Comment of the Day
Video commentary for May 17th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: reversionary rally underway as China suggests support for the tech sector is forthcoming, dollar, gold and oil ease, bond yields continue to rise, high yield spreads continue to trend higher. Fed remains committed to tightening.
A Bull Case Is Forming Around Bearishness at Hedge Funds, Quants
This article from Bloomberg may be of interest to subscribers. Here is a section:
The violent selloff has forced many systematic macro strategies, including trend followers and volatility-targeted funds, to slash equity holdings. Last week, their exposure fell to the bottom of a five-year range that even if stocks resume selling, their unwinding would be relatively subdued, according to Morgan Stanley (NYSE:MS).
For instance, should the S&P 500 drop 5% in one day, the cohort would need to offload less than $20 billion of stocks in the follow week, analysts including Christopher Metli estimated. That’s down from an expected disposal of over $100 billion at the start of the year.
Goldman’s long/short hedge fund clients saw their gross leverage falling 12 percentage points during the week through Wednesday, the largest reduction over comparable periods sine at least 2016, according to data compiled by analysts including Vincent Lin.
Light positioning by hedge funds and quants is among indicators watched by Goldman’s Scott Rubner to determine whether investors have capitulated. With cash holdings elevated in mutual funds and day traders retreating, one missing ingredient to call the all-clear is a reduction of stocks in US household holdings and retirement accounts, he says.
“Tracking this cohort is my single and most important focus from the lows here,” he wrote in a note last week. “We have not capitulated, it is very slow on the way out.”
My view - There is still a great deal of uncertainty about the trajectory of monetary policy and the continuing impact of the war in Ukraine. The challenge for investors is to determine if this has been adequately priced in by the pullback to date.
Pound Jumps Most in 17 Months as Traders Eye Tight Labor Market
This article from Bloomberg may be of interest to subscribers. Here is a section:
“People don’t need too strong an excuse to buy sterling right now,” said Geoffrey Yu, a strategist at BNY Mellon (NYSE:BK). “Even a modicum of good data or even data that isn’t as bad as previously expected can see them coming back because of valuations.”
The move accompanies a broader dollar decline, with the greenback underperforming all Group-of-10 currencies bar the Japanese yen as risk sentiment rebounded. The Bloomberg Dollar Spot Index slid 0.5%, a third day of declines and the longest losing streak since March.
My view - The Pound is rebounding from the lower side of a lengthy medium-term range just as the Dollar Index is encountering some resistance at the upper side of its range. As risk appetite returns there is scope for both to unwind their respective overextensions.
China Economy Czar Vows Support for Tech Firms After Crackdown
This article from Bloomberg may be of interest to subscribers. Here is a section:
China’s top economic official gave an unusual public show of support for digital platform companies Tuesday, suggesting Beijing may be ready to let up on a year-long clampdown on technology giants as it battles a slowing economy.
The government will support the development of digital economy companies and their public listings, Vice Premier Liu He, who is President Xi Jinping’s most senior economic aide, said after a symposium with the heads of some of the nation’s largest private firms. Baidu Inc. founder Robin Li, Qihoo 360 Technology Co.’s Zhou Hongyu and NetEase Inc (NASDAQ:NTES). chief William Ding were among the tech luminaries spotted at the forum, according to a video posted online.
Liu’s remarks reported by state media were short on detail but signal further easing of the regulatory risk for China’s technology behemoths including Baiduand Tencent Holdings (HKG:0700, OTC:TCEHY) Ltd., as investors await clues on whether a rout in their shares is near an end. The Hang Seng Tech Index rallied as much as 6% Tuesday on optimism the meeting would affirm Beijing’s intention to dial back some of its restrictions.
My view - China’s 7-day repo rate continues to trend lower. That’s supports the view the government is supporting the economy in a tacit manner. Liu He turning up to the symposium was already good news for the tech sector. Receiving overt verbal support was a bonus. Together with the supports for first time home buyers announced yesterday, this suggests China is aware of the risks from tightening too much and is ready to be more generous.
Please note - variable hours in late May and early June
I am flying to Ireland on May 25th ahead of The Chart Seminar in London on June 6th and 7th. I’m looking forward to taking some time off since it feels like a long time since I’ve had more than a couple of days break in a row. Between those dates updates will be sporadic but I aim to post regular audio/video updates.
The Chart Seminar June 6th & 7th in London sold out
Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
This event is sold out. A waitlist has now begun.
To reserve your place please contact Sarah@fullertreacymoney.com.
Delegate Rates:
Full fee: £1799
Each additional delegate: £850
Fuller Treacy Money Subscriber rate: £850
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