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On March 29th, Fox News released a poll showing that nearly two-thirds of American voters surveyed are dissatisfied with President Trumps administration, the highest disapproval rate during his two terms. The conservative media outlets poll of 1,001 registered voters showed a 59% disapproval rate for Trump, an 8-point increase from a year ago, marking not only the highest disapproval rate since the start of his second term but also surpassing the record set during his first term; the approval rating, however, fell from 49% a year ago to 41%. The poll randomly sampled respondents from the U.S. voter registration list. Among Republican supporters, Trumps approval rating was 84%, down 8 percentage points from the same period last year, the lowest since the start of his second term. His disapproval rates among Democratic voters and independent voters reached 95% and 75%, respectively.Ukrainian President Zelensky: I have arrived in Jordan for an “important meeting”.On March 29th, amidst the global energy crisis and soaring fuel prices, Egyptian Prime Minister Madbouly announced on the 28th a series of energy-saving measures to cope with the impact. Egypt will slow down the implementation of large-scale national projects involving high gasoline and diesel consumption for at least two months, while reducing fuel rations for all government vehicles by 30%. Madbouly also stated that, except for the service and manufacturing sectors, Egypts public and private sectors will implement remote work every Sunday in April, the first working day of each week. Given Egypts heavy reliance on energy imports, the government had previously raised fuel prices and public transportation fares to cope with global energy market volatility.March 29th - According to disclosures by the Hong Kong Stock Exchange, Manycore Tech Inc., a space intelligence unicorn company, updated its post-hearing information set, signifying that the company has successfully passed the Hong Kong Stock Exchanges listing hearing. JPMorgan Chase and CCB International are the joint sponsors for this IPO. If the listing is successfully completed, Manycore Tech will become the "worlds first listed space intelligence company," and also the first of the "Six Little Dragons of Hangzhou" to complete an IPO.March 29th - Starting today (March 29th), many European countries have begun observing daylight saving time, meaning that trading hours in European financial markets will be one hour earlier than during winter time. Specifically, starting next Monday, European stock trading hours will be 15:00-23:30 Beijing time. The release times of economic data from various European countries will also be one hour earlier than during winter time. Please take note.

Rising Rates and Volatility are Features, Not Bugs: Top Trade Opportunities

Cameron Murphy

Apr 19, 2022 10:37


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The S&P 500 outpaced the Nasdaq 100 in the first few months of 2022, EUR/USD rates fell below 1.1000, and the US Treasury yield curve (2s10s) went into inversion territory, as predicted in the 1Q'22 Top Trading Opportunities. While one of the primary causes – Russia's invasion of Ukraine and the accompanying crisis in commodities markets – wasn't on our metaphorical bingo card, the other price drivers were central banks' rapid interest rate hikes and the end of fiscal stimulus.


The primary price drivers from 1Q'22 are likely to continue into 2Q'22. The Federal Reserve is increasing interest rates more aggressively, following a chorus of other major central banks in reversing monetary easing. When it comes to greater fiscal stimulus, governments are "tapped out." Although the COVID-19 outbreak is waning, lockdowns are still occurring on a regular basis (e.g. China). Even if Russia concludes its conflict with Ukraine, the consequences for supply networks would last for months.


Concerns over decreasing economic growth in developed nations, as well as greater volatility in 2Q'22, imply that more volatility is on the way. Risk appetite will fluctuate throughout the year before becoming more positive later in the year.


As 2Q'22 begins, the ratio has been steadily retracing from a high of 1.31 before rising. However, the possible double bottom that formed against the 1Q'21 and 4Q'21 lows remains legitimate, indicating that the transition from growth to value stocks is still in its early stages. The long S&P 500/short Nasdaq 100 strategy remains popular, with an entry around 1.22 and a climb to 1.35 expected in the following months.


The argument behind predicting a US Treasury yield curve inversion is simple: when the Fed decreases stimulus, the short-end of the yield curve tends to see higher rates, while the long-end tends to see lower rates as growth and inflation expectations – intrinsically incorporated in the long-end – fall down.


In the 2s10s spread, a further flattening of the US yield curve is still projected, heightening recession worries for late-2022/early-2023. Inversions of the yield curve, on the other hand, seldom endure long, therefore this viewpoint has a short shelf life (also, after yield curves invert, stocks tend to bottom).


We continue to believe that the gap between the Federal Reserve and the European Central Bank will widen in the coming months, and that the divergence between US and Eurozone inflation rates will weaken the EUR/USD exchange rate even more. The ECB may hike rates later this year, but the Fed may have already lifted rates by 100 to 150 basis points by that time. Early in 2Q22, EUR/USD rates are likely to return to the 1.0806 low from 1Q22, followed by a return to the 1.0636 low from 2020. (coinciding with the DXY Index move above 101.00 before topping).

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