The FOMC's content was as expected - Mr. Emori Tetsu
[September 17, 2020] FOMC content as expected
Good morning.
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I published a new book, “Buy Gold: The Beginning of the End of the US Stock Bubble Economy” (President Inc.).
It explains the importance of gold investment, the fate of the dollar, the outcome of the US–China Cold War and the transition of hegemonic powers, and more.
I hope you’ll consider subscribing.
〔GLOBAL EQUITY & BOND MARKET〕
【US Equities & Bonds Market Commentary & Analysis】
Dow: 28,032.38 (+36.78) < +0.13% >
S&P 500: 3,385.49 (-15.71) < -0.46% >
Nasdaq Composite: 11,050.469 (-139.86) < -1.25% >
Nasdaq-100: 11,247.599 (-191.28) < -1.67% >
FANG Index: 5,237.46 (-87.14) < -1.64% >
Russell 2000: 1,552.329 (+14.17) < +0.92% >
VIX: 26.04 (+0.45) < +1.76% >
VXN: 35.48 (+1.69) < +5% >
SOX: 2,195.54 (-23.65) < -1.07% >
US stocks rose modestly on hopes for prolonged monetary easing. At this two-day FOMC meeting, which ended on this day, the Fed, as markets expected, kept near-zero rates and QE in place. The accompanying dot-plot projections showed that the zero rate would continue at least through the end of 2023. On expectations of prolonged monetary easing, the Dow rose to about 370 points at one point. After Powell’s press conference, the Dow pared gains. With the expectation of zero rates through 2023 already priced in and the chair’s remarks as anticipated, a sense of news being fully priced in led to some profit-taking.
Crude oil’s strength helped lead energy stocks. The oil price surged on expectations that storms could disrupt supply chains. ExxonMobil rose 4.3%, Chevron rose 2.9% and were solid. Meanwhile, tech giants were sold off. Reports that US authorities might sue Facebook and Alphabet over antitrust issues attracted selling. Facebook fell 3.3%, Apple fell 3.0%, Microsoft fell 1.8%, Alphabet (A shares) fell 1.5% and remained soft.
FedEx rose 5.8 on quarterly results beating expectations. Spotify Technology fell 1.3%. Apple had announced Apple One (subscription services bundle) the previous day, which weighed on sentiment. Bank of America rose 1.3%, Walt Disney rose 0.7%
The U.S. Commerce Department reported August retail sales of $537.526 billion, up 0.6% from July, marking the fourth consecutive monthly gain. Excluding the volatile motor vehicle & parts dealers, sales rose 0.7%; excluding gasoline, up 0.6%; excluding both autos & gasoline, up 0.7%. July core retail sales were revised down from a 1.4% gain to 0.9%. Total retail sales were revised down from 1.2% to 0.9%. August retail sales exceeded the core index thanks to higher gasoline station sales driven by higher gasoline prices.
The Mortgage Bankers Association (MBA) reported a 2.5% drop in mortgage applications for the week ending on the 16th.
The National Association of Home Builders (NAHB) reported September NAHB/Wells Fargo Housing Market Index at 83, up 5 points from August, a fresh high. Even with the COVID-19 recession, record-low mortgage rates continue to support the housing market. Builders remain concerned about rising lumber prices and delivery delays. Lumber has surged over 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home.
On the other hand, supported by low rates, housing construction has spread to the suburbs and builders are busy. Other region builders are getting inquiries from customers in high-density housing areas about relocation, signaling further expansion. In September, the Current Sales Index rose 4 points to 88. The six-month sales forecast index rose 6 points to 84. The index of potential buyers rose 9 points to 73.
In the FOMC meeting on the 15th-16th, the Federal Reserve kept the target range for the federal funds rate at 0-0.25% by an 8-2 vote. It also signaled that it would maintain low rates until inflation runs persistently above the 2% goal for some time.
The Fed’s new framework released last month allows inflation to overshoot 2%; accordingly, the guidance this time was changed.
Powell said at the post-FOMC press conference that “the Fed intends to keep policy rates highly accommodative until the U.S. economy makes more progress in its recovery.” He described the statement as “a very strong message to support economic activity and bring inflation back more quickly to the 2% goal,” and added that “forward guidance will be persistent.” He also noted that “the U.S. economy’s recovery is ongoing but likely to slow, and continued support from fiscal policy will be necessary.”
In the statement, the Fed shifted its focus from financial-market stabilization to boosting the economy. It said it would continue asset purchases of at least $120 billion per month as part of ensuring accommodative financial conditions in the future. The Fed’s outlook for the U.S. economy has improved, but it warned that the coronavirus remains a drag. “COVID-19 is causing tremendous human and economic hardship,” and “the Fed is committed to taking all measures necessary to support the economy in this difficult period.”
In the new set of projections, most participants assumed keeping the policy rate through at least 2023. They projected inflation would not exceed 2% in that period. Powell said, “The Fed is confident it will allow inflation to overshoot 2% moderately and is committed and determined to do so,” though it will take time.
This year’s growth outlook was revised to -3.7% from June’s -6.5%, with 2021 at 4.0% and 2022 at 3.0% (down from 5.0% and 3.5% respectively). 2023 was set at 2.5%. The unemployment rate is expected to end the year at 7.6%, down from August’s 8.4%. For 2021, 5.5%; 2022, 4.6%, up from June’s 6.5% and 5.5%. The unemployment rate for 2023 is projected at 4%. The Fed’s dot plot shows all but one participant expect to hold rates through 2022, with four predicting a rate hike in 2023.
In the statement, policy was to be held “until the labor market reaches a level consistent with maximum employment and inflation has risen to and is on a path to moderately exceed 2% for some time.” However, Dallas Fed President Kaplan and Minneapolis Fed President Kashkari dissented. Kaplan argued that if inflation and employment move along the path to the Fed’s goals, increasing flexibility would be desirable. Kashkari argued that rates should be kept higher than the inflation target until the core inflation rate, which tends to be cooler than overall inflation, sustainably reaches 2%.
The OECD on the 16th lifted its 2020 global growth forecast to -4.5% and projected a 2021 growth of +5.0%, noting that the recovery in China and the US is robust and that the global economy may recover sooner than expected from the COVID-19 shock. The June projections had 2020 at -6.0% and 2021 at +5.2%; however, if the outbreak worsens or stricter containment measures are taken, 2021 growth could fall by 2-3 percentage points.
This forecast assumes the virus expansion remains localized and containment measures are regional. It assumes vaccines will not be readily available until late next year. While policy support by governments and central banks helped avert the worst, the virus continues to spread, so support measures should remain in place for a while. Europe, the US, and China’s recoveries look better than expected, but India, Mexico, and South Africa face greater challenges, highlighting regional disparities.
China’s 2020 growth forecast was raised to +1.8% from -2.6% in June, making it the only G20 country with positive growth; 2021 growth is forecast at +8.0%. The US growth is projected at -3.8% for 2020, still negative but far better than the -7.3% in June. 2021 growth is projected at +4.0%. The Euro area is projected at -7.9% in 2020 and +5.1% in 2021. Japan’s 2020 forecast is -5.8% and +1.5% in 2021.
US 2-year yield: 0.139% (±0)
US 5-year yield: 0.283% (+0.0144)
US 10-year yield: 0.699% (+0.0195)
US 30-year yield: 1.462% (+0.0323)
US 2–10-year yield spread: -0.56% (-0.0199)
US 10-year futures: 139.641 (-0.03) < -0.02% >
US High-Yield Bonds: 84.59 (±0) < ±0% >
US 10-year TIPS yield: -0.976 (+0.01) < -1.01% >
MOVE Index: 42.43 (-0.63) < -1.46% >
US Treasuries rose in yields, led by longer-term bonds, as the Fed signaled it would keep rates near zero for an extended period, steepening the yield curve. Following the FOMC, yields rose especially on long-term bonds sensitive to inflation expectations. The 2-year–10-year yield spread widened to 56 basis points, well above the 33 basis points seen on July 24.
【US Stock Trading Strategy】
US stocks were mixed, with tech stocks selling off and the VXN rising. The drop in stock prices and the rise in volatility index reflect normal risk-off behavior. Given the high levels and recent stock volatility, some market participants are increasingly preparing for declines. As always, it is difficult to judge from a single day's move, but the stance will likely be maintained until a clear trend breaks. The approach centered on the FANG Index and Nasdaq-100 should not be changed.
The FOMC was as expected, with no surprises. Long-run rate forecasts are not reliable, so they are of little use. But markets focus on them, and it’s fair to say they watch them reluctantly. The market structure is complex, and the virus adds further uncertainty. It is impossible to forecast the future easily. Therefore, it’s fine to use Fed participants’ forecasts as a reference, but not more. In the end, the market itself will decide. It is prudent to focus on market moves and follow them in your trading.
According to Bank of America Securities’ latest institutional investor survey released on the 15th, there was an unprecedented influx of investors into the US tech sector, making it the most “crowded” trade to date. With a second wave of COVID-19 expected, tech may become the biggest risk going forward. The survey conducted from March 3–10 showed institutions rotating into cyclical stocks from March lows and not chasing momentum. On the other hand, the share of respondents saying a new bullish regime has begun rose from 25% in May to over 50%.
Overall, 41% said the most likely trigger for higher bond yields is a reliable COVID-19 vaccine; 37% expect vaccine announcement in the first quarter of next year.
Short-term trading strategy is to maintain long positions on major stock indices, with a focus on the FANG Index. The Dow could also be long. Indices such as the S&P 500 or Nasdaq-100 could also be long, but holding many indices is not necessary; one or two indices could be enough. The core remains the FANG Index. Also, with the presidential election approaching, the view remains that the market will stay firm for about two more months. Of course, forecasts can be wrong. It is important and prudent to follow the market’s moves and act accordingly.
Long-term portfolio strategy remains unchanged. I bought dips in the Nasdaq index this time, but ended up with three buys, down 5%, 7.5%, and 10% from the high. I will continue to add to positions in this manner. Unless something major happens, I plan to hold positions and let profits run rather than lock in gains. For now, focus on Nasdaq-100 or FANG Index for longs, adding S&P 500 and others as appropriate.
Going forward, I will buy on dips in 2.5% increments from the most recent high, up to 20 steps to a maximum 50% drawdown. Already bought on dips to 5%, 7.5%, and 10% are completed. I will continue buying at levels 12.5% or more down. Of course, if prices reach new highs, I will buy again 5% below that high. I will manage funds to be able to buy on dips up to 50% off the high. This investment will be done via ETFs, and avoiding leverage is important.
As repeated, in a bear market, don’t buy all at once; spread purchases over about 10 rounds. This time, I will split into 20 rounds to avoid missing opportunities. If you stay in cash and wait for a sharp drop, opportunities will come. It may be now. I will start by putting 5% of cash into dips. Personally, I have been setting up daily purchases of balanced funds and tech-focused funds, and I want to start buying Nasdaq-100 (QQQ) etc. Of course, buy the same amount of gold at the same time to automatically hedge risk.
If you buy US stocks and gold together, you can achieve similar long-term returns as investing solely in US stocks, while reducing volatility. It eliminates much of the psychological burden. This is not always understood, but trying it will demonstrate why buying stocks and gold together is beneficial. Details about gold are explained in my new book “Buy Gold: The Beginning of the End of the US Stock Bubble Economy.” I invite you to read it.
By the way, in terms of investment targets, for short-term trading use futures or CFDs, and for long-term portfolios use physical assets such as ETFs. In long-term portfolios, avoid leverage. Also, as always, avoid putting everything into stocks. A down market can trap you and you may miss opportunities to buy at lows. If you expect declines of 50% to as much as 75%, you can still buy on dips during such periods, including during the Lehman-level downturn.
Fundamentally, leaving room to buy on a 50% drop would ensure gains in most cases. If you diversify across assets and time, you can use a major downturn to buy the dip and monetize later. Always keep cash on hand and ensure you can buy on downswings—this is a key to growing wealth in long-term investing. Personally, I favor the “three-way split” of stocks, gold, and cash, but as inflation rises, more cash will be allocated to stocks and gold.
＜US Equity Market Short-Term Trading Strategy＞
Dow: Long
S&P 500: Short
Nasdaq Composite: Short
Nasdaq-100: Short
FANG Index: Long
Russell 2000: Short
VIX: Long
VXN: Long
SOX: Short
【US Bond Trading Strategy】
US 10-year futures: Long
US High-Yield Bonds: Short
US 10-year TIPS yield: Long
MOVE index: Short
【Europe & Others Stock & Bond Market Commentary & Analysis】
FTSE: 6078.48 (-27.06) < -0.44% >
DAX: 13255.37 (+37.7) < +0.29% >
Euro Stoxx 50E: 3338.84 (+6.58) < +0.2% >
Shanghai Composite: 3283.924 (-11.76) < -0.36% >
Hang Seng Index: 24725.63 (-7.13) < -0.03% >
H Shares: 9845.79 (+16.72) < +0.17% >
NIFTY: 11604.55 (+82.75) < +0.72% >
Bovespa Index: 99675.68 (-622.23) < -0.62% >
Russia stocks: 1251.86 (-1.82) < -0.15% >
London stocks fell. Brexits-related tensions between the UK and EU continued to be watched. The pound’s strength weighed on exporters. EU Commissioner President von der Leyen stated that as the UK pushes to refine its Brexit Withdrawal Agreement, the probability of a trade deal with the EU is diminishing day by day. The Hut Group, which IPO’d that day, surged 25.0%. It was the biggest IPO for a UK company since 2013. Redrow, a homebuilder with declining full-year profits, fell 1.8%.
The market is watching the Bank of England’s policy meeting on the 17th.
European stocks extended gains. Inditex, the Spanish apparel group under the Zara brand, posted strong results, boosting retail stocks; Inditex rose 8.1%. Online sales surged and store sales recovered, signaling normalization; STOXX600 Retail rose 1.31%.
UK 10-year yield: 0.213% (-0.006)
Germany 10-year yield: -0.479% (+0.002)
France 10-year yield: -0.219% (-0.011)
Italy 10-year yield: 0.973% (-0.026)
Spain 10-year yield: 0.262% (-0.011)
Portugal 10-year yield: 0.296% (-0.007)
Greece 10-year yield: 1.066% (-0.027)
Eurozone bonds fell, with Italy’s 10-year yield at its lowest since early March. Several ECB officials indicated room for further easing if needed. Southern European bonds were bought that day.
ECB Executive Board member Schnabel suggested that if euro area inflation does not move toward the ECB’s target, policy adjustments could be warranted. Schnabel stressed that “the exchange rate is not an objective of ECB policy.” Given the recent strength of the euro, he said, “we continue to monitor the information released, including exchange-rate movements.” The ECB has pursued demand-stimulating measures via emergency policy responses to the coronavirus; Schnabel said that actions would be taken if those aims are not met. He added that a V-shaped recovery to pre-crisis levels is unlikely; it will take time, but a sustainable recovery is expected, and that applies to the inflation outlook as well.
UK Office for National Statistics’ August CPI rose 0.2% year over year, the lowest in 4 years and 9 months since December 2015, down from a July increase of 1.0%. The core index (excluding energy, food, alcohol, and tobacco) rose 0.9%, down sharply from 1.8% in July.
EU Commission President von der Leyen warned on the 16th that the likelihood of a new trade agreement with the UK was decreasing by the day and that time left to prepare by year-end was very limited. She delivered a speech to the European Parliament outlining that the chances of a timely Brexit deal were diminishing as days pass, and that both the EU and UK had to negotiate and ratify the Withdrawal Agreement, warning the UK not to unilaterally change or ignore the pact.
She added that this is a matter of law, trust, and integrity, and trust is the foundation of a strong partnership; the EU would never revoke the Brexit agreement. Brexit was touched on only briefly in the speech; most attention was on pandemic recovery and digital/climate investments.
Eurostat released July euro area external trade balance data: +27.9 billion euros (surplus) year-on-year; the EU as a whole posted a surplus of 25.8 billion euros. Euro area exports fell 10.4% year-on-year to 185.2 billion euros; imports fell 14.3% to 157.3 billion euros. EU-wide exports fell 11.3% to 168.5 billion euros; imports fell 16.0% to 142.6 billion euros. Euro area intra-EU trade fell 8.6% to 153.7 billion euros; EU-wide trade fell 7.4% to 239.2 billion euros.
【Major Equity Indices Trading Strategy】
FTSE, DAX, Hang Seng, NIFTY, Bovespa, and Russian indices—see below. Diversifying across different indices can help other holdings support overall portfolio performance. Use these to monitor global market trends. If you have funds, consider including them in trading.
＜Major Equity Markets Short-Term Trading Strategy＞
FTSE: Long
DAX: Long
Euro Stoxx 50E: Long
Shanghai Composite: Short
Hang Seng: Short
H-shares: Short
NIFTY: Long
Bovespa: Short
Russia: Short
【Japan Stock Market Commentary & Analysis】
Chicago Nikkei futures: 23,350 (-30) < -0.13% >
Nikkei Stock Average: 23,475.53 (+20.64) < +0.09% >
TOPIX: 1,644.35 (+3.51) < +0.21% >
Mothers Index: 1,181.23 (+28.89) < +2.51% >
Nikkei futures (front month): 23,300 (-20) < -0.09% >
TOPIX futures (front month): 1,629.5 (-0.5) < -0.03% >
Mothers futures (front month): 1,136 (+28) < +2.53% >
Government Bond futures (front month): 151.99 (-0.01) < -0.01% >
Nikkei VI: 20.84 (+0.18) < +0.87% >
TSE REIT Index: 1,739.13 (+21.86) < +1.27% >
Japan 2-year yield: -0.146% (-0.004)
Japan 5-year yield: -0.11% (-0.006)
Japan 10-year yield: 0.014% (±0)
Japanese stocks edged up modestly as trading cooled ahead of the FOMC decision. 62% of stocks rose, 34% fell. Volume: 1.16886 billion shares; turnover: ¥2,139.8 billion. The Tokyo stock market lacked a clear direction ahead of the FOMC decision in New York after hours. The Nikkei rose only slightly as a result, with dip buying concentrated on names that fell the previous day.
However, the dollar/yen moved into the low-105s, with yen strength and dollar weakness pressuring exporters. In the afternoon of the 16th, LDP President Suga Yoshihide was named prime minister during a special session of the Diet. Market participants expected additional economic stimulus from PM Suga, suggesting a near-term firm market.
At the 16th, Suga was named the 99th Prime Minister in the Special Session of the National Diet. He immediately began forming a cabinet. After an audience with the Imperial Palace and a cabinet approval ceremony, the Suga administration, a coalition between the LDP and Komeito, was launched. This marked the first leadership change in 7 years and 9 months. As he is not from any faction or a hereditary politician, this is effectively the first non-faction-led cabinet in the LDP. Suga aims to continue Abe’s policies to tackle COVID-19 and rebuild the Japanese economy, and also pursue Abe’s goal of completing the postwar diplomacy audit.
In the PM nomination vote, Suga won 314 votes in the House of Representatives and 142 in the House of Councillors on the first ballot. After a meeting with Komeito leader Yamaguchi, the cabinet lineup was decided. Kato, the former Health, Labour and Welfare Minister, was appointed Chief Cabinet Secretary; Kono, the former Defense Minister, was appointed Minister of Administrative Reform; Harai, the former Science and Technology Minister, was appointed Minister for Digital Reform. Kato also serves as Okinawa base burden reduction and abduction issues minister, while Kono handles Okinawa and northern territories. The Abe administration’s continuity was also emphasized, with eight ministers including Deputy Prime Minister Aso and Finance Minister retaining their posts.
On the evening of the 16th, Prime Minister Suga held his first post-inauguration press conference, saying, “My mission is to carry forward the Abe administration’s efforts to overcome the COVID-19 crisis and restore the lives of the people with confidence.” He said that economic revival is the most important task and would continue Abenomics—monetary easing, fiscal investment, and growth strategy—and push further reforms. He also stated that the “Cherry Blossom Viewing Party” would be suspended from next year onward due to criticisms under Abe’s administration.
On calls within the LDP for an early lower-house dissolution, Suga emphasized that what the people want now is both fast COVID-19 containment and economic revival; he will prioritize balancing both. He said he would focus on economic recovery first. He noted there could be a dissolution and general election within a year and would consider the timing accordingly. On cutting bureaucratic silos, he said “regulatory reform should be at the center of the administration,” and outlined a plan to work with Minister Kono to push reforms. He also said he would establish a “110 number” for a centralized approach to regulatory reform.
He announced the creation of a Digital Agency to consolidate policies across ministries and accelerate digital reform. In foreign policy, he said he would aim for a postwar diplomacy consolidation and to address abduction issues. He stated that “the abduction issue is as important as in Abe’s administration” and would take the lead with unwavering determination. He apologized for the death of Megumi Yokota’s father, Shigeo.
Regarding issues such as Moritomo and Kake, he stated that there were various criticisms of the Abe administration that needed correcting, but reiterated that the Moritomo documents alteration case had been resolved after the Finance Ministry’s investigations and prosecutors' investigations. Regarding suspending the Cherry Blossom Viewing Party in the future, he noted the need to focus on COVID-19 measures, and had previously told Abe that the budget request for the party was not advisable.
The Finance Ministry’s August trade statistics showed exports in August at 537.526 billion USD, down 14.8% YoY. Excluding autos, etc., the figure was down 0.7% or so. July core retail sales were revised down, and overall retail sales were revised down as well. Aug exports outperformed core index due to higher gasoline sales caused by higher gasoline prices.
Exports have fallen for 21 consecutive months. The drop from May’s 28.3% peak fell to 26.2% in June, 19.2% in July, and August’s decline continued but lessened. The Ministry noted it remains to be seen whether demand has truly recovered or if this is a rebound. By product, autos fell 19.4%, mineral fuels (diesel) fell 68.8%, ships fell 57.3%. By destination, the US fell 21.3% to 936.9 billion yen; the EU fell 19.2% to 476.3 billion yen. China, however, rose 5.1% to 1.2616 trillion yen. Semiconductors equipment rose 35.6% and nonferrous metals rose 81.4%.
【Japan Stock Trading Strategy】
Nikkei futures (night session): Long
Nikkei futures (front month): Long
Nikkei VI: Short
TOPIX Leverage (1367): Long
VIX shorts futures (1552): Short
Nikkei 2x? Actually skip
〔CURRENCY MARKET〕
USD/JPY: 104.94 (-0.49) < -0.46% >
NZD/USD: 0.6731 (+0.001) < +0.15% >
USD/CAD: 1.3176 (-0.0005) < -0.04% >
CAD/JPY: 79.63 (-0.31) < -0.39% >
EUR/GBP: 0.911 (-0.008) < -0.87% >
EUR/AUD: 1.617 (-0.0057) < -0.35% >
GBP/AUD: 1.7747 (+0.0101) < +0.57% >
EUR/NZD: 1.7549 (+0.1322) < +8.15% >
AUD/CAD: 0.9621 (-0.0004) < -0.04% >
NZD/CAD: 0.8869 (+0.0008) < +0.09% >
USD/CHF: 0.9092 (+0.0012) < +0.13% >
MXN/USD: 20.929 (-0.214) < -1.01% >
MXN/JPY: 5.0069 (+0.0277) < +0.56% >
TRY/USD: 7.5054 (+0.02) < +0.27% >
RUB/JPY: 1.3964 (-0.0062) < -0.44% >
USD/CNH: 6.7444 (-0.0355) < -0.52% >
CNH/JPY: 15.5559 (+0.015) < +0.1% >
The Fed announced near-zero rates and QE in place. It signaled it would keep zero rates at least through the end of 2023. While this caused some brief dollar buying due to the upgrades to growth, the overall trend remained dollar weakness and yen strength. The dollar index rose 0.07% to 93.19. EUR/USD fell.
Meanwhile, offshore yuan rose to 6.7426 per USD, a fresh high since last May. August industrial production and retail sales data in China showed improvement for the first time this year, fueling expectations that other countries could recover from COVID-19 faster than the US and pressuring the dollar.
New Zealand’s Stats NZ reported the June quarter current account turned into a surplus of NZ$482 million, reversing a prior NZ$1.381 billion deficit. A goods surplus contributed to the best current account since 2009. Goods and services balance was a NZ$2.158 billion surplus (prior: NZ$0.446 billion).
【Currency Trading Strategy】
The USD/JPY is under rapid yen- strength pressure. The FOMC was as expected, but yen strength had already progressed well beforehand, suggesting some market manipulation may be involved. Some market commentary suggests selling due to uncertainty about the Suga administration, but the notion that uncertainty equals yen strength remains. However, with limited room for further Fed easing and BoJ policy space constrained, it will be difficult for the currency to move on interest rates alone.
In that case, political moves will likely become more important. We need to confirm whether the Suga administration will continue the “yen depreciation = stock price rise” policy. The view that yen depreciation boosts stocks is not true, but if the market understands this harmful thinking and shifts away, a stronger yen could be fostered. However, given the current cabinet lineup, few expectations for this shift exist. In the near term, 105 yen could act as resistance, and moves toward 100 yen could accelerate.
EUR/USD is failing to push higher and is moving lower. Not a great move. It looks like it may test lower levels; a correction around 1.17 is in view. If a floor is found there, a rebound could occur.
GBP/USD continues to rebound. Brexit talks’ stalemate is largely priced in; near-term oversold conditions are unwinding. It has avoided breaking below 1.27 and moved higher, which could trigger further short-covering. If it struggles to hold above 1.31, further declines may remain.
AUD remains solid, with little volatility but a steady uptrend supported by improving Chinese data. Riding this trend appears wise. A move above 0.7360 could push higher. NZD is also firm, but watch for overbought conditions.
Currency trading should be trend-following—buy strong currencies and sell weak ones. Counter-trend trades should be avoided as a core principle.
Summary of major currency pairs, positions unchanged from the previous day:
USD: -5
JPY: +3 (+2)
EUR: -1
GBP: -7
AUD: +5
NZD: +7
CAD: -3
CHF: +1 (-2)
＜Currency Market Short-Term Trading Strategy＞
USD/JPY: Short
EUR/USD: Long
GBP/USD: Short
AUD/USD: Long
NZD/USD: Long
USD/CAD: Short
EUR/JPY: Short
GBP/JPY: Short
AUD/JPY: Long
NZD/JPY: Long
CAD/JPY: Short
EUR/GBP: Long
EUR/AUD: Short
GBP/AUD: Short
EUR/NZD: Short
GBP/NZD: Short
EUR/CAD: Long
GBP/CAD: Short
AUD/NZD: Short
AUD/CAD: Long
NZD/CAD: Long
USD/CHF: Short
CHF/JPY: Turn to Short
EUR/CHF: Short
GBP/CHF: Short
AUD/CHF: Long
NZD/CHF: Long
CAD/CHF: Short
MXN/USD: Short
MXN/JPY: Long
TRY/USD: Long
TRY/JPY: Short
ZAR/USD: Short
ZAR/JPY: Long
USD/BRL: Short
BRL/JPY: Long
USD/RUB: Long
RUB/JPY: Short
USD/CNH: Short
CNH/JPY: Long
〔COMMODITY MARKET〕
【Precious Metals Market Commentary & Analysis】
Gold: 1959.318 (+3.8) < +0.19% >
Silver: 27.33 (+0.09) < +0.35% >
Platinum: 968.73 (-9.47) < -0.97% >
Palladium: 2399.428 (-10.61) < -0.44% >
Gold prices rose. The Fed’s dovish stance to support the economy from the COVID-19 crisis keeps gold supported.
【Gold Trading Strategy】
Gold prices are gradually moving higher. Technically, overbought signals exist, but surpassing $1,970 could trigger a strong rise. The move may be imminent. The FOMC had little impact, but the commitment to keep rates low through 2023 is very supportive for gold, and this is not priced in by the market. I expect a large rise eventually and intend to steadily build gold positions now.
I advocate the “three-way split” of stocks, gold, and cash. Buy gold when buying stocks. For individual investors, this is simple. Stocks can be invested via US stock index ETFs; gold can be held as physical or via ETFs. Cash is used to add to positions when stocks or gold fall. Bond investments have little appeal now; gold is better. The sages endorse gold. Buying the same amount of gold when buying stocks is highly rational.
For more on gold, see my new book “Buy Gold: The Beginning of the End of the US Stock Bubble Economy.” Please consider subscribing.
＜Precious Metals Market Short-Term Trading Strategy＞
Gold: Long
Silver: Long
Platinum: Long
Palladium: Long
【Base Metals Market Commentary & Analysis】
Aluminum: 1793 (-0.5) < -0.03% >
Copper: 6792 (+34) < +0.5% >
Nickel: 15215 (-25) < -0.16% >
Zinc: 2525.5 (+23) < +0.92% >
Lead: 1892 (-17.5) < -0.92% >
COMEX Copper: 3.058 (-0.005) < -0.16% >
＜LME Stocks (vs prior day)＞
Aluminum: 1,510,400 tons (-3,525)
Copper: 78,900 tons (+350)
Nickel: 237,276 tons (+96)
Zinc: 219,625 tons (-75)
Lead: 136,675 tons (+6,325)
London base metals market remains firm in copper, driven by manufacturing activity in China, steel production, and infrastructure growth. Demand from China appears to be recovering. Zinc surged on the day; reduced LME stock and expectations of Chinese demand and a stronger yuan are pushing zinc toward multi-year highs—around $2,583 per ton as of Sept. 1, the highest in about 1 year and 4 months. Zinc has rebounded about 34% from its March low.
【Base Metals Trading Strategy】
Base metal prices remain at high levels. With global economic recovery and expectations of rising demand from China, the bullish trend remains. If equities stay strong, base metals should stay robust. Each metal is expected to trend toward new highs.
＜Base Metals Market Short-Term Trading Strategy＞
Aluminum: Long
Copper: Long
Nickel: Long
Zinc: Long
Lead: Short
COMEX Copper: Long
【Energy Market Commentary & Analysis】
WTI Crude: 40.18 (+1.9) < +4.96% >
Brent Crude: 42.22 (+1.69) < +4.17% >
RBOB Gasoline: 1.1965 (+0.0584) < +5.13% >
Heating Oil: 1.1163 (+0.017) < +1.55% >
Natural Gas: 2.253 (-0.109) < -4.61% >
OVX: 41.13 (-4.06) < -8.98% >
＜EIA Weekly Petroleum Status Report (US)＞
Crude Oil Stocks: -4.39 million barrels (49.60 million barrels)
Cushing Stocks: -70k barrels (54.28 million barrels)
Crude Oil Production: +0.9 million bpd (daily 10.9 million)
Crude Imports: -0.41 million bpd (daily 5.01 million)
Crude Exports: -0.35 million bpd (daily 2.60 million)
Gasoline Stocks: -0.38 million barrels (232 million barrels)
Gasoline Demand: +0.09 million bpd (daily 8.48 million)
Distillate Stocks: +3.46 million barrels (179 million barrels)
Distillate Demand: -0.90 million bpd (daily 2.81 million)
Oil Product Demand: -1.65 million bpd (daily 17.03 million)
Refinery Utilization: +4% (75.8%)
Crude prices extended gains, rising over 4%. US crude and gasoline inventories fell, and offshore production shut-ins due to Hurricane Sally supported prices. The EIA’s weekly US crude inventory fell by 4.4 million barrels to 496.0 million, the lowest since April. Gasoline inventories fell by 0.4 million barrels; refinery utilization rose by 4 percentage points.
US Interior Department reported that in the Gulf of Mexico, crude oil production of about 0.5 million barrels per day was halted due to Sally, about one-third of what was disrupted during Hurricane Laura in August. OPEC+ held a meeting on Sept 17 to monitor supply cuts; there is little expectation of further cuts.
IEA’s monthly report cut its 2020 global oil demand forecast by about 0.2 million bpd to 91.70 million bpd, citing cautious pace of recovery from the pandemic. The IEA noted that demand would slow significantly in the second half, and it would take months for the economy to recover; further, a potential second wave could constrain mobility. The report also noted that 2020 H2 stock reduction was revised down to around 3.4 million bpd from last month’s forecast. Advanced-country stock levels rose to a record high in July.
Meanwhile, August global oil supply rose by 1.1 million bpd as OPEC+ eased coordinated cuts. Non-OPEC+ output rose for two months, then declined. US production fell by 0.4 million bpd due to hurricane shutdowns.
【Energy Trading Strategy】
Long WTI and Brent crude. While a trend-following strategy might favor shorts, there are signs of a bottoming near term. Having already covered some at the bottom and with room to maneuver, I will go long for now and observe. The situation is not outright improved, but there is a sense of a rebound. Open a position and cut losses if wrong. After taking a position, analyze the market backdrop. This approach is aligned with the method of respected investor George Soros.
OPEC appears unable to cut further, making it unlikely prices rise solely on OPEC. Therefore, price support will require US demand-supply improvements as well as external factors such as rising stock prices. OPEC may no longer hold pricing power. In the US, gasoline demand season ends and refinery maintenance period begins; inventories tend to rise during this season. Hurricanes can reduce output, potentially pushing prices higher, but such effects are usually temporary. If damage is severe, demand risks rise.
There are no obvious signs of a market reversal, but opportunities can emerge in unexpected places. Monitor the above data and observe market trends with caution.
＜Oil Market Short-Term Trading Strategy＞
WTI: Short
Brent: Short
RBOB Gasoline: Short
Heating Oil: Short
Natural Gas: Long
OVX: Long
(However, use discretion to go long)
◇ Global Macro Strategy
The investment strategies presented in this newsletter fall under the “global macro strategy” category in the hedge fund industry.
This strategy is among the world’s most proficient hedge fund techniques and is considered the “king” of hedge fund investing.
This strategy surveys all markets and seeks profits by spotting investment opportunities across currencies, stocks, interest rates, and commodities.
Regardless of price movements up or down, if price volatility is expected, you bet on it.
Higher volatility implies higher returns, so we strike boldly when opportunities arise.
In this uncertain global environment, price movements in major markets—currency, equities, interest rates, and commodities—have intensified.
As a result, market forecasts have become extremely difficult.
Under such conditions, global macro strategies—trading across a wide range of markets—are advantageous.
Of course, we will also provide concrete timing for trades in individual markets.
Let’s trade in the market using the “global macro strategy,” the king of hedge fund strategies.
Please continue to support me today as well.
I published a new book, “Buy Gold: The Beginning of the End of the US Stock Bubble Economy” (President Inc.).
It explains the importance of gold investment, the fate of the dollar, the outcome of the US–China Cold War and the transition of hegemonic powers, and more.
I hope you’ll consider subscribing.
〔GLOBAL EQUITY & BOND MARKET〕
【US Equities & Bonds Market Commentary & Analysis】
Dow: 28,032.38 (+36.78) < +0.13% >
S&P 500: 3,385.49 (-15.71) < -0.46% >
Nasdaq Composite: 11,050.469 (-139.86) < -1.25% >
Nasdaq-100: 11,247.599 (-191.28) < -1.67% >
FANG Index: 5,237.46 (-87.14) < -1.64% >
Russell 2000: 1,552.329 (+14.17) < +0.92% >
VIX: 26.04 (+0.45) < +1.76% >
VXN: 35.48 (+1.69) < +5% >
SOX: 2,195.54 (-23.65) < -1.07% >
US stocks rose modestly on hopes for prolonged monetary easing. At this two-day FOMC meeting, which ended on this day, the Fed, as markets expected, kept near-zero rates and QE in place. The accompanying dot-plot projections showed that the zero rate would continue at least through the end of 2023. On expectations of prolonged monetary easing, the Dow rose to about 370 points at one point. After Powell’s press conference, the Dow pared gains. With the expectation of zero rates through 2023 already priced in and the chair’s remarks as anticipated, a sense of news being fully priced in led to some profit-taking.
Crude oil’s strength helped lead energy stocks. The oil price surged on expectations that storms could disrupt supply chains. ExxonMobil rose 4.3%, Chevron rose 2.9% and were solid. Meanwhile, tech giants were sold off. Reports that US authorities might sue Facebook and Alphabet over antitrust issues attracted selling. Facebook fell 3.3%, Apple fell 3.0%, Microsoft fell 1.8%, Alphabet (A shares) fell 1.5% and remained soft.
FedEx rose 5.8 on quarterly results beating expectations. Spotify Technology fell 1.3%. Apple had announced Apple One (subscription services bundle) the previous day, which weighed on sentiment. Bank of America rose 1.3%, Walt Disney rose 0.7%
The U.S. Commerce Department reported August retail sales of $537.526 billion, up 0.6% from July, marking the fourth consecutive monthly gain. Excluding the volatile motor vehicle & parts dealers, sales rose 0.7%; excluding gasoline, up 0.6%; excluding both autos & gasoline, up 0.7%. July core retail sales were revised down from a 1.4% gain to 0.9%. Total retail sales were revised down from 1.2% to 0.9%. August retail sales exceeded the core index thanks to higher gasoline station sales driven by higher gasoline prices.
The Mortgage Bankers Association (MBA) reported a 2.5% drop in mortgage applications for the week ending on the 16th.
The National Association of Home Builders (NAHB) reported September NAHB/Wells Fargo Housing Market Index at 83, up 5 points from August, a fresh high. Even with the COVID-19 recession, record-low mortgage rates continue to support the housing market. Builders remain concerned about rising lumber prices and delivery delays. Lumber has surged over 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home.
On the other hand, supported by low rates, housing construction has spread to the suburbs and builders are busy. Other region builders are getting inquiries from customers in high-density housing areas about relocation, signaling further expansion. In September, the Current Sales Index rose 4 points to 88. The six-month sales forecast index rose 6 points to 84. The index of potential buyers rose 9 points to 73.
In the FOMC meeting on the 15th-16th, the Federal Reserve kept the target range for the federal funds rate at 0-0.25% by an 8-2 vote. It also signaled that it would maintain low rates until inflation runs persistently above the 2% goal for some time.
The Fed’s new framework released last month allows inflation to overshoot 2%; accordingly, the guidance this time was changed.
Powell said at the post-FOMC press conference that “the Fed intends to keep policy rates highly accommodative until the U.S. economy makes more progress in its recovery.” He described the statement as “a very strong message to support economic activity and bring inflation back more quickly to the 2% goal,” and added that “forward guidance will be persistent.” He also noted that “the U.S. economy’s recovery is ongoing but likely to slow, and continued support from fiscal policy will be necessary.”
In the statement, the Fed shifted its focus from financial-market stabilization to boosting the economy. It said it would continue asset purchases of at least $120 billion per month as part of ensuring accommodative financial conditions in the future. The Fed’s outlook for the U.S. economy has improved, but it warned that the coronavirus remains a drag. “COVID-19 is causing tremendous human and economic hardship,” and “the Fed is committed to taking all measures necessary to support the economy in this difficult period.”
In the new set of projections, most participants assumed keeping the policy rate through at least 2023. They projected inflation would not exceed 2% in that period. Powell said, “The Fed is confident it will allow inflation to overshoot 2% moderately and is committed and determined to do so,” though it will take time.
This year’s growth outlook was revised to -3.7% from June’s -6.5%, with 2021 at 4.0% and 2022 at 3.0% (down from 5.0% and 3.5% respectively). 2023 was set at 2.5%. The unemployment rate is expected to end the year at 7.6%, down from August’s 8.4%. For 2021, 5.5%; 2022, 4.6%, up from June’s 6.5% and 5.5%. The unemployment rate for 2023 is projected at 4%. The Fed’s dot plot shows all but one participant expect to hold rates through 2022, with four predicting a rate hike in 2023.
In the statement, policy was to be held “until the labor market reaches a level consistent with maximum employment and inflation has risen to and is on a path to moderately exceed 2% for some time.” However, Dallas Fed President Kaplan and Minneapolis Fed President Kashkari dissented. Kaplan argued that if inflation and employment move along the path to the Fed’s goals, increasing flexibility would be desirable. Kashkari argued that rates should be kept higher than the inflation target until the core inflation rate, which tends to be cooler than overall inflation, sustainably reaches 2%.
The OECD on the 16th lifted its 2020 global growth forecast to -4.5% and projected a 2021 growth of +5.0%, noting that the recovery in China and the US is robust and that the global economy may recover sooner than expected from the COVID-19 shock. The June projections had 2020 at -6.0% and 2021 at +5.2%; however, if the outbreak worsens or stricter containment measures are taken, 2021 growth could fall by 2-3 percentage points.
This forecast assumes the virus expansion remains localized and containment measures are regional. It assumes vaccines will not be readily available until late next year. While policy support by governments and central banks helped avert the worst, the virus continues to spread, so support measures should remain in place for a while. Europe, the US, and China’s recoveries look better than expected, but India, Mexico, and South Africa face greater challenges, highlighting regional disparities.
China’s 2020 growth forecast was raised to +1.8% from -2.6% in June, making it the only G20 country with positive growth; 2021 growth is forecast at +8.0%. The US growth is projected at -3.8% for 2020, still negative but far better than the -7.3% in June. 2021 growth is projected at +4.0%. The Euro area is projected at -7.9% in 2020 and +5.1% in 2021. Japan’s 2020 forecast is -5.8% and +1.5% in 2021.
US 2-year yield: 0.139% (±0)
US 5-year yield: 0.283% (+0.0144)
US 10-year yield: 0.699% (+0.0195)
US 30-year yield: 1.462% (+0.0323)
US 2–10-year yield spread: -0.56% (-0.0199)
US 10-year futures: 139.641 (-0.03) < -0.02% >
US High-Yield Bonds: 84.59 (±0) < ±0% >
US 10-year TIPS yield: -0.976 (+0.01) < -1.01% >
MOVE Index: 42.43 (-0.63) < -1.46% >
US Treasuries rose in yields, led by longer-term bonds, as the Fed signaled it would keep rates near zero for an extended period, steepening the yield curve. Following the FOMC, yields rose especially on long-term bonds sensitive to inflation expectations. The 2-year–10-year yield spread widened to 56 basis points, well above the 33 basis points seen on July 24.
【US Stock Trading Strategy】
US stocks were mixed, with tech stocks selling off and the VXN rising. The drop in stock prices and the rise in volatility index reflect normal risk-off behavior. Given the high levels and recent stock volatility, some market participants are increasingly preparing for declines. As always, it is difficult to judge from a single day's move, but the stance will likely be maintained until a clear trend breaks. The approach centered on the FANG Index and Nasdaq-100 should not be changed.
The FOMC was as expected, with no surprises. Long-run rate forecasts are not reliable, so they are of little use. But markets focus on them, and it’s fair to say they watch them reluctantly. The market structure is complex, and the virus adds further uncertainty. It is impossible to forecast the future easily. Therefore, it’s fine to use Fed participants’ forecasts as a reference, but not more. In the end, the market itself will decide. It is prudent to focus on market moves and follow them in your trading.
According to Bank of America Securities’ latest institutional investor survey released on the 15th, there was an unprecedented influx of investors into the US tech sector, making it the most “crowded” trade to date. With a second wave of COVID-19 expected, tech may become the biggest risk going forward. The survey conducted from March 3–10 showed institutions rotating into cyclical stocks from March lows and not chasing momentum. On the other hand, the share of respondents saying a new bullish regime has begun rose from 25% in May to over 50%.
Overall, 41% said the most likely trigger for higher bond yields is a reliable COVID-19 vaccine; 37% expect vaccine announcement in the first quarter of next year.
Short-term trading strategy is to maintain long positions on major stock indices, with a focus on the FANG Index. The Dow could also be long. Indices such as the S&P 500 or Nasdaq-100 could also be long, but holding many indices is not necessary; one or two indices could be enough. The core remains the FANG Index. Also, with the presidential election approaching, the view remains that the market will stay firm for about two more months. Of course, forecasts can be wrong. It is important and prudent to follow the market’s moves and act accordingly.
Long-term portfolio strategy remains unchanged. I bought dips in the Nasdaq index this time, but ended up with three buys, down 5%, 7.5%, and 10% from the high. I will continue to add to positions in this manner. Unless something major happens, I plan to hold positions and let profits run rather than lock in gains. For now, focus on Nasdaq-100 or FANG Index for longs, adding S&P 500 and others as appropriate.
Going forward, I will buy on dips in 2.5% increments from the most recent high, up to 20 steps to a maximum 50% drawdown. Already bought on dips to 5%, 7.5%, and 10% are completed. I will continue buying at levels 12.5% or more down. Of course, if prices reach new highs, I will buy again 5% below that high. I will manage funds to be able to buy on dips up to 50% off the high. This investment will be done via ETFs, and avoiding leverage is important.
As repeated, in a bear market, don’t buy all at once; spread purchases over about 10 rounds. This time, I will split into 20 rounds to avoid missing opportunities. If you stay in cash and wait for a sharp drop, opportunities will come. It may be now. I will start by putting 5% of cash into dips. Personally, I have been setting up daily purchases of balanced funds and tech-focused funds, and I want to start buying Nasdaq-100 (QQQ) etc. Of course, buy the same amount of gold at the same time to automatically hedge risk.
If you buy US stocks and gold together, you can achieve similar long-term returns as investing solely in US stocks, while reducing volatility. It eliminates much of the psychological burden. This is not always understood, but trying it will demonstrate why buying stocks and gold together is beneficial. Details about gold are explained in my new book “Buy Gold: The Beginning of the End of the US Stock Bubble Economy.” I invite you to read it.
By the way, in terms of investment targets, for short-term trading use futures or CFDs, and for long-term portfolios use physical assets such as ETFs. In long-term portfolios, avoid leverage. Also, as always, avoid putting everything into stocks. A down market can trap you and you may miss opportunities to buy at lows. If you expect declines of 50% to as much as 75%, you can still buy on dips during such periods, including during the Lehman-level downturn.
Fundamentally, leaving room to buy on a 50% drop would ensure gains in most cases. If you diversify across assets and time, you can use a major downturn to buy the dip and monetize later. Always keep cash on hand and ensure you can buy on downswings—this is a key to growing wealth in long-term investing. Personally, I favor the “three-way split” of stocks, gold, and cash, but as inflation rises, more cash will be allocated to stocks and gold.
＜US Equity Market Short-Term Trading Strategy＞
Dow: Long
S&P 500: Short
Nasdaq Composite: Short
Nasdaq-100: Short
FANG Index: Long
Russell 2000: Short
VIX: Long
VXN: Long
SOX: Short
【US Bond Trading Strategy】
US 10-year futures: Long
US High-Yield Bonds: Short
US 10-year TIPS yield: Long
MOVE index: Short
【Europe & Others Stock & Bond Market Commentary & Analysis】
FTSE: 6078.48 (-27.06) < -0.44% >
DAX: 13255.37 (+37.7) < +0.29% >
Euro Stoxx 50E: 3338.84 (+6.58) < +0.2% >
Shanghai Composite: 3283.924 (-11.76) < -0.36% >
Hang Seng Index: 24725.63 (-7.13) < -0.03% >
H Shares: 9845.79 (+16.72) < +0.17% >
NIFTY: 11604.55 (+82.75) < +0.72% >
Bovespa Index: 99675.68 (-622.23) < -0.62% >
Russia stocks: 1251.86 (-1.82) < -0.15% >
London stocks fell. Brexits-related tensions between the UK and EU continued to be watched. The pound’s strength weighed on exporters. EU Commissioner President von der Leyen stated that as the UK pushes to refine its Brexit Withdrawal Agreement, the probability of a trade deal with the EU is diminishing day by day. The Hut Group, which IPO’d that day, surged 25.0%. It was the biggest IPO for a UK company since 2013. Redrow, a homebuilder with declining full-year profits, fell 1.8%.
The market is watching the Bank of England’s policy meeting on the 17th.
European stocks extended gains. Inditex, the Spanish apparel group under the Zara brand, posted strong results, boosting retail stocks; Inditex rose 8.1%. Online sales surged and store sales recovered, signaling normalization; STOXX600 Retail rose 1.31%.
UK 10-year yield: 0.213% (-0.006)
Germany 10-year yield: -0.479% (+0.002)
France 10-year yield: -0.219% (-0.011)
Italy 10-year yield: 0.973% (-0.026)
Spain 10-year yield: 0.262% (-0.011)
Portugal 10-year yield: 0.296% (-0.007)
Greece 10-year yield: 1.066% (-0.027)
Eurozone bonds fell, with Italy’s 10-year yield at its lowest since early March. Several ECB officials indicated room for further easing if needed. Southern European bonds were bought that day.
ECB Executive Board member Schnabel suggested that if euro area inflation does not move toward the ECB’s target, policy adjustments could be warranted. Schnabel stressed that “the exchange rate is not an objective of ECB policy.” Given the recent strength of the euro, he said, “we continue to monitor the information released, including exchange-rate movements.” The ECB has pursued demand-stimulating measures via emergency policy responses to the coronavirus; Schnabel said that actions would be taken if those aims are not met. He added that a V-shaped recovery to pre-crisis levels is unlikely; it will take time, but a sustainable recovery is expected, and that applies to the inflation outlook as well.
UK Office for National Statistics’ August CPI rose 0.2% year over year, the lowest in 4 years and 9 months since December 2015, down from a July increase of 1.0%. The core index (excluding energy, food, alcohol, and tobacco) rose 0.9%, down sharply from 1.8% in July.
EU Commission President von der Leyen warned on the 16th that the likelihood of a new trade agreement with the UK was decreasing by the day and that time left to prepare by year-end was very limited. She delivered a speech to the European Parliament outlining that the chances of a timely Brexit deal were diminishing as days pass, and that both the EU and UK had to negotiate and ratify the Withdrawal Agreement, warning the UK not to unilaterally change or ignore the pact.
She added that this is a matter of law, trust, and integrity, and trust is the foundation of a strong partnership; the EU would never revoke the Brexit agreement. Brexit was touched on only briefly in the speech; most attention was on pandemic recovery and digital/climate investments.
Eurostat released July euro area external trade balance data: +27.9 billion euros (surplus) year-on-year; the EU as a whole posted a surplus of 25.8 billion euros. Euro area exports fell 10.4% year-on-year to 185.2 billion euros; imports fell 14.3% to 157.3 billion euros. EU-wide exports fell 11.3% to 168.5 billion euros; imports fell 16.0% to 142.6 billion euros. Euro area intra-EU trade fell 8.6% to 153.7 billion euros; EU-wide trade fell 7.4% to 239.2 billion euros.
【Major Equity Indices Trading Strategy】
FTSE, DAX, Hang Seng, NIFTY, Bovespa, and Russian indices—see below. Diversifying across different indices can help other holdings support overall portfolio performance. Use these to monitor global market trends. If you have funds, consider including them in trading.
＜Major Equity Markets Short-Term Trading Strategy＞
FTSE: Long
DAX: Long
Euro Stoxx 50E: Long
Shanghai Composite: Short
Hang Seng: Short
H-shares: Short
NIFTY: Long
Bovespa: Short
Russia: Short
【Japan Stock Market Commentary & Analysis】
Chicago Nikkei futures: 23,350 (-30) < -0.13% >
Nikkei Stock Average: 23,475.53 (+20.64) < +0.09% >
TOPIX: 1,644.35 (+3.51) < +0.21% >
Mothers Index: 1,181.23 (+28.89) < +2.51% >
Nikkei futures (front month): 23,300 (-20) < -0.09% >
TOPIX futures (front month): 1,629.5 (-0.5) < -0.03% >
Mothers futures (front month): 1,136 (+28) < +2.53% >
Government Bond futures (front month): 151.99 (-0.01) < -0.01% >
Nikkei VI: 20.84 (+0.18) < +0.87% >
TSE REIT Index: 1,739.13 (+21.86) < +1.27% >
Japan 2-year yield: -0.146% (-0.004)
Japan 5-year yield: -0.11% (-0.006)
Japan 10-year yield: 0.014% (±0)
Japanese stocks edged up modestly as trading cooled ahead of the FOMC decision. 62% of stocks rose, 34% fell. Volume: 1.16886 billion shares; turnover: ¥2,139.8 billion. The Tokyo stock market lacked a clear direction ahead of the FOMC decision in New York after hours. The Nikkei rose only slightly as a result, with dip buying concentrated on names that fell the previous day.
However, the dollar/yen moved into the low-105s, with yen strength and dollar weakness pressuring exporters. In the afternoon of the 16th, LDP President Suga Yoshihide was named prime minister during a special session of the Diet. Market participants expected additional economic stimulus from PM Suga, suggesting a near-term firm market.
At the 16th, Suga was named the 99th Prime Minister in the Special Session of the National Diet. He immediately began forming a cabinet. After an audience with the Imperial Palace and a cabinet approval ceremony, the Suga administration, a coalition between the LDP and Komeito, was launched. This marked the first leadership change in 7 years and 9 months. As he is not from any faction or a hereditary politician, this is effectively the first non-faction-led cabinet in the LDP. Suga aims to continue Abe’s policies to tackle COVID-19 and rebuild the Japanese economy, and also pursue Abe’s goal of completing the postwar diplomacy audit.
In the PM nomination vote, Suga won 314 votes in the House of Representatives and 142 in the House of Councillors on the first ballot. After a meeting with Komeito leader Yamaguchi, the cabinet lineup was decided. Kato, the former Health, Labour and Welfare Minister, was appointed Chief Cabinet Secretary; Kono, the former Defense Minister, was appointed Minister of Administrative Reform; Harai, the former Science and Technology Minister, was appointed Minister for Digital Reform. Kato also serves as Okinawa base burden reduction and abduction issues minister, while Kono handles Okinawa and northern territories. The Abe administration’s continuity was also emphasized, with eight ministers including Deputy Prime Minister Aso and Finance Minister retaining their posts.
On the evening of the 16th, Prime Minister Suga held his first post-inauguration press conference, saying, “My mission is to carry forward the Abe administration’s efforts to overcome the COVID-19 crisis and restore the lives of the people with confidence.” He said that economic revival is the most important task and would continue Abenomics—monetary easing, fiscal investment, and growth strategy—and push further reforms. He also stated that the “Cherry Blossom Viewing Party” would be suspended from next year onward due to criticisms under Abe’s administration.
On calls within the LDP for an early lower-house dissolution, Suga emphasized that what the people want now is both fast COVID-19 containment and economic revival; he will prioritize balancing both. He said he would focus on economic recovery first. He noted there could be a dissolution and general election within a year and would consider the timing accordingly. On cutting bureaucratic silos, he said “regulatory reform should be at the center of the administration,” and outlined a plan to work with Minister Kono to push reforms. He also said he would establish a “110 number” for a centralized approach to regulatory reform.
He announced the creation of a Digital Agency to consolidate policies across ministries and accelerate digital reform. In foreign policy, he said he would aim for a postwar diplomacy consolidation and to address abduction issues. He stated that “the abduction issue is as important as in Abe’s administration” and would take the lead with unwavering determination. He apologized for the death of Megumi Yokota’s father, Shigeo.
Regarding issues such as Moritomo and Kake, he stated that there were various criticisms of the Abe administration that needed correcting, but reiterated that the Moritomo documents alteration case had been resolved after the Finance Ministry’s investigations and prosecutors' investigations. Regarding suspending the Cherry Blossom Viewing Party in the future, he noted the need to focus on COVID-19 measures, and had previously told Abe that the budget request for the party was not advisable.
The Finance Ministry’s August trade statistics showed exports in August at 537.526 billion USD, down 14.8% YoY. Excluding autos, etc., the figure was down 0.7% or so. July core retail sales were revised down, and overall retail sales were revised down as well. Aug exports outperformed core index due to higher gasoline sales caused by higher gasoline prices.
Exports have fallen for 21 consecutive months. The drop from May’s 28.3% peak fell to 26.2% in June, 19.2% in July, and August’s decline continued but lessened. The Ministry noted it remains to be seen whether demand has truly recovered or if this is a rebound. By product, autos fell 19.4%, mineral fuels (diesel) fell 68.8%, ships fell 57.3%. By destination, the US fell 21.3% to 936.9 billion yen; the EU fell 19.2% to 476.3 billion yen. China, however, rose 5.1% to 1.2616 trillion yen. Semiconductors equipment rose 35.6% and nonferrous metals rose 81.4%.
【Japan Stock Trading Strategy】
Nikkei futures (night session): Long
Nikkei futures (front month): Long
Nikkei VI: Short
TOPIX Leverage (1367): Long
VIX shorts futures (1552): Short
Nikkei 2x? Actually skip
〔CURRENCY MARKET〕
USD/JPY: 104.94 (-0.49) < -0.46% >
NZD/USD: 0.6731 (+0.001) < +0.15% >
USD/CAD: 1.3176 (-0.0005) < -0.04% >
CAD/JPY: 79.63 (-0.31) < -0.39% >
EUR/GBP: 0.911 (-0.008) < -0.87% >
EUR/AUD: 1.617 (-0.0057) < -0.35% >
GBP/AUD: 1.7747 (+0.0101) < +0.57% >
EUR/NZD: 1.7549 (+0.1322) < +8.15% >
AUD/CAD: 0.9621 (-0.0004) < -0.04% >
NZD/CAD: 0.8869 (+0.0008) < +0.09% >
USD/CHF: 0.9092 (+0.0012) < +0.13% >
MXN/USD: 20.929 (-0.214) < -1.01% >
MXN/JPY: 5.0069 (+0.0277) < +0.56% >
TRY/USD: 7.5054 (+0.02) < +0.27% >
RUB/JPY: 1.3964 (-0.0062) < -0.44% >
USD/CNH: 6.7444 (-0.0355) < -0.52% >
CNH/JPY: 15.5559 (+0.015) < +0.1% >
The Fed announced near-zero rates and QE in place. It signaled it would keep zero rates at least through the end of 2023. While this caused some brief dollar buying due to the upgrades to growth, the overall trend remained dollar weakness and yen strength. The dollar index rose 0.07% to 93.19. EUR/USD fell.
Meanwhile, offshore yuan rose to 6.7426 per USD, a fresh high since last May. August industrial production and retail sales data in China showed improvement for the first time this year, fueling expectations that other countries could recover from COVID-19 faster than the US and pressuring the dollar.
New Zealand’s Stats NZ reported the June quarter current account turned into a surplus of NZ$482 million, reversing a prior NZ$1.381 billion deficit. A goods surplus contributed to the best current account since 2009. Goods and services balance was a NZ$2.158 billion surplus (prior: NZ$0.446 billion).
【Currency Trading Strategy】
The USD/JPY is under rapid yen- strength pressure. The FOMC was as expected, but yen strength had already progressed well beforehand, suggesting some market manipulation may be involved. Some market commentary suggests selling due to uncertainty about the Suga administration, but the notion that uncertainty equals yen strength remains. However, with limited room for further Fed easing and BoJ policy space constrained, it will be difficult for the currency to move on interest rates alone.
In that case, political moves will likely become more important. We need to confirm whether the Suga administration will continue the “yen depreciation = stock price rise” policy. The view that yen depreciation boosts stocks is not true, but if the market understands this harmful thinking and shifts away, a stronger yen could be fostered. However, given the current cabinet lineup, few expectations for this shift exist. In the near term, 105 yen could act as resistance, and moves toward 100 yen could accelerate.
EUR/USD is failing to push higher and is moving lower. Not a great move. It looks like it may test lower levels; a correction around 1.17 is in view. If a floor is found there, a rebound could occur.
GBP/USD continues to rebound. Brexit talks’ stalemate is largely priced in; near-term oversold conditions are unwinding. It has avoided breaking below 1.27 and moved higher, which could trigger further short-covering. If it struggles to hold above 1.31, further declines may remain.
AUD remains solid, with little volatility but a steady uptrend supported by improving Chinese data. Riding this trend appears wise. A move above 0.7360 could push higher. NZD is also firm, but watch for overbought conditions.
Currency trading should be trend-following—buy strong currencies and sell weak ones. Counter-trend trades should be avoided as a core principle.
Summary of major currency pairs, positions unchanged from the previous day:
USD: -5
JPY: +3 (+2)
EUR: -1
GBP: -7
AUD: +5
NZD: +7
CAD: -3
CHF: +1 (-2)
＜Currency Market Short-Term Trading Strategy＞
USD/JPY: Short
EUR/USD: Long
GBP/USD: Short
AUD/USD: Long
NZD/USD: Long
USD/CAD: Short
EUR/JPY: Short
GBP/JPY: Short
AUD/JPY: Long
NZD/JPY: Long
CAD/JPY: Short
EUR/GBP: Long
EUR/AUD: Short
GBP/AUD: Short
EUR/NZD: Short
GBP/NZD: Short
EUR/CAD: Long
GBP/CAD: Short
AUD/NZD: Short
AUD/CAD: Long
NZD/CAD: Long
USD/CHF: Short
CHF/JPY: Turn to Short
EUR/CHF: Short
GBP/CHF: Short
AUD/CHF: Long
NZD/CHF: Long
CAD/CHF: Short
MXN/USD: Short
MXN/JPY: Long
TRY/USD: Long
TRY/JPY: Short
ZAR/USD: Short
ZAR/JPY: Long
USD/BRL: Short
BRL/JPY: Long
USD/RUB: Long
RUB/JPY: Short
USD/CNH: Short
CNH/JPY: Long
〔COMMODITY MARKET〕
【Precious Metals Market Commentary & Analysis】
Gold: 1959.318 (+3.8) < +0.19% >
Silver: 27.33 (+0.09) < +0.35% >
Platinum: 968.73 (-9.47) < -0.97% >
Palladium: 2399.428 (-10.61) < -0.44% >
Gold prices rose. The Fed’s dovish stance to support the economy from the COVID-19 crisis keeps gold supported.
【Gold Trading Strategy】
Gold prices are gradually moving higher. Technically, overbought signals exist, but surpassing $1,970 could trigger a strong rise. The move may be imminent. The FOMC had little impact, but the commitment to keep rates low through 2023 is very supportive for gold, and this is not priced in by the market. I expect a large rise eventually and intend to steadily build gold positions now.
I advocate the “three-way split” of stocks, gold, and cash. Buy gold when buying stocks. For individual investors, this is simple. Stocks can be invested via US stock index ETFs; gold can be held as physical or via ETFs. Cash is used to add to positions when stocks or gold fall. Bond investments have little appeal now; gold is better. The sages endorse gold. Buying the same amount of gold when buying stocks is highly rational.
For more on gold, see my new book “Buy Gold: The Beginning of the End of the US Stock Bubble Economy.” Please consider subscribing.
＜Precious Metals Market Short-Term Trading Strategy＞
Gold: Long
Silver: Long
Platinum: Long
Palladium: Long
【Base Metals Market Commentary & Analysis】
Aluminum: 1793 (-0.5) < -0.03% >
Copper: 6792 (+34) < +0.5% >
Nickel: 15215 (-25) < -0.16% >
Zinc: 2525.5 (+23) < +0.92% >
Lead: 1892 (-17.5) < -0.92% >
COMEX Copper: 3.058 (-0.005) < -0.16% >
＜LME Stocks (vs prior day)＞
Aluminum: 1,510,400 tons (-3,525)
Copper: 78,900 tons (+350)
Nickel: 237,276 tons (+96)
Zinc: 219,625 tons (-75)
Lead: 136,675 tons (+6,325)
London base metals market remains firm in copper, driven by manufacturing activity in China, steel production, and infrastructure growth. Demand from China appears to be recovering. Zinc surged on the day; reduced LME stock and expectations of Chinese demand and a stronger yuan are pushing zinc toward multi-year highs—around $2,583 per ton as of Sept. 1, the highest in about 1 year and 4 months. Zinc has rebounded about 34% from its March low.
【Base Metals Trading Strategy】
Base metal prices remain at high levels. With global economic recovery and expectations of rising demand from China, the bullish trend remains. If equities stay strong, base metals should stay robust. Each metal is expected to trend toward new highs.
＜Base Metals Market Short-Term Trading Strategy＞
Aluminum: Long
Copper: Long
Nickel: Long
Zinc: Long
Lead: Short
COMEX Copper: Long
【Energy Market Commentary & Analysis】
WTI Crude: 40.18 (+1.9) < +4.96% >
Brent Crude: 42.22 (+1.69) < +4.17% >
RBOB Gasoline: 1.1965 (+0.0584) < +5.13% >
Heating Oil: 1.1163 (+0.017) < +1.55% >
Natural Gas: 2.253 (-0.109) < -4.61% >
OVX: 41.13 (-4.06) < -8.98% >
＜EIA Weekly Petroleum Status Report (US)＞
Crude Oil Stocks: -4.39 million barrels (49.60 million barrels)
Cushing Stocks: -70k barrels (54.28 million barrels)
Crude Oil Production: +0.9 million bpd (daily 10.9 million)
Crude Imports: -0.41 million bpd (daily 5.01 million)
Crude Exports: -0.35 million bpd (daily 2.60 million)
Gasoline Stocks: -0.38 million barrels (232 million barrels)
Gasoline Demand: +0.09 million bpd (daily 8.48 million)
Distillate Stocks: +3.46 million barrels (179 million barrels)
Distillate Demand: -0.90 million bpd (daily 2.81 million)
Oil Product Demand: -1.65 million bpd (daily 17.03 million)
Refinery Utilization: +4% (75.8%)
Crude prices extended gains, rising over 4%. US crude and gasoline inventories fell, and offshore production shut-ins due to Hurricane Sally supported prices. The EIA’s weekly US crude inventory fell by 4.4 million barrels to 496.0 million, the lowest since April. Gasoline inventories fell by 0.4 million barrels; refinery utilization rose by 4 percentage points.
US Interior Department reported that in the Gulf of Mexico, crude oil production of about 0.5 million barrels per day was halted due to Sally, about one-third of what was disrupted during Hurricane Laura in August. OPEC+ held a meeting on Sept 17 to monitor supply cuts; there is little expectation of further cuts.
IEA’s monthly report cut its 2020 global oil demand forecast by about 0.2 million bpd to 91.70 million bpd, citing cautious pace of recovery from the pandemic. The IEA noted that demand would slow significantly in the second half, and it would take months for the economy to recover; further, a potential second wave could constrain mobility. The report also noted that 2020 H2 stock reduction was revised down to around 3.4 million bpd from last month’s forecast. Advanced-country stock levels rose to a record high in July.
Meanwhile, August global oil supply rose by 1.1 million bpd as OPEC+ eased coordinated cuts. Non-OPEC+ output rose for two months, then declined. US production fell by 0.4 million bpd due to hurricane shutdowns.
【Energy Trading Strategy】
Long WTI and Brent crude. While a trend-following strategy might favor shorts, there are signs of a bottoming near term. Having already covered some at the bottom and with room to maneuver, I will go long for now and observe. The situation is not outright improved, but there is a sense of a rebound. Open a position and cut losses if wrong. After taking a position, analyze the market backdrop. This approach is aligned with the method of respected investor George Soros.
OPEC appears unable to cut further, making it unlikely prices rise solely on OPEC. Therefore, price support will require US demand-supply improvements as well as external factors such as rising stock prices. OPEC may no longer hold pricing power. In the US, gasoline demand season ends and refinery maintenance period begins; inventories tend to rise during this season. Hurricanes can reduce output, potentially pushing prices higher, but such effects are usually temporary. If damage is severe, demand risks rise.
There are no obvious signs of a market reversal, but opportunities can emerge in unexpected places. Monitor the above data and observe market trends with caution.
＜Oil Market Short-Term Trading Strategy＞
WTI: Short
Brent: Short
RBOB Gasoline: Short
Heating Oil: Short
Natural Gas: Long
OVX: Long
(However, use discretion to go long)
◇ Global Macro Strategy
The investment strategies presented in this newsletter fall under the “global macro strategy” category in the hedge fund industry.
This strategy is among the world’s most proficient hedge fund techniques and is considered the “king” of hedge fund investing.
This strategy surveys all markets and seeks profits by spotting investment opportunities across currencies, stocks, interest rates, and commodities.
Regardless of price movements up or down, if price volatility is expected, you bet on it.
Higher volatility implies higher returns, so we strike boldly when opportunities arise.
In this uncertain global environment, price movements in major markets—currency, equities, interest rates, and commodities—have intensified.
As a result, market forecasts have become extremely difficult.
Under such conditions, global macro strategies—trading across a wide range of markets—are advantageous.
Of course, we will also provide concrete timing for trades in individual markets.
Let’s trade in the market using the “global macro strategy,” the king of hedge fund strategies.
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