20% percent profits in three months. We expect to 💪 our dividend stock's exposure's and add to precious metal positions if we see another 2k points decrease in Gold and Silver after FED rate increases. We think market will retest soon, lower point from January and US Dollar 💵 will stay in upper zone. US dollar speculative positioning and bullish sentiment are surging. SP500 Retest Of January Lows  is about to begin.

You can check real-time  our risk-on/off tone indicator .

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Optimism didn't last on Markets after China lower Rates

Optimism didn't last on Markets after China lower Rates

SPX gave back the gains at the end of the day, because investors lost conviction that an early rally had legs. Risk-On sentiment didn't last after China decreased rates. Fears of inflation and higher interest rates in accordance with Geo-Political conflict between Ukraine & Russia have sent markets in red at end of the session.

Concern that the Federal Reserve will aggressively move to raise rates this year is a much more powerful catalyst than Chinese bank intervention and stocks Earnings. Investors have been concerned about rising rates because they raise borrowing costs and could dent global growth prospects and douse the earnings outlook for companies.

Analysts at ING said geopolitical risks, notably the possibility of Russia invading Ukraine, could continue to add to pressure on rising rates concerns.

Gold & Silver touched new highs lifted by worries surrounding inflation and Russia-Ukraine tensions. Gold 1,842 & Silver 24.63 gains were unexpected in the short term when bonds are up and Interest rates are expected to grow but geopolitical context is also an important catalyst.

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Asian Indices go higher after China cuts it's rates

Asian Indices go higher after China cuts it's rates

China cuts Loan Prime Rates: 1 year to 3.7% (from 3.8%) & 5 year to 4.6% (from 4.65%)

The People's Bank of China cut its Medium-Term Lending Facility rate to 2.85%

  • from 2.95%
  • injected 700bn yuan with 500bn maturing
  • 1 year MLF
  • first cut since April of 2020

On the 7-day reverse repo today, rate cut to 2.1% from 2.2%

  • 100bn yuan injected today
  • 10bn yuan matured today

On Thursday this week, 20 January, we get 1 year and 5 year Loan Prime Rates set. 

A cut to the MLF will be seen as an indication the LPR rates too could see a cut.

Asian stock go higher after this Bank of China Move Nikkei +1% , Topix +0,89, Kospi +0,49, Hang Seng +2,38% 

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Disappointing Results push Stocks lower

Disappointing Results push Stocks lower

Yesterday markets were down with over 2% because disappointing Earning Results from banks like JPMorgan & Citi Bank. We are still waiting results of other big banks like Goldman Sachs, Bank of America. Morgan Stanley, to see if the lower trend will continue this week. The key driver to the current action in the stock market remains the spike in bond yields and announced Increased Rates. This Year stocks will be dealing with the highest inflation rate since the late 1970s, excessively high valuations, and an aggressive policy change by the Fed. 

2022 it's a year of challenge for stocks because we have to deal with:

  • Lower Profit margin 
  • To high valuations
  • Less liquidity in the economy 
  • Higher inflation 
  • Weaker economic growth
  • Weak consumer confidence due to inflation
  • Flattening yield curve
  • Lower earnings growth
  • Weaker economic data than 2021
  • Tighter monetary policy
  • Reduced consumption

 
Technically, Stocks broke below yesterday Trend Support Line with momentum and also Vix is UP. Tech Stock was affected badly losing over 3,3% 

SPX Down


SPX DOWN IN January 2022
Stocks still have room to move lower from here. We have recommended to buy Agricultural commodities in November and Soybean it's up with 6%.

Soybean Growth 


 

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Growth forecast are downgraded in Australia & United States

Growth forecast are downgraded in Australia & United States
  • Goldman Sachs change their growth forecast for US  from  5%-6% in 2021 to 3,4% in 2022 because of two factors:
    spread of Omicron Variant 
  • diminishing expectations for fiscal stimulus

Deloitte projects 4% GDP instead of Reserve Bank of Australia 5,5% 

Deloitte Access Economics says the Omicron variant manes the RBA forecast is too optimistic because omicron is Spreading at a rapid rate and half the workforce would likely miss an extra week of work in H1 of 2022.

But with optimism Deloitte inform us that Omicron would not cause the same economic problems as the first two waves.

Will economy drop into 2022 what is your opinion?! 

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World Bank - Global GDP was cut from 4.3 to 4.1 but Stock still rise after Powel Testimony

World Bank - Global GDP was cut from 4.3 to 4.1 but Stock still rise after Powel Testimony

Ayhan Kose, director of the World Bank's said "There is a pronounced slowdown underway, ..... Policy support is being withdrawn and there is a multitude of risks ahead of us." 

The World Bank is out with its latest economic forecasts: 

  • Sees developed economies growing 3.8% vs 4.0% in June forecasts
  • 2021 global GDP forecast 5.5% vs 5.7% in June
  • Sees 2021 Japan GDP at 1.7% vs 2.9% in June
  • Sees 2022 Japan GDP at +2.9%
  • China forecast of 5.1% vs 5.4% prior
  • Sees 2022 US GDP +3.7% +4.2% prior
  • Sees 2023 global GDP at 3.2%
  • A surge in omicron that overwhelms healthcare systems could trim another 0.7 pp from growth

Stocks grow consistent  SPX +0.92 Nasdaq 1,47 after optimistic Powel discourse

  • The main thing we can do is foster a strong employment market, consistent with our inflation mandate
  • In order to get a long expansion, we need price stability
  • We will use our tools to bring inflation back down
  • There are great benefits of a tight labor market
  • It is really time for us to move away from emergency settings
  • Doing so should not have a negative impact on labor market
  • We're not seeing the progress on supply-side issues that we thought -- that all forecasters thought
  • Over time inflation will subside, but the question is how fast
  • Inflation will last until the middle of this year
  • Fed has not made any decisions on the timing of normalization
  • This year I expect the Fed will raise rates, end asset purchases and perhaps later this year allow the balance sheet to shrink
  • We're going to learn a lot about the path of inflation
  • It will take 2-4 meetings to work through balance sheet decision (4th meeting is June 15)
  • Expects to see some relief on supply side later this year; if not there's a risk of inflation becoming entrenched
  • We believed we would see material relief on the supply side

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Markets Expectations for 2022 regarding Stocks, Gold, Oil and Commodities

Markets Expectations for 2022 regarding Stocks, Gold, Oil and Commodities

As we started a new year 2022, we want to present you our conclusions on markets and an analysis of our managed portfolio. In this article, we will analyse four major assets: Stocks, Gold, Oil and Commodities.

After stellar gains registered in 2021, in 2022 markets are expected to grow at a moderate peace, due to the rising risks.

We are bullish on Gold and Silver, and we are also confident on a future increasing in agricultural commodities, as we also presented in our article: https://topfxinvest.com/blog/we-anticipate-the-food-crisis-in-2022 

Now let’s take a look on some factors that can influence stock markets in 2022:

Bullish Factors:

  • The domestic economy is growing
  • Consumer spending overall is strong
  • Employment is expanding, and the unemployment rate fell to 4.1% from 4.2%.
  • Corporate earnings are growing by 27% (Apple it's $3 trillion company & Tesla deliveries grow by 87%)
  • Covid-19 Pandemic new variant Omicron is decreases in death rates

Bearish Factors:

  • Rising interest rates: FED official announced this week that they see this year three, instead of two interest rates increase
  • Some stocks are extremely overvalued, like FTNT (over 100%: yesterday we closed our position on FTNT) or MRNA. Also, almost 100 stocks from S&P500 index are up over 50%, which is too much in our opinion. If US interest rate will hit 5%, stocks will go down badly, similar to the 1987 crisis.
  • Continuing inflationary pressures because of transportations issues. We already discussed this topic in our article Shipping Congestions and higher prices will continue until ends of 2022 according to Morgan Stanley
  • Global tensions between Russia and US on Ukraine / Kazakhstan, also China and US on Taiwan, which are possible to extend into some major conflicts.
  • Covid-19 Omicron it's still here, and we cannot anticipate the implications of other virus mutations. If we have other lockdowns because of new pandemic outbreaks, stocks will be badly hit.

Other opinions regarding stocks:

JPMorgan Kolanovic says to buy the dip:

“Higher bond yields should not be disruptive for equities, but rather support our call for a growth to value rotation. […] We stay positive on equities and expect Omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll. As this wave fades, it will likely mark the end of the pandemic Omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity”.

On congested supply lines: “signs of supply constraints potentially passing their worst point”

BlackRock's largest fund asset has an optimistic view, but they raise concerns over China Covid19 policy: 

“The Fed has signalled three rate rises this year – more than we expected. Markets seem primed to equate higher rates as being negative for equities. We’ve seen this before and don’t agree. What really matters is that the Fed has kept signalling a low sum total of rate hikes, and that didn’t change last week. This historically muted response to inflation should keep real policy rates low, in our view, supporting equities.” 

“And not all spikes in long term yields are the same. Last week’s jump in U.S. Treasury yields was about the Fed signalling a readiness to start shrinking its balance sheet. This could result in a return of the term premium that investors typically demand for the risk of holding long-term bonds. This is not necessarily negative for risk assets as it can reflect an investor preference for equities over government bonds.”

Regarding China slows growth rate: “The key question is how China’s zero-COVID policy will stand up against Omicron. The policy so far has proven effective and enjoyed popular support, but has left China with almost no natural immunity. We expect the country to maintain the policy – at least optically – in this politically important year. This raises the spectre of more restrictions on activity, from targeted measures that keep the economy humming (Shanghai) to full-scale lockdowns (Xi’an). As a result, we believe downside risks to China’s growth have risen, even as Beijing appears bent on achieving its growth target this year by loosening policy.”

We think it's reasonable for Gold to push a higher price to 2500 after a huge stimulus amount, but it will happen only after the FED finishes raising the interest rates. Oil will slow down only after the inflation will also slow down, probably in the second part of the year according to Citi Bank Forecast 

We added to our portfolio some agricultural commodities and precious metals (Gold and Silver). and we sold some positions like: Tesla, Fortinet, Shopify, DocuSIgn, Disney, TradeDesk. In 2022 we plan to add more dividend stocks because we have a more neutral view on this year’s growth.

Further, I'm not a big fan of Crypto currencies. 40K for Bitcoin is a good price, but if it goes further under 30K, it's a good to buy and hold bet.

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Market sell-off will continue today because of FED statement

Market sell-off will continue today because of FED statement

Tech stock -3,5% and Bitcoin -5%  S&P -2% was hard hit yesterday buy Fed minute.

The minutes revealed that committee members think inflation risks were more persistent to the upside, and there was general agreement that the taper should be accelerated with three tentative rate hikes. News of new rate hike it's nothing new was announced by Chairman Powell, only factor that surprise the market was that some members felt that the Fed should commence running down its balance sheet soon after its first hike selling $8.50 trillion of bonds.

Negative sentiment was also sustained by Russia intervention in Kazakhstan and Omicron outbreak in Europe. 
We waiting another wave of selling today without a positive news catalyst   

Find below complete statement if you want to read all details

https://www.federalreserve.gov/monetarypolicy/fomcminutes20211215.htm

Tech Stock Index selloff 1/6/20022

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How Much Could Drop SPX500 from News on Omicron COVID Variant?

How Much Could Drop SPX500 from News on Omicron COVID Variant?

The major international indices rebounded on Wednesday, despite the concerns about the Covid variant and the Federal Reserve is hinting an early departure of its accommodative monetary policy.

However, the tone has quickly turned negative with the news that the United States became on Wednesday the latest country to identify a case within its borders.

The World Health Organisation stated that at least 23 countries from five of six regions have reported cases of omicron, “and we expect that number to grow.”

The UN agency expects to have more information on the transmissibility of the new variant of the coronavirus within days, but noted that hospitalizations were rising across South Africa, where the new variant was first discovered, and omicron is rapidly becoming the dominant variant there.

More important are studies that will be delivered next days from Pharma companies BioNTech & Moderna about vaccine efficiency on new covid variant Omicron.

If there will be bad news on vaccine field, we can expect a drop on SPX to 4200 - 4250 area in short time, and to 3600 in case of new lockdowns around the world.

If news on vaccine efficiency is very good, we will pass over lockdowns and we anticipate a rebound over 4500 pts.

It's possible to have a good opportunity to buy when infections will slow down after Omicron Outbreak.

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Shipping Congestions and higher prices will continue until ends of 2022 according to Morgan Stanley

Shipping Congestions and higher prices will continue until ends of 2022 according to Morgan Stanley

Shipping congestions will continually to persist long time from now, until end of 2022. Also, transportation prices will still remain high. After Covid19 that is “the perfect storm” for this, other factors influenced transportation further:

  • Semiconductor chip crunch affected trucks production;
  • Shortage in containers;
  • Shortage in trucks drivers (most of them have changed their job since pandemic outbreak).

Instead of transportation bottlenecks, companies in this segment performed better than SPX. Companies like AP Moeller Maersk (MAERSKa) or Silo Maritime Perdana Tbk (SHIP) have grown over 150% in just one year.

The Freights Baltic Index, which measures global container prices, currently stands at an average $10,321 per 40-foot container, with over 400% price increase before pandemic Covid19 Outbreak.

The Freights Baltic Index

Investment Bank Morgan Stanley, according to a research sent to investors last week, expects shipping revenues to stay high at least through the second quarter of 2022. All ports in US are opened 24h day but instead of that, we still have congestions since we don’t have enough trucks and drivers to deliver goods to consumers.

We find difficult and risky to invest just now in this field after 150% growth, momentum is too late, but who invested in this area will have some time horizon to cash out some profits.

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Evergrande Problems - RBA Deputy Governor Debelle comments

Evergrande Problems - RBA Deputy Governor Debelle comments

Reserve Bank of Australia Guy Debelle, speaking before the Australian Parliament's House of Representatives Standing Committee on Economics

Debelle says the Bank is spending a fair bit of its time assessing Evergrande. He expects Chinese authorities might well allow a limited default to occur, their 'tolerance' for a default is higher than in previous years as long as the consequences are limited. 

Says Chinese authorities are well informed of the EV situation and it'll resolve how they want it to resolve.

Watch Here

China Evergrande main unit Hengda Real Estate will make coupon payments for onshore bonds due tomorrow

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Upstart Holdings UPST Stock of the Month August 2021

Upstart Holdings UPST Stock of the Month August 2021

Business Summary

Upstart Holdings, Inc. is a cloud-based artificial intelligence (AI) lending platform. The Company’s platform aggregates consumer demand for loans and connects it to its network of Upstart AI-enabled bank partners. The Company’s AI models are provided to bank partners within a consumer-facing cloud application that streamlines the end-to-end process of originating and servicing a loan. It has built a configurable, multi-tenant cloud application designed to integrate seamlessly into a bank’s existing technology systems. Its configurable platform allows each bank to define its own credit policy and determine the parameters of its lending program. The AI models use and analyze data from all of its bank partners. Consumers can discover Upstart-powered loans in one of two ways: either via Upstart.com or through a white-labeled product on its bank partners’ Websites.

Financial Summary

BRIEF: For the six months ended 30 June 2021, UpstartHoldings Inc revenues increased from $81.3M to $303.5M. Net income totaled $47.4M vs. loss of $4.7M. Revenues reflectan increase in demand for the Company's products and services due to favorable market conditions. Basic Earnings per Share excluding Extraordinary Items increased from-$0.07 to $0.62.

Why we think it’s a good bet
The company helps banking partners originate loans through its proprietary AI platform and takes a fee for their services. Today, more than 90% of its revenue comes from fees from banks or servicing with no credit exposure. Upstart claims it can secure loans and banks will have with 75% fewer defaults at the same approval rates. That is amazing number for banks and we thinks this company instead of expensive price will add over 25% per year growth in long term because their business model and few competitor UPST have a disruptive technology on AI field. Last months company acquired a new market segment auto-loans like auto lending (more than a billion dollars flowed through its auto software in the quarter).

They have a visionary founders. Upstart was founded by Dave Girouard, Anna Counselman, and Paul Gu in 2012. Girouard was the former President of Enterprise, while Counselam was a Senior Vice President for People and Product. Gu was a Thiel Fellow and had been featured in Forbes 30 Under 30.

The company was raised funds from First Round Capital, Kleiner Perkins Caufield & Byers, Google Ventures, and Mark Cuban. A series A round included former Google CEO Eric Schmidt, Salesforce CEO Marc Benioff, the Founders Fund, and the Collaborative Fund.

They have very Good ratings on platforms most of analysts offers very good rating perspective
UPST Ratings on Tip Ranks

Latest Ratings July & August
Also Fundamental Analyse Looks Good

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