The storm before the calm…

The market is awaiting the release of the US jobs number anxiously and volatility should spike immediately after the release of the data.

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TRACKRECORD DAILY

6 min readJul 2, 2021

The market is awaiting the release of the US jobs number anxiously and volatility should spike immediately after the release of the data. However, be aware that the US celebrates their Independence Day on Sunday and the US market is closed on Monday.

Of course, speculators are all pumped up for a day of high volatility and frantic trading but the storm could pass fairly quickly if the data does not present any new information to change the current narrative of a growing job market that is neither too hot, nor too cold.

Volumes may start to dwindle as the market participants take off for the long weekend. Unless there is a big surprise on the data release, market activity could fall off fairly quickly as the trading session wears on.

MARKET OBSERVATION

Higher Oil Price — a stealth tax on the masses?

Oil prices have been rising relentlessly since making a bottom last year and it certainly has been adding to inflation pressures. With the global economy re-opening, demand is expected to increase while OPEC+ seems reluctant to increase production to satisfy the growth in demand.

Should Oil prices continue to rise, the market would, of course, talk about the inflationary effects of elevated oil prices and fears of the Federal Reserve tapering would also increase. However, higher energy and fuel prices increase the cost of living for the masses and reduce their disposable income.

The US consumer is a big part of the US economy, and if they should have less spending power, that could be a headwind for the economy. The US is less vulnerable to spikes in oil prices as since the growth of their own domestic production some years back, but the US consumer will still be affected by this stealth tax.

DAY AHEAD

Much anticipated US Non-Farm Payrolls to be released today. Market expects it to show +720,000 jobs added last month, and a better than expected release will increase fears that the Federal Reserve will taper sooner rather than later.

OPEC+ meeting on production cuts was extended and a decision is expected today.

TRADING PLAN

1. Currencies:

Keep short USD and long NZD, & CNH. Remain short USD vs NZD & CNH. USD is inexplicably strong hence caution is warranted. Stay short but vigilant.

2. Commodities: Uranium — Fundamentals remain intact. Stay long and patient.

Key risks: Higher US yields that will lead to a strong USD.

3. Equities:

Equity Index: Long Nasdaq futures. Support is at 12,950–13,000.. Stay long and patient while looking for substantial dips to buy.

Single Stocks: Stocks continue to grind higher. Don’t miss out on the asymmetric opportunities we have highlighted in our TrackRecord Model Portfolio.

Key risks : Higher US yields due to inflation fears and geopolitical worries are the key risks.

WHAT HAPPENED YESTERDAY

Market movements as of New York Close 1 Jul 2021

The U.S. Dollar Index rose 0.1% to 92.57 on the day with comments on rate hikes and tapering made by the IMF. The IMF said that “The Federal Reserve probably will need to begin raising interest rates in late 2022 or early 2023 as increased government spending keeps inflation above its long-run average target.” FOMC committee member, Patrick Harker (voter in 2023, centrist) said he supports the start of tapering bond purchases later this year and favours trimming asset purchases by $10 billion per month over the course of the year, reducing the buying of US Treasuries and Mortgage-Backed Securities equally. AUD traded weak again as Covid-19 fears grew on a day of broad US dollar strength. However, expect this weakness to cease as government measures have been put in place for the virus situation to subside.
US ISM Manufacturing PMI came in a touch softer at 60.6 than the expected 61.00. The Prices Paid component spiked to 92.1 (expected 87.0), the highest level since 1979, showing that inflation pressure remains high. US jobless claims were lower than expected (364k vs 388k expected) but Continuing Claims edged higher to 3,469K (expected 3,340K, prior 3,390K).
Expect another quiet day before the release of Nonfarm Payrolls to be released later today.
The US 10-year Treasury Bond (1.48%) and 30-year yield (2.07%) rose 3 &1 basis points respectively while the 2-yr yield remained unchanged.
OPEC+ delayed its ministerial meeting until Friday to hold more talks on oil output policy after the United Arab Emirates blocked a plan for an immediate reduction in supply cuts. Early indications of a slowed increase in oil production output pushed oil prices higher, with Brent rising more than 1% on the day.
The S & P 500 (+0.52% to again yet another record high) & Dow Jones Industrial Average (+0.38%) closed higher again while the Nasdaq (+0.04%) & Russell 2000 (+0.07%) inched a little bit higher as the grind higher in risk assets continues.

HEADLINES & MARKET IMPACT

U.S. Wins International Backing for Global Minimum Tax

Notable Snippet: The U.S. has won international backing for a global minimum rate of tax as part of a wider overhaul of the rules for taxing international companies, a major step toward securing a final agreement on a key element of the Biden administration’s domestic plans for revenue raising and spending.

Officials from 130 countries that met virtually agreed Thursday to the broad outlines of the overhaul, including all of the Group of 20 nations. It would be the most sweeping change in international taxation in a century. They include China and India, the large developing countries that had previously had reservations about the proposed overhaul.

Those governments now will seek to pass laws ensuring that companies headquartered in their countries pay a minimum tax rate of at least 15% in each of the nations in which they operate, reducing opportunities for tax avoidance.

The deal also reportedly includes a framework to eliminate digital services taxes, which targeted the biggest American tech companies.

Taiwan lashes out at Beijing after Chinese President Xi Jinping pledges ‘complete reunification’

Notable Snippet: In a speech to mark the CCP’s 100th year, Xi called “reunification” with Taiwan an “unswerving historical mission” of the party and a “common aspiration” of the Chinese people. The audience erupted in applause in response.

Taiwan has also become a contentious issue between the United States and China. The U.S. has in recent years moved closer to Taiwan — angering Beijing, which considers the island to have no rights to conduct its own diplomacy.

China’s crackdown on its tech giants isn’t a move to ‘take the wings off’ its entrepreneurs, says strategist

Notable Snippet: “The Chinese experience has been instead, to say to entrepreneurs, go ahead and give this a try. And then we’ll step in there after we see how it works and decide how to regulate it,” said Rothman. “And I think that’s what they’re doing now.”

China’s technology companies have been largely unencumbered by regulation as they grew into some of the world’s largest corporations. That’s changed in the past year as regulators have cracked down, especially those which operate in the financial sector.

Much of the scrutiny has been around Alibaba and its financial technology offshoot Ant Group, whose massive initial public offering was pulled by regulators. Authorities, however, recently approved Ant Group to operate a consumer finance company, a move which experts said was a positive sign for Ant.