SENTIMENT

The down move in the USD yesterday was pretty interesting.

The broad USD has been trading in a relatively narrow range since late last year and the currency market has been pretty subdued compared to the stock and crypto markets. However, the down move in the USD yesterday was pretty interesting.

The USD weakened against almost every currency, even currencies with “bad” fundamentals such as the Turkish Lira (TRY) and the South African Rand (ZAR). Despite the weak Chinese stock market (-15% since mid June), the CNH looks set to strengthen beyond levels seen since the middle of June.

Given the price action and the news flow (dovish Fed, infrastructure bill closer to being passed), it seems that the USD could be poised for another leg lower some time soon.

It’s interesting to note that China is ahead of the US in developing Small Modular Nuclear Reactors. This reiterates our point made previously that China understands the importance of baseload power transition. We remain extremely optimistic about the prospects of baseload power as one is in deficit (traditional energy) and the other will see exploding demand in the decade ahead (coupled with scarcity at this point in time).

PCE Price Index, the Fed’s preferred measure of inflation, will be particularly important as any softening of inflation measures (which the market is now conditioned to accept upside surprises) will highly likely set back expectations of any tapering or rate hikes from the Fed. Hence, soft numbers will be good for risk assets.

1. Currencies:

Keep short USD and long NZD, & CNH. After triggering stops above 6.50–6.51, USDCNH has broken back below and is now looking decidedly weak.

Key resistance/support levels — USDCNH 6.53–54. Sell on rallies given the soggy price action.

2. Commodities: Uranium & Energy — Stay the course. .

Key risks: Spread of the delta strain and also the rout in Chinese stocks due to clampdowns from the central government are the key drivers of risk sentiment for now.

3. Equities:

Equity Index: Long Nasdaq futures. Stay the course.. Stay long and patient. Approach of support levels at 13950–14000 will be a good opportunity to add to longs.

Key risks : Spread of the delta strain, geopolitical worries and China’s crackdown on various sectors will dictate the market risk sentiment for now.

Notable Snippet: U.S. President Joe Biden, who has called for providing a pathway to citizenship for so-called Dreamer immigrants, said on Thursday that a big budget bill being written by Democrats in Congress should tackle immigration.

Biden, who made the comment to reporters at the White House, said on Sunday he was uncertain whether a pathway to citizenship for immigrants protected from deportation under the Deferred Action for Childhood Arrivals (DACA) program could be included in the bill, which Democrats plan to pass without Republican support.

Notable Snippet: President Joe Biden on Thursday urged local governments to pay people to get vaccinated against COVID-19, and set new rules requiring federal workers to provide proof of vaccination or face regular testing, mask mandates and travel restrictions. The measures are Biden’s latest attempt to spur reluctant Americans to get vaccinated as the Delta variant of the coronavirus surges nationwide, infecting unvaccinated people in particular.

Government employees who do not show they have been vaccinated will be subject to weekly or twice-weekly COVID-19 tests and restrictions on official travel.

Notable Snippet: Millions in Sydney began their harshest lockdown since the pandemic began on Friday as COVID-19 cases spiked to record levels in Australia’s largest city with state and national leaders set to meet to discuss the country’s reopening plans. With Sydney, the capital of New South Wales state, struggling under record surge of cases, officials toughened curbs across eight local council areas, where most new infections were being reported, and sought the military’s help to enforce lockdown rules.

Phan Vee Leung
CIO & Founder, TrackRecord

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