In today’s briefing:
- Where Now for the Hong Kong Market?
- Hawkish Forward Guidance by Fed Fails to Dampen Bullish Sentiment
- Tactically Cautious, But Not Bearish
- Harvesting Seasonality in Iron Ore Prices Induced by Weather, Inventory Restocking, and Holidays
- The Market Gods Present Patient Investors With Three Gifts
Where Now for the Hong Kong Market?
- Minimum correction targets have been hit for the Hang Seng Index
- Some potential catalysts for the resumption of the bull market
- We highlight some suggested sector allocations for the next phase
Hawkish Forward Guidance by Fed Fails to Dampen Bullish Sentiment
- The Fed’s latest Summary of Economic Projections contained hawkish adjustments to long-term estimates of unemployment and the federal funds rate. Policy may not have been as tight as previously estimated.
- The pressure to ease monetary policy in Canada and the Eurozone was more intense due to the prevalence of much higher levels of unemployment compared to the US.
- Risky assets will increasingly discount the arrival of a lower FFR, thereby potentially making Chairman Powell reluctant to be more dovish due to fears about another US equity market bubble.
Tactically Cautious, But Not Bearish
- A series of negative breadth divergences is signaling caution for the stock market advance.
- However, breadth divergence can persist for a long time and these divergences should be regarded as cautionary conditions and not outright sell signals.
- Investors should mitigate their long exposure using risk control techniques, such as using trailing stops, or take advantage of the low VIX to buy cheap downside put protection.
Harvesting Seasonality in Iron Ore Prices Induced by Weather, Inventory Restocking, and Holidays
- SGX Iron Ore prices exhibit seasonality. For select six months being long Iron Ore combined with short positions during other months deliver positive P&L based on back tests.
- In line with prices, realised volatility exhibits seasonality too. Options strategies can exploit this to deliver superior alpha & higher sharpe ratio.
- Averages confound extreme variances. Monthly iron ore futures price returns are less volatile during the months of December, February, June, October, & March based on range.
The Market Gods Present Patient Investors With Three Gifts
- Market conditions are setting up for buying opportunities in three markets. U.S. equities will probably weaken on disappointment over the timing of rate cuts.
- European stocks corrected over political turmoil in France that’s likely to be temporary.
- China’s announcement that its central bank had suspended gold buying looks like an entry point in the near future.
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