4 Jun 2020


As of New York Close 3 Jun 2020,


U.S. Dollar Index, -0.36%, 97.32
USDJPY, +0.29%, $109.00
EURUSD, +0.57%, $1.1235
GBPUSD, +0.19%, $1.2574
USDCAD, -0.18%, $1.3494
AUDUSD, +0.47%, $0.6927
NZDUSD, +0.90%, $0.6428


S&P500, +1.36%, 3,122.87
Dow Jones, +2.05%, 26,269.89
Nasdaq, +0.78%, 9,682.91
Nikkei 225, +1.29%, 22,613.76


Gold Spot, -1.58%, 1,700.60
Brent Oil Spot, -0.21%, 38.64


USD started the day with continued weakness, led by a strong AUD rally in the Asia session which reached a high of 0.6983. With stops triggered, it then fell aggressively during London hours to hit a low of 0.6856. After sucking in the stubborn bears, it promptly rebounded to close the day above 0.6900. No clear reason could be found for the moves.

U.S. The ISM Non-Manufacturing Index rebounded to 45.4% in May (consensus 44.0%) from 41.8% in April. The key takeaway from the report is that the pace of contraction in the non-manufacturing sector decelerated in May. Things still aren’t good in terms of business activity, but they were evidently considered by respondents to be less bad than what was seen in April. The ADP Employment Change Report estimated 2.76 million private-sector jobs were lost in May versus consensus estimates that were closer to 9.0 million. New orders for manufactured goods declined 13.0% m/m in April, as expected, following a downwardly revised 11.0% decline (from -10.3%) in March. Those weren’t good numbers, but they corroborated the market’s thinking that things will improve as the economy continues to reopen. This outlook continued to fuel the big rebounds in the beaten-down cyclical sectors, as well as foreign equities, some of which have also been aided by talks of fiscal stimulus. Euro held near multi-month highs on expectations the European Central Bank will expand its bond buying programme later in the day to shore up the virus stricken economy. The European Central Bank is widely expected to increase the size of its 750 billion euro ($669 billion) Pandemic Emergency Purchase Programme (PEPP) as early as Thursday.

The Bank of Canada held its key overnight interest rate steady (0.25%, as expected) on Wednesday and said the impact of the virus pandemic on the global economy appears to have peaked, while the Canadian economy seems to have avoided worst-case scenario projections. The Bank said that given improved market functioning, it would reduce the frequency of its term repo operations to once per week and its program to buy bankers’ acceptances to bi-weekly.

S&P 500 extended its recovery rally by 1.4% on Wednesday, as the latest data continued to depict signs of a turnaround in the economy. The Dow Jones Industrial Average (+2.1%) and Russell 2000 (+2.4%) rose more than 2.0%, while the Nasdaq Composite (+0.8%) struggled to keep pace.

In corporate news, Lyft (LYFT 34.44, +2.76, +8.7%) said rides were up 20% in May versus April (but down 70% yr/yr), while Zoom Video (ZM 223.87, +15.79, +7.6%) provided impressive quarterly results and guidance.

Separately, an interesting report from The Wall Street Journal indicated that several executives from the poultry industry were indicted on allegations of price fixing. Shares of Tyson Foods (TSN 60.10, -2.40, -3.8%) fell into negative territory following the report.


After long refusing to explicitly criticize a sitting president, former Defense Secretary Jim Mattis accused Trump on Wednesday of trying to divide America and roundly denounced a militarization of the U.S. response to civil unrest. “Donald Trump is the first president in my lifetime who does not try to unite the American people — does not even pretend to try,” Mattis, who resigned as Trump’s defense secretary in 2018, wrote in a statement published by The Atlantic.

He drew a comparison to the U.S. war against Nazi Germany, saying U.S. troops were reminded before the Normandy invasion: ‘The Nazi slogan for destroying us … was ‘Divide and Conquer.’

He also criticized the use of the word “battlespace” by Defense Secretary Mark Esper and Army General Mark Milley, chairman of the Joint Chiefs of Staff, to describe protest sites in the United States. “We must reject any thinking of our cities as a ‘battlespace,’” Mattis wrote.

IMPACT: Alluding to our comments yesterday on the importance of the “narrative” surrounding the U.S. Armed Forces: ”The reverence allies have for it and the enemy’s fear is a powerful political yardstick that helps the U.S. conduct diplomacy and solves geopolitical issues. Trump could tear the most powerful geopolitical tool by tainting the image of the U.S. Army. This will embolden China’s push within the Pacific and help advance their One-Belt-One-Road initiative.”, it seems that this view concurs with that of key military officials in DC. The impact of this hubris is not going to be immediate, but a gradual erosion in the power of American diplomacy and geopolitical stewardship, inevitably weakening the empire. As America is stuck in a Thucydides Trap (with China), Trump is consistently setting America upon a backfoot.


Snap Inc said it would no longer promote Trump’s account in Snapchat’s Discover section, saying his incendiary comments last week made the account ineligible for the curated section where users explore new content.

Trump’s Snapchat account, which consists mostly of campaign content and does not contain the informal rhetoric he regularly uses on his favored platform Twitter, will remain public and accessible to people who follow it or search for it, Snap said.

Democratic rival Joe Biden, who is seeking to oust Trump in the November presidential election, quickly capitalized on the move. In a video posted to Snapchat, he said, grinning, that he was proud to run for president “and still be on Snapchat.”

Twitter ignited a furor last week by placing labels on several of Trump’s tweets that it said violated its rules on misleading information and glorifying violence, including one which used the racially charged phrase “when the looting starts, the shooting starts.” Facebook declined to take any action on the same posts, prompting an employee protest on Monday.

IMPACT: Shares fell 2.4% after the announcement. Snap did not specify which of Trump’s comments it considered inciteful, but Chief Executive Evan Spiegel told staffers in a memo on Sunday he would “walk the talk” on divisive content and the “legacy of racial violence and injustice in America.”

Drawing from our comments yesterday: “In today’s world, Politically Correct, Morally Responsible, and Environmental Friendliness are key attributes Millennials and Generation Zs hold onto, turning activists if these are violated. Coupled with the network effect of social media, ideas and causes can spread like wildfire. This rift of leadership may be a crack that can cascade into something big, do keep an eye on the development as tech stocks seem to be walking on thinning ice as the days go by.” This narrative is taking shape as the days go by, with SNAP jumping on the Politically Correct & Morally Responsible bandwagon to appeal to its large Millenial and Gen Z base.


Australia will give eligible residents A$25,000 ($17,323) to build or significantly renovate their homes, Prime Minister Scott Morrison said on Thursday, as Canberra moves to revive a construction sector badly affected by the virus pandemic. Dubbed HomeBuilder, the package worth A$680 million (US$471 million) is Australia’s fourth economic stimulus package as it seeks to repair an economy that is now in its first recession in 29 years.

Morrison said the package would support jobs and allow people to build a family home, a long-held dream for many Australians.

IMPACT: Although the size of the stimulus seems small relative to the incessant monetary bazookas being launched by global central banks over the course of the virus crisis, the targeted scope of the package sparks off a broader trend we believe will play out in time to come, “Countries Will Build Their Way Out Of This Crisis”. The effectiveness of monetary policy is waning and countries are aggressively pursuing the fiscal side of things, hence the introduction of Modern Monetary Theory (largely fiscal in nature). With fiscal measures, construction will be the name of the game as it fulfills several key roles, 1. Provide Tons of Jobs 2. Increase Infrastructure for Productivity 3. De-Globalization requires reshoring and rebuilding of domestic supply chains.

These are inflationary in nature and will bode well for hard commodities and commodity-related currencies in the long run (AUD).


ECB Meets Later Today

The European Central Bank is widely expected to announce a ramping up of its pandemic emergency purchase program (PEPP) later today as the Eurozone economy slowly emerges from weeks of lockdown. But as the Euro rallies on the prospect of a double dose of fiscal and monetary stimulus, a smaller-than-anticipated increase in the PEPP and signs of opposition to further policy easing may spoil the party.

So the question being asked now is by how much will the Bank increase the size of the PEPP. The most likely outcome is something between €250 and €500 billion. Anything less than €250 billion is sure to leave markets disappointed and may pose a setback for the Euro, which has been bolstered by economic recovery hopes. Although there is a real risk that countries such as Austria and the Netherlands may try to scale down the package, that’s not the only problem facing the Euro. A court in Germany recently ruled that the ECB’s debt-crisis era asset purchase program (APP) is in violation of the German constitution, threatening to cut off the Bundesbank’s participation in that program.

The most positive outcome for the markets would be for the Bank to not only add another €500 billion to its emergency program but to also scrap the rule on the capital key, which requires government bond purchases to be made in proportion to the size of member states’ economies. This has meant German bunds have made up a larger portion of the ECB’s purchases even though countries like Italy would benefit more from having a greater share.


OVERALL SENTIMENT: Another day, but the same two words — relentless rally. With no significant news to drive the price action, the market did what it has been doing of late i.e. go up. It’s pretty clear that the sentiment is resilient and strong although most market commentators are hating the rally. Be on the right side or be on the side lines.


Bad News is Not News

There will be times when the market just keeps going regardless of what the world throws at it. Bad news is not news, no news is good news, and good news is great news! This pretty much sums up the market sentiment of late.

For now, the bulls are strongly in charge. It trades like a bubble, and no one seems to be able to pinpoint the reasons why it trades so strongly. Almost every reason for the stock market to fall is there — US-China tensions, US protests, slowing economies globally, record unemployment everywhere, but the bull rages on.

Faced with markets like this, you either get involved or get out of the way. Standing in the way will only be asking for trouble.



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