📈 5 Things You Need to Know to Start Your Week

27th August, 2024

August 28, 2024

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Five Things to Start Your Week

Welcome back from a long Bank holiday weekend, UK Folks!

Our Alpha Portfolio is at +7.5% YTD.

  • Leading: SM Energy Co at +14.7%

  • Lagging: DRD at -13.1%

ICYMI: This memo was sent again if you missed it earlier today.

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Market Snapshot

Global markets are mixed across the East and West.

Asian markets, especially China and Taiwan, are under pressure—Taiwan's TSMC (TSM) falling -3.64% and China's PDD plunging -33.82%, indicates growing concerns over tech and geopolitical risks.

European and US energy stocks like BP (+0.73%) and TTE (+2.01%) are relatively strong, supported by rising oil prices.

Latin America shows resilience, with Brazil's PBR up 3.49%, reflecting commodity strength.

In contrast, some key tech names in Europe, such as ASML (-5.34%), face sell-offs, hinting at sector rotation out of growth stocks.

Macro Trade Idea

  • Short Asian tech (e.g., Taiwan Semi and Chinese internet giants).

  • Long energy plays in Europe and LatAm, taking advantage of the tailwinds in the commodities sector.

Middle-East Watch

Markets are watching the region as war spreads in the Levant. Markets traded cautiously on Monday, a day after 100 Israeli warplanes swooped over southern Lebanon, taking out thousands of Hezbollah missile launchers in what was called a preemptive strike. Officials said Israel’s assault was based on intelligence that Hezbollah was about to fire thousands of missiles at northern Israel. Hezbollah responded by firing more than 200 projectiles, according to Israel, although officials said very limited damage was caused.

Crude Outlook

In commodities, oil slid as Wall Street sours on the outlook for crude next year. Goldman Sachs and Morgan Stanley have lowered their price forecasts as global supplies increase, including potentially from OPEC+.

The two banks now foresee global benchmark Brent averaging less than $80 a barrel in 2025 and both expect the crude market will be in surplus, with prices trending lower over 12 months. A decision by OPEC+ to reverse voluntary supply cuts may mean that the cartel is aiming at “strategically disciplining non-OPEC supply,” Goldman analysts said while warning that crude prices could undershoot their revised forecasts in a number of scenarios.

Newsworthy

This is what’s caught our eye over the Bank holiday Monday.

And finally, here's what Ali’s interested in this week

The Fed is almost certainly going to start cutting interest rates in September, and generally, that's seen as good news for individuals and businesses that seek to borrow money.

You know, would-be homebuyers, real estate developers, clean energy companies, and so forth.

And of course, all things being equal, yes, the Fed cutting rates does benefit borrowers. But, a few notes of caution.

For one thing, borrowing costs have already come down substantially. The average 30-year mortgage was over 8% in late 2023. Today it's under 7%.

Ultimately, if you want to see lower interest rates, it doesn't matter too much if the Fed cuts 25 basis points or 50 or what it does in the next month.

What matters is the general trajectory of inflation, for the lower that goes, the lower the Fed can reduce interests. And of course, if the Fed cuts too much, and causes the economy to reaccelerate and heat up again... well then one can easily imagine a scenario where today's rate cuts mean higher yields on long-term Treasuries and higher borrowing costs for firms and individuals going forward.

Wait, that’s pretty much been our Roaring 20’s thesis since November 2018!

Have a great week.

Ali is the Editor of The Insider Memo, Follow him on X @ASAInsights

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