December 2，2024

Survey: Dollar index’s rally likely to continue at least until early next year

According to a Bloomberg survey, the dollar will rise in early 2025 before facing shocks such as accelerating inflation and soaring fiscal deficits.

Entering 2025, 89 respondents were divided on the various risks that could have the biggest impact on the dollar’s gains. Deficit concerns accounted for the largest proportion of responses, at 38%. Another 32% of respondents believed that if Donald Tru-mp, who will take office in January, implements the tariffs he promised during the campaign, the resulting weak growth in the United States (US) and the world will put pressure on the dollar.

The Bloomberg Dollar Spot Index just ended its longest consecutive weekly rise in a year and is now at its highest level since 2022 as traders believe that Trump’s package of policies will eventually push up the dollar.

However, respondents pointed out that while these policies may create conditions for the dollar to appreciate in the short term, their long-term blow to the economy will ultimately curb the currency’s appeal.

The dollar index typically underperforms in December _By Bloomberg

This was the case during Trump’s first term. The dollar surged nearly 5% from his 2016 election victory to his inauguration the following January as Treasury yields soared. However, the cornerstone asset fell sharply in 2017 as the U.S. economy lost momentum while growth in Europe picked up.

Nevertheless, two and a half times more respondents expected a stronger dollar than bears in the short term. About 70% of respondents believed that Bloomberg’s dollar index would be higher in a month.

Two key themes boosted sentiment in the dollar, even though the dollar index typically underperforms in December.

Respondents and investors expect U.S. Treasury yields to be supported by the Federal Reserve’s gradual rate cuts, which will promote investors to buy dollars to hold U.S. assets. They also mentioned that the large amount of uncertainty surrounding Trump’s future economic policies may lead to rising safe-haven demand, which will drive some investors to buy dollars.

>> “We like the dollar and the core factors supporting the dollar’s rise remain intact,” said Peter Vassallo, portfolio manager at BNP Asset Management. “We added to our long dollar cash and options after the U.S. election.”

The euro fell to its lowest level in two years against the dollar on Friday, weighed down by expectations that the European Central Bank will aggressively ease monetary policy to boost growth in the region. This is in stark contrast to the United States, where the Federal Reserve is expected to cautiously push for rate cuts in the face of resilient economic data.

December 2，2024

Nouriel Roubini is aligning his portfolio around the prospect of worsening inflation under Trump

November 26, 2024

U.S. debt sustainability poses top risk to financial stability

Key points:

• “U.S. debt sustainability was the top risk cited by respondents to this survey, followed by escalating tensions in the Middle East and policy uncertainty,” the Federal Reserve said in its semi-annual Financial Stability Report (FSR).

• The banking sector generally remains “sound and resilient,” the Fed said, with capital ratios hovering near record levels and liquidity high. But in financial markets, the Fed found that valuations remain high and liquidity “generally low.”

• The new report comes shortly after the 2024 US Presidential Election, which has already had a major impact on US financial markets as investors expect the new administration to reduce regulation.

The excessive debt burden of the US (US) government could lead to fiscal unsustainability, which is now seen by its monetary authorities as the biggest risk to financial stability.

In its semi-annual Financial Stability Report (FSR), the Federal Reserve (Fed) said: “U.S. debt sustainability is the top risk identified by respondents in this survey, followed by the tense situation in the Middle East and policy uncertainty.” ”

The report, a survey of financial market contacts conducted by New York Fed staff from the end of August to the end of October, includes the central bank’s assessment of development risks in four main areas, including asset valuation, corporate and household borrowing, financial sector leverage and financing risk.

More than half of the respondents (54 percent) see national debt sustainability as a prominent risk, up from 40 percent six months ago. The survey found that if there is a recession, more debt issuance by the Treasury Department (USTD) could start to crowd out private investment or limit policy responses.

The Fed said the banking sector remained “robust and resilient” overall, with capital ratios hovering around record levels and high liquidity. But in financial markets, the Fed found valuations still high, liquidity “generally low” and hedge funds at or near all-time highs. In particular, the central bank noted a steady decline in the liquidity of life insurance companies amid the increased use of alternative investments.

On the household side, the Fed said credit card and auto loan delinquencies are above average, especially among households with lower credit scores. Overall, they consider vulnerabilities related to household and corporate debt to be “modest”. “These borrowers represent a relatively small percentage of total debt, and their high delinquency rates are reported to partly reflect the increased borrowing of some households during and after the pandemic, rather than a sudden and general weakening of household repayment capacity,” the report said. ”

The central bank said funding risks had eased but remained “noteworthy”. The report noted that stablecoin assets have “grown substantially” since the last report, with a total market capitalization of more than $170 billion as of early November, just below the all-time high set in April 2022. “These digital assets are structurally vulnerable to runs and lack a comprehensive federal prudential regulatory framework,” the report said. ”

The new report was released shortly after the 2024 US Presidential Election, which has already had a significant impact on U.S. financial markets, as investors expect the new administration to reduce regulation and potentially increase the deficit.

With the support of President-elect Donald Trump, Bitcoin soared to nearly $100,000. The S&P 500 and tech-heavy Nasdaq 100 have been breaking records, while U.S. Treasuries have been falling as economic fundamentals remain strong prompting investors to downgrade their expectations for a sharp rate cut by the Federal Reserve.

November 20, 2024

U.S. dollar index
As the rally slows, the US dollar will enter a choppy water

Some key market indicators suggest the dollar’s gains may be stabilizing as bullish sentiment sparked by the US presidential election fades.

The world’s reserve currency has been rising since late September, partly due to US President-elect Donald Trump’s plans to raise tariffs and concerns that his other agenda will stoke inflation and prevent the Federal Reserve from cutting interest rates.

The dollar index fell for a third straight day on Tuesday after rising to a two-year high last week. Momentum indicators suggest further gains may be limited in the short term. Traders said investors’ bets have become less one-sided and views on the direction of currencies have become more cautious.

Speculators continue to be long the dollar after the U.S. election results, holding about $17.7 billion in long positions _By Bloomberg

>> Anthony Foster, head of spot trading at Nomura International, said: “The dollar’s super-strong performance after the U.S. election has definitely come to an end, and it’s going to be a rough water next. Sentiment on the euro is very mixed here, with some talking about parity and below parity, and others thinking that the euro can be bought at a bottom. We have seen a number of accounts that have taken profits on euro shorts, but by no means all of them. And investors’ new openings on the yen are largely two-way.”

>> Garfield Reynolds, strategist at Bloomberg Intelligence, said: “From the perspective of relative yield dynamics, the dollar has rebounded too much after the election and will find it difficult to recover to its recent peak level in the short term.”

>> “Over the past week, there has been a net sell-off of the dollar overall globally,” said Riraj Asafle, head of Asia sales trading at JPMorgan. “Asset managers bought the dollar slightly against the euro and sterling, but this was offset by macro funds selling the dollar against the euro.”

Of course, many on Wall Street still expect the dollar to rise further. Hedge funds, asset managers and other speculators have been increasing their long positions in the dollar. They hold about $17.7 billion in bullish contracts, according to the latest data from the Commodity Futures Trading Commission as of Nov. 12.

Goldman Sachs Group Inc. strategists this month abandoned their long-held view of a weaker dollar, now believing the dollar will remain strong “for longer”; they say Trump’s protectionist policies could reignite inflation and cause the Federal Reserve to slow its pace of rate cuts, which would push the dollar’s trade-weighted index up about 3% next year. Morgan Stanley, on the other hand, sees the dollar’s range widening through 2025, but in an upward direction.

November 13, 2024

Basket of “Trump trade” assets stabilizes as doubts grow about whether campaign promises can be fulfilled

Key points:

•  After an initial rush into the “Trump trade,” some investors are reducing their positions and starting to question – can Donald Trump’s tariff proposals really be fulfilled?

•  The dollar index gave up most of its election-fueled gains at the close on Thursday and traded little changed on Friday. Treasury yields also narrowed their range to a few basis points after two days of volatility.

•  These developments suggest that market volatility will increase as investors shift to realistic assessments of how likely Trump’s campaign promises are to be fulfilled, and divergences are beginning to emerge.

November 08, 2024

Goldman Sachs: Trump’s election will prompt China to accelerate its pace of shifting its growth focus to domestic consumption

Key points:

• Higher U.S. tariffs on Chinese (CN) goods could weigh on the latter’s economic growth, but also force China to shift its growth engine toward long-awaited domestic consumption, Goldman Sachs Group Inc. economists said.
• Beijing will be forced to step up fiscal support to further boost domestic demand if tariffs increase, analysts led by Chen Xinquan said in a research note on Friday.
• This year’s wave of government stimulus — including a home appliance trade-in program and property relief measures — has already shifted the main source of growth toward the domestic market next year, they said.

Higher tariffs imposed by the United States (US) on Chinese (CN) goods could weigh on the latter’s economic growth, but will also force the world’s second-largest economy to shift its growth engine toward long-awaited domestic consumption, according to Goldman Sachs.
Analysts led by Chen Xinquan said in a research note on Friday that if tariffs increase, Beijing will be forced to step up fiscal support to further boost domestic demand. They said this year’s wave of government stimulus — including home appliance trade-in programs and real estate relief measures — has already shifted the main source of growth to the domestic market next year.
“If Chinese goods face higher US tariffs next year, this will intensify the shift toward domestic consumption,” the researchers wrote.
Analysts and investors increasingly believe that Chinese officials will turn more to consumption only if the trade situation weakens further. Shan Weijian, executive chairman of PAG and a veteran Asian investor, also said that the tough external environment will prompt officials to prioritize increasing consumption to drive economic growth.
Since 2021, China has identified shrinking demand as a key challenge and has repeatedly said it will promote consumption. Many economists, including policy advisers and those in the private sector, have proposed handing cash to households to boost spending over the past few years, but so far there has been no sign that Beijing will take that advice.
Organizations including the International Monetary Fund have also called on China to rebalance its economy away from heavy reliance on investment and trade. The United States has also joined the ranks, criticizing China’s economy for oversupply. For Beijing, growing U.S. hostility and measures to restrict China in key technologies will only strengthen the government’s priority of strengthening technological self-reliance and manufacturing.
U.S. voters will go to the polls on Tuesday to choose between Donald Trump and Kamala Harris for a new inflation. The former president said he might raise tariffs on all Chinese goods to more than 60% if elected.
Goldman Sachs economists believe that if Trump is elected president, he will impose a 20% tariff on Chinese goods, reducing the Asian country’s GDP by 0.7 percentage points and hitting capital formation and exports. In this context, they also expect China to tolerate a weaker yuan to soften the blow, expand programs to replace household goods and corporate equipment, and provide targeted cash assistance to some households.

Preparing for the Election Day Shock: The U.S. Stock and Bond Exchange Market Has Entered a “Fighting State”!
 Source: Finance Associated Press
 
Four major rights and benefits packages, which will be given when you open an account
　　As polls continue to point to a fierce contest in the U.S. presidential election, U.S. stocks, the U.S. dollar and Treasury yields retreated on the first trading day of the election and the Fed’s “super week.” At the same time, traders across the asset sector are in the final pre-election mode……
　　In the run-up to Tuesday’s vote, traders in different markets appear to be deciding to stay on the sidelines as a series of polls show that the gap between Republican presidential candidate Donald Trump and Democratic presidential candidate Kamala Harris remains small. The results of the vote could be controversial and could even end up delaying the counting of votes for weeks or even months. For many, this means one thing – market volatility is bound to climb.
　　Another factor that has prevented traders from making higher risk bets at the start of the week is that there are a host of other market-moving news catalysts this week in addition to the election – after Election Day, there will be a Fed decision and Powell’s press conference soon after Election Day, where he will detail the Fed’s future interest rate path. And a large number of U.S. companies will still report three quarterly results.
　　Chris Larkin, a strategist at Morgan Stanley’s trading platform E*Trade, said, “Normally, the Fed’s interest rate statement tends to dominate the interest rate week, but this week is not an ordinary week.” Traders and investors who have been waiting for the election results must be prepared for a possible delay in the release of the election results and the potential implications of this. ”
　　Judging from Monday’s market performance, the three major U.S. stock indexes collectively closed down while most investors remained on the sidelines. At the close, the S&P 500 fell 0.28% to 5,712.69, the Nasdaq fell 0.33% to 18,179.98 and the Dow Jones Industrial Average fell 0.61% to 41,794.6.
　　At the same time, the dollar and Treasury yields both fell as Trump’s win rate fell sharply in the betting prediction market. By the end of the New York session, the ICE U.S. Dollar Index was down 0.05% at 103.89. The yield on the 10-year Treasury note tumbled 8.6 basis points to 4.29%, its biggest one-day drop in two months.

From stocks to Treasuries to foreign exchange and even cryptocurrencies, market anxiety has rarely been so evident in this cycle. A cross-asset risk index compiled by Bank of America has now jumped to its highest point in the week before any election since the financial crisis.

Carol Schleif, chief investment officer of the family office of Bank of Montreal, said, “Investor sentiment may turn bad in the short term, especially if there is uncertainty about the outcome of the presidential election or the announcement of the winner takes longer than expected. Of course, the election results will be finalized sooner or later, and any volatility resulting from this will be an opportunity in our view.”

It is worth mentioning that from the recent changes in the options market, more and more options traders in the cross-asset field have now reduced their risk exposure and increased their hedging efforts to prepare for more volatility.

Stock market

Because short-term options are easier to hedge when the event is about to happen, most of the hedging for the election comes at the last minute. At present, even though the S&P 500 has not fallen by more than 1% for 29 consecutive trading days, the implied volatility of US stocks is much higher than the actual volatility level, indicating that investors are preparing for greater volatility in the future.
Daniel Kirsch, head of options at Piper+Sandler++Co., said, “We continue to see trading interest around the election. Clients who expect Trump to win the election are increasing their holdings of financial stocks and crypto stocks, and those betting on Harris’s victory have bought renewable energy stock options. Hedging has also picked up, with traders buying put options on S&P 500 and Nasdaq ETFs.”

Short-term implied volatility on the S&P 500 has been high relative to one-month levels as the impact of the election and the Federal Reserve permeates the calculation of short-term indicators. The Cboe+VVIX index, which measures VIX volatility, has also risen recently.

For Dan Wantrobski of financial advisory firm Janney + Montgomery + Scott, this week could be a historic one, and before that, the U.S. stock market remains largely in a consolidation state. He noted that investors should expect “more volatility in the next few trading days.” Wantrobski said, “Depending on how things develop, the market itself is either ready to set new highs (the main trend remains bullish) or ready for a larger decline (overbought conditions remain and some recent support levels will be broken).” Once the election is over, market liquidity is expected to support a year-end rebound as hedges will be unwound, mutual funds may start buying in November, companies will resume buying back stocks, and lower volatility will also attract option traders to systematically buy and re-hedge. “Right now, option volatility skews are steep, with the VIX well above realized volatility,” said Zhiwei Ren, portfolio manager at Penn+Mutual+Asset+Management. “Assuming a smooth post-election period, we think these hedges could unwind and we could see a sharp drop in the VIX and a flatter skew. If both of these happen, it could force more buyers into the market, pushing the market higher.”

Foreign exchange markets

The implied volatility of short-term currency options, which price election risk in the foreign exchange market, has also jumped recently in anticipation of greater volatility after the U.S. election.

The Mexican peso’s weekly volatility has climbed to its highest in more than four years, and the premium to expected volatility has widened to 1.3% since the industry began compiling data in 2007.

November 05, 2024

Investment strategies that may work well in the OTC market (over-the-counter market):
In-depth fundamental analysis

Business Financial Position Assessment: A careful study of the financial statements of the target OTC business, including the balance sheet, income statement, and cash flow statement. Focus on key metrics such as revenue growth trends, profit margins, asset quality, and debt levels. For example, if an OTC company is small but has sustained and stable revenue growth over the years, maintains a reasonable profit margin, and has a relatively healthy asset-liability structure and does not have excessive short-term debt repayment pressure, it may be a potential investment target.
Business Model & Competitiveness Analysis: Understand the core business model of an enterprise and determine whether it is unique and sustainable. For example, an OTC company engaged in the R&D of emerging technologies such as biotechnology may gain market recognition in the future if it has an exclusive patented technology or R&D pipeline and the technology has great application prospects in the industry, thereby bringing returns to investors. It is also necessary to examine its advantages over competitors in the same industry, such as cost advantage, brand advantage or market share advantage.
Keep an eye on industry trends

Emerging industry opportunity capture: The OTC market often has a lot of companies in emerging industries. Pay close attention to the development trends of cutting-edge industries such as new energy, artificial intelligence, and biomedicine. For example, in the early days of the rise of the new energy vehicle industry, some related OTC parts suppliers seized the opportunity of the rapid development of the industry and provided key components for OEMs.
Industry cycle grasp: For some OTC companies in traditional industries, it is necessary to understand the cyclical characteristics of the industry. For example, when the metal price is in an upward cycle, the profitability of the mining OTC company usually improves significantly, and if it can be deployed in advance and sold at the right time, it can achieve profitability. Investors need to comprehensively judge the stage of the industry cycle based on industry research reports, macroeconomic data, etc.
Diversification

Multi-company fragmentation: Due to the uneven quality of companies in the OTC market, the risk for a single company is relatively high. By investing in multiple different OTC stocks, you can diversify the risks caused by poor management of a particular company, sudden negative events, etc. For example, if you allocate capital to OTC companies of different sizes in different industries, even if a few of them fail, other companies that are performing well may still generate returns for the portfolio.
Combining different risk levels: In addition to pure OTC stock investment, it can also be combined with some fixed income products in the OTC market (such as some OTC bonds, etc.) for allocation. Fixed income products are relatively low risk, which can balance the risk of the entire OTC portfolio to a certain extent, especially when the stock market is volatile, and play a role in stabilizing the value of the portfolio.
Focus on special events and catalysts

M&A and restructuring expectations: Pay attention to whether OTC companies have potential M&A and restructuring opportunities. Some large enterprises may acquire small enterprises with unique technologies or businesses in the OTC market to improve the layout of the industrial chain. If this kind of information is captured in advance and the investment is made, the stock price of the acquired company will often rise sharply when the merger and restructuring actually occurs. For example, after a well-known pharmaceutical company announced the acquisition of a small biopharmaceutical R&D company in the OTC market because it valued a potential new drug it was developing, the OTC company’s stock price soared, and the early investors reaped a lot of money.
Product breakthroughs or major contract signing: For technology OTC companies, if they develop a new product that makes a major breakthrough, such as passing a key clinical trial, obtaining important technology certification, etc., or signing a major commercial contract, it can be a catalyst for stock price growth. Investors should continue to keep track of company announcements and related industry information to catch such events that may drive stock prices up in a timely manner.
Long-term investment perspective

Growing with your business: Many OTC businesses are in the early stages of development and need time to achieve their goals such as business expansion, profitability improvement, and more. Investors who have a long-term investment mindset and accompany the company from start-up to maturity are often likely to reap huge returns. For example, some investors who invested in OTC companies in the e-commerce field in the early stage have enjoyed the benefits of substantial stock price appreciation in the process of the company’s growth from a small regional platform to a well-known national e-commerce platform after years of development.
Ignoring short-term fluctuations: Stock price fluctuations in the OTC market may be more volatile than those in the Main Board market, and are more affected by factors such as individual news and market sentiment. However, if there is no fundamental change in the fundamentals of the company, investors should try to ignore short-term stock price fluctuations, avoid frequent buying and selling due to panic or greed, stick to a long-term investment strategy, and wait for the true reflection of corporate value.

It should be noted that the investment risk in the OTC market is relatively high, and the transparency of corporate information may not be as high as that of the main board market.