INVESTMENT CONTEXT
PROFZERO'S TAKE
- Markets reacted positively to the Fed's 75bps rates hike on June 15. Traders in particular appreciated the positive tone on 75-50bps increase next month
- According to the latest Fed forecast, inflation is expected to top 4.3% by the end of 2022 and 2.7% in 2023; unemployment is said to reach 3.9% in 2023 and 4.1% in 2024
- On June 16 the Bank of England raised interest rates by 25bps to 1.25%
- U.S. retail spending including food and fuel decreased by 0.3% in May, against analyst expectations of 0.2% growth
- Russia increased the initial cut of gas supply on Nord Stream pipeline to 60%; supplies to Italy were reported by energy giant ENI to be down 15% already as of June 15
- The leaders of France, German and Italy arrived on June 16 in Ukraine to discuss the country's bid to join the EU
- Blockchain assets mildly joined the broader markets rally. BTC regained USD 22k and all Layer-1 altcoins jumped by 10% on average
PROFZERO'S TAKE
- "Dead cat's bounce" is a rather grim traders' jargon for abrupt asset price spikes after a steep selloff. ProfZero is not buying the broader narrative of an equity comeback - even yesterday's rally, while remarkably setting Nasdaq once again above 11k threshold, looks set to be fizzling out already by today, as live future quotes point to a rather harsh opening, with the S&P 500 and Nasdaq falling 1.78% and 2.24% in pre-market - in fact, giving back all yesterday's gains. If we look carefully, the very same thing happened on April 29 this year - Fed Chair Jerome Powell announced a widely expected 50bps rate hike; markets rejoiced for literally one session, before engaging one of the most spectacular one-day sell-offs since the onset of the pandemic in Q2 2020.
The difference between a good trade and a bad trade is not in its profitability. Trading is not a one-day endeavor. It is not a daytime job. As shared with ProfThree back in the day, trading is a vocation. And like all vocations, it requires but one thing: consistency. ProfZero consistently called for calm, and to set eyes on value. And as of now, value is simply nowhere to be found, as the joint forces of commodity record-high prices, energy transition, China's fading role as "world's engine of growth" and crawling uncertainty in fixed income markets are questioning the very industrial model our reality is built upon.
"Who you gonna call?" More than Ghostbusters, ProfZero would love to see a political and industrial class of reliable, committed agents gauging head-on re-industrialization, de-materialization and new energy. Too much too ask on a post-rally hangover morning?
- ProfZero is still kind of wondering what ultimately triggered the Fed's 75bps rate hike, after that no later than in May it committed to a series of 50bps raises in its upcoming meetings this year. Was it the negative surprise on inflation (8.6% in May vs. 8.3% in April)? Or was it rather June 13 market meltdown? And strictly related - are we going to be "surprised" again, when June inflation readings will be circulated in a couple of weeks?
- According to EIA, global demand for crude oil in 2022 will sit just below 101mboe/d - substantially restoring pre-pandemic consumption. A slight 0.7mboe/d oversupply would then act as trigger for prices to cool down - even considering 1.3mboe/d missing barrels from Russia. The picture for natural gas however looks less bright. Russia's acceleration on volume curbs to Europe is set to exacerbate pressures on energy transition - yet undermining near-term supplies right amidst stock-up season. European leaders have turned to new partners in Algeria, Congo, Egypt and Israel amongst others, and loosened restrictions on coal to endure the next winter season; yet the plan to have 45% of the energy mix from renewables by 2030 hinges on immediate layout of plants across the continent. Perhaps ProfZero did miss some news out there?
- Blockchain assets only timidly participated June 15 rebound, as investors keep shunning the riskiest corners of the market