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Comments of the Day
26 March 2021
Video commentary for Marsh 25th 2021
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Dollar strengthens on growth and yield outlook, treasuries at first area of resistance, Wall Street quite, China risk rising for global brands, bitcoin becoming inconsistent,
Email of the day on bidding below the market.
Thank you, Eoin, for your work and sincerity about your portfolio. If I understand correctly, you have bids under the spot for gold due to probability that the yields shoot higher, consequently pressing the gold further down?
If that's correct, would you argue the same for BTC/ETH?
Eoin Treacy's view
Thank you for this question which may be of interest to other subscribers. After the flash crash in 2010 it became clear that short-term outsized moves are not only possible but also likely.
The vast majority of trading is now algorithmically based. My central point is that an algorithm can be taught what to buy using an infinity of different metrics. However, there is only a very small number of ways of telling a computer how much to buy. That’s particularly true when we are talking about very short-term trading. It basically comes down to volatility and interest rates.
This limitation in how positions are sized creates herding activity in automated markets in just the same way we would expect from human controlled markets.
The Euro's Viral Turn Is More Than Pseudoscience
This article by John Authers may be of interest to subscribers. Here is a section:
Why? The clearest reason is the virus, which still dominates all of our lives. The broad narrative of the European struggle with the pandemic and how it compares with Americans’ battle on the other side of the Atlantic is roughly accurate. Neither has done as well in combating Covid as countries with wealth and advanced health systems should have done, but the EU record has been appreciably better throughout. That is now beginning to shift. The chart below shows the number of new cases recorded each five days. To allow an easy comparison, I multiplied the U.S. number to account for the EU’s larger population. Europe succumbed to its second wave a little ahead of the U.S., but this is the first time since Covid-19 appeared that new cases have risen in the EU while falling in America. This is plainly concerning.
The second big reason is wrapped up in the bond market and expectations for inflation. Treasuries tend to yield more than German bunds, and hence attract funds to the U.S., strengthening the dollar. This differential plummeted in the first month of the Covid scare — but at 2 percentage points it is now roughly back to where it started last year. The dollar has strengthened with it. The market has more confidence in the Federal Reserve’s ability to create inflation than it does in the European Central Bank’s, and so the dollar is rising:
Eoin Treacy's view
The currency markets have spent the last year trading around the idea of the which country is doing best in the pandemic. The traditional metrics of money supply and interest rate differentials are less important at present, than the outlook for recovery.
The Renminbi trended higher from May as it became apparent China had successfully contained the spread of the pandemic. Around the same time the Euro began to trend higher because there was the perception the EU was doing better at containment. More recently the US Dollar has rebounded because it is further along in its vaccination program than other major currency issuers. That rationale also helped to power the Pound’s recovery until quite recently.
Shipping Giants Look at Arduous Reroute to Avoid Blocked Suez
This article from Bloomberg may be of interest to subscribers. Here is a section:
Loadings scheduled from Qatar’s Ras Laffan export terminal may experience “considerable delays” if the situation doesn’t improve by the end of this week, according to Rebecca Chia, an analyst at market information group Kepler.
The congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment -- just shy of 40 vessels -- according to Peter Sand, chief shipping analyst at trade group BIMCO.
“Unless the situation is resolved very quickly we will soon see ships sailing south of Africa,” Sand said. “Oil tanker rates are terribly low at the moment so that’s where there’s most upside. Then some upside for dry bulk.”
Eoin Treacy's view
The global supply chain has a number of chokepoints. Panama has invested heavily in providing additional capacity for its canal. Egypt has been much less proactive in planning for the future. The current blockage of the canal is a headache and has the capacity to cause short-term disruption.
Some estimates are stretching the solution time to weeks rather than days. Considering how essential the shortcut is to the global economy every effort will be made to ensure the delay is a short as possible. Generally speaking, teams can perform the impossible in short periods of time provided they are given the resources required so I doubt this is an issue we will be worrying about in a few weeks.
Eoin's personal portfolio: stock market index short closed
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.
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