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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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