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Green energy tech is unlikely to step up and fill the gap.
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TrackRecord Daily
14 Apr 2022
DAILY THOUGHTS
Energy stocks look to explode higher…

So, the US has started releasing oil from its Strategic Petroleum Reserves and oil prices have given up most of its gains from the shock of the Russian invasion. And yet, prices of energy stocks continue to trade higher. As we have said before and we are likely to say again, all these measures and geopolitical events cause gyrations in market prices in the shorter term, but the longer term trend will be dictated by demand and supply dynamics.

The fact remains that the world has chronically underinvested in energy resource sectors in the past few years. The harrowing experience of negative prices for oil futures remains fresh in the memories and nightmares of energy companies’ executives. No one in their right mind will float big investment plans when the world still struggles with Covid.

Even if they were brave enough to want to invest, banks and investors were not in the mood to finance carbon-spewing, environmentally-unfriendly sectors in the name of pursuing ESG goals.
This has resulted in supply not being able to catch up with growing demand. Demand will continue to grow. Green energy tech is unlikely to step up and fill the gap. The outcome is inevitable. Check out our TrackRecord Model Portfolio to see what we believe are the companies that will experience explosive price growth as a result of this eventual outcome
TRADING TIP
Why is it easier to trade a long term trend?

Yes, we know trading the long term trend does not sound as cool as being able to trade every single move in general. However, short term market movements are often random noise which most traders are unable to profit from if done persistently over the longer term. Trying to trade short-term moves often results in overtrading and the cost of trading eventually adds up.

Most professional traders themselves only have a success rate that is sub 50% and the profits usually come from the asymmetry of the payoff they get on their trade. Asymmetric payoffs are difficult to attain when attempting to trade every single move considering how small the magnitude of some moves are.

On the other hand, a long term trend just requires a trader to be right on the initial trade and the multi-fold payoff from an asymmetric trade will play into the favour of the trader as he risks only a minute amount for a far larger payoff.

DAY AHEAD
At the ECB policy meeting later today, no interest rate changes are expected but since inflation has been persistently high, the council may have to talk hawkishly.
TRADING PLAN
1. Currencies:
CNH - Keep short USD against CNH. Stay patient.

EUR - Short the EUR. EUR is retracing from the lows, and rallies are meant to be sold.

2. Commodities: Uranium & Energy - A break above recent highs are imminent. Stay long.

3. Stocks:

US Stock Index: Energy stocks continue to trade higher and now tech stocks are showing some signs of life.

Single Stocks: As predicted yesterday, TrackRecord Model Portfolio is indeed outperforming and the break higher in our key themes is imminent. Don’t miss out on the trends!

Key risks: Comments from Fed officials on the pace of future rate hikes will affect interest rates expectations is the primary focus. The Ukraine-Russia war rages on, but the market impact seems limited for now.  

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WHAT HAPPENED YESTERDAY
As of New York Close 13 Apr 2022,
  • As expected, the Bank of Korea raised rates by 0.25%  to 1.50% in its policy meeting this morning in order to tackle inflation.

  • Chinese Premier Li Keqiang said yesterday that reserve requirement ratio cuts will be duly put in place to boost the credit capacity of banks to promote consumption in the country amidst lockdowns and slow growth. Market impact was fairly limited as many expect a cut in the Reserve Requirement Ratio on Friday.

  • Both the US 2 year Treasury Bond yield fell and the 10 year bond yield fell -0.02% (2 basis points) to 2.37% and 2.72% respectively as markets continue to digest the lower than expected core CPI. US Producer Price Index (PPI) showed prices of input products rose +11.2% (vs 10.6% expected) faster than expected but the market did not react to this..

  • The 3 day losing streak in the stock market ended as corporate earnings hit the wires with positive results, indicating that they are managing inflation pressures well so far. The S&P 500 rose +1.12%, the Dow Jones increased +1.01% and the Nasdaq climbed +1.99%.

  • The crypto market traded higher due to the improved risk sentiment in the stock markets. Bitcoin rose +2.7% while Ether increased +3.0%.
HEADLINES & MARKET IMPACT
U.S. gives Ukraine $800 million more in military aid, adds heavy weapons

Notable Snippet: U.S. President Joe Biden announced an additional $800 million in military assistance to Ukraine on Wednesday, expanding the scope of the systems provided to include heavy artillery ahead of a wider Russian assault expected in eastern Ukraine

The package, which brings the total military aid since Russian forces invaded in February to more than $2.5 billion, includes artillery systems, artillery rounds, armored personnel carriers and unmanned coastal defense boats, Biden said in a statement after a phone call with Ukrainian President Volodymyr Zelenskiy.

The new package includes 11 Mi-17 helicopters that had been earmarked for Afghanistan before the U.S.-backed government collapsed last year. It also includes 18 155mm howitzers, along with 40,000 artillery rounds, counter-artillery radars, 200 armored personnel carriers and 300 additional "Switchblade" drones.

WHAT WE THINK: More military support for Ukraine will likely ease the fighting in Ukraine and alleviate the war situation quicker than expected. The impact of the war on risk sentiment may ease from now.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.

Fed's Waller: need fast rate hikes, but not a Volcker moment

Notable Snippet: Federal Reserve Governor Christopher Waller on Wednesday said the U.S. central bank needs to raise rates aggressively to fight inflation, but not so abruptly as to stress markets, destroy jobs and push the economy into recession.

But Volcker, Waller noted, had to battle inflation that had been building for six or seven years; the current Fed is dealing with a surge in inflation that only began early last year.

"Right now our main concern is getting these prices down and we can do that without causing a recession," Waller said, noting that he supports raising interest rates by a half-a-percentage point in May and "possibly more" in June and July.

"We don’t need to be shocking anything just to cause a shock...if inflation doesn’t cool off, we’ll keep going; we’ll do what it takes to get inflation back down" he said. "But we can do that in an orderly way without causing a lot of financial market stress."

WHAT WE THINK: Waller (current voter, hawkish) is voicing that the Federal Reserve should not be doing rate hikes that are unannounced and reiterating that they will be vocal about their policy decision. This can be good for financial markets as it allows investors to be prepared ahead of actual Fed policy action.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.
Premier stresses promoting consumption to stabilize economic fundamentals

Notable Snippet: Premier Li Keqiang said that the country will roll out measures to boost consumption, as part of efforts to keep the fundamentals of the economy stable and improve people's livelihoods.

"Consumption is a steady driver of economic growth and bears on ensuring and improving people's livelihoods," Premier Li said on April 13 while chairing a State Council executive meeting.

The meeting decided on measures to counter the impact of COVID-19 and boost the recovery and growth of consumption.

The abundant provision and stable prices of essential consumer goods should be ensured, said Premier Li.

A host of large-scale warehouses with comprehensive functions will be scientifically planned and built on the outskirts of cities to mobilize living necessities in case of emergency, he said.

WHAT WE THINK: The Chinese policymakers remain fearful about the slowdown in the economy in China and are doing what it takes to prop up the economy. New regulations similar to that of the past that brought down sectors are unlikely for now and the time to be invested in China may soon be at hand.

For more actionable content with our levels and views, sign up for our Membership to get the full length version of our Dailies.
SENTIMENT
FX
 
STOCK INDICES
 
Best,
Phan Vee Leung
CIO & Founder, TrackRecord

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