Investor’s Insights 19/06/2023 —25/06/2023
This newsletter is intended for educational purposes only. The author is not liable for any potential losses, realised or unrealised, of the reader should the reader decide to invest, speculate, hedge or engage in any financial activities based upon the information here. The reader shall do his or her own research and bear the risks should he or she intend to invest.
Welcome to this week’s issue of Investor’s Insights. I would like to thank all of you for your support, and especially those who took the time and effort to give me precious feedback as to how I can improve my newsletter. I have heard you. Here are some of the feedback that I received:
- The content can be a bit confusing as I combined market updates and educational finance content
- Singapore is not covered (The reason is because Singapore is a small market so volatility is relatively low and opportunities for profit are mainly for the ultra rich who prefer to invest in blue chip dividend stocks, plus there has not been much going on here)
- The second part (Investment Product Tracker) is quite irrelevant because my newsletter is published on a weekly basis
In response to the above feedback, I will do the following respectively:
- Split my newsletter into 2: ‘Investor’s Insights’ for weekly market updates and ‘Investor’s Education’ for educational finance content that I will publish on an ad hoc basis
- Conduct research on Singapore but it does not mean I will cover Singapore
- Remove the Investment Product Tracker and put more focus onto research
Once again, thank you to those who have gave me your invaluable opinion to improve the newsletter. For those who have not, if you have any feedback, feel free to let me know!
Geographical breakdown
Now, moving on to actual Global Macro content for this week. For this week, focus is on the CBRT’s hiking of one-week repo auction rate, higher than expected inflation in the UK, as well as the Fed’s target Fed Funds Rate and potentially 2 more hikes later on this year after the skip in June.
USA
First of all, let us look at the FOMC board members’ voting of the target Fed Funds Rate. I would have preferred to create a ‘dot plot’ but could not find the relevant chart on Excel which is what I used so I settled for bar chart instead. If you have any idea how to create a dot plot do let me know, I would greatly appreciate it.
I have put together the mean, median and mode of the voted target Fed Funds Rate, and it is unanimous that we are seeing a downward trend in rates. The current Effective Fed Funds Rate is 5.06%, suggesting that the Fed will likely begin cutting rates before the end of this year.
However, the Fed also announced that they might consider 2 more hikes later this year after the skip in June, so perhaps these 2 hikes may come sooner within Q3. It is important to monitor the FOMC meeting on 25–26 July to see what their next move is. In the meantime, longing SPY (S&P500 ETF) is not a bad idea since the stock market is roughly 6 months leading of actual GDP.
UK
The current inflation rate in the UK is 8.7%, much higher than the 2% target rate which means there is much room for further rate hikes to stem inflation. On 22 June 2023, the BOE released its Monetary Policy Summary, with the report indicating that there is a majority vote to increase Bank Rate from 4.5% to 5%, a 0.5 percentage point jump.
A potential trade idea would be to long GBP/JPY due to the interest rate differential.
Now, Japan’s inflation came out slightly higher than forecast at 3.5%. However, considering the fact that most developed economies are facing inflation of around 5%, Japan’s inflation problem seem to be under control as of now and is unlikely to hike rates in the very near future.
Turkey
The CBRT issued the Press Release on Interest Rates on 22 June 2023, indicating that it will raise the one-week repo auction rate from 8.5 percent to 15 percent. Surprisingly, the Lira depreciated against the US Dollar upon release of this piece of news.
USD/TRY went up from 23.5 to 25.27, meaning USD appreciated (or TRY depreciated).
A number of factors could be responsible: lower than expected hikes, Central Banks intervening or perhaps short sellers trying to break the CBRT like how George Soros broke the BOE. Continued monitoring is required in the Turkish markets.
