"Roar Kitty, Roar!"

Hi There! Every morning, I spend a couple minutes meticulously removing what I used to think of as “chicken sperm” from my eggs. In Grenada, we call this "the Fresh." After a recent deep dive into the wonders of egg anatomy, I discovered these squiggly little strands have a fancy name: Chalazae (kuh-LAY-zee). These ropey strands of egg white aren’t imperfections or future chicks; they’re simply there to anchor the yolk in place, ensuring it stays centered. Each egg has two chalazae, one on each end of the yolk. Contrary to my previous beliefs, chalazae indicate the egg's freshness and don’t affect the taste or cooking process. While some chefs might strain them out from custards for a smoother texture, there's no real need to remove them. So, next time you spot these little ropes in your eggs, remember they’re just yolk bodyguards doing their job! However, I will still be removing them from my eggs.

Alright, let’s dig in!

Markets ended the week quietly after a sharp sell-off. Last Friday's PCE index met expectations, preventing a deeper drop but not signaling any imminent Fed rate cuts. The key question is whether markets have priced in no rate cuts until December or even 2025. Investors now look to the upcoming Jobs report on June 7 and new consumer and producer price data in the following week for direction.

Last Week Market Performance

• Major Benchmarks: The major benchmarks closed lower over the holiday-shortened week. The S&P 500 ended at -0.4%, the Dow ended down -1.0%, and Nasdaq fell the hardest, ended at -1.1%.

• Stock Movements: Gains were driven by Gap and Chewy up 36% and 25%, respectively, while declines in MongoDB (-25%), Dell (-21%), and Lotus Technology (-21%) led to overall market losses. Advance Auto Parts also struggled due to poor earnings.

Economic Indicators

• Personal Consumption Expenditure (PCE) Index: The PCE price index report showed core PCE prices rose 0.2% in April, indicating calming inflation pressures. Headline PCE rose 2.7% year over year, with core PCE was slightly higher at 2.8%.

• Conference Board’s Consumer Confidence Index: The Index indicated a rise in consumer confidence from 97.5 to 102.

• GDP Growth: First-quarter GDP growth was revised down to 1.3% from 1.6%, with second-quarter growth expected at 3.5%.

• Pending Home Sales: Fell 7.7% month over month, causing record-high prices due to supply deceleration.

Corporate Highlights

• AMD Launch: At Computex 2024, AMD announced a series of new AI chips, including the AMD Ryzen AI 300 Series processors and Ryzen 9000 Series processors, aiming to enhance AI experiences and solidify its market position. Analyst consensus on AMD remains a Strong Buy with an average price target of $192.56.

Earnings Reports

• Costco: Reported a 29% increase in earnings per share, driven by a 20% rise in online sales.

• Salesforce: missed earnings for the first time since 2006, despite a 32.1% operating margin.

Bond Market

• Treasury Yields: Bond yields fell after the inflation report, with the 10-year Treasury nearly unchanged at 4.51%.

Global Markets

• Eurozone Inflation: Inflation fell to 2.4% in April but rose to 2.6% annually in May. Core inflation increased from 2.7% to 2.9%. Markets are pricing in 50 basis points of rate cuts this year, but economists are uncertain if the ECB will wait longer.

• European Markets: Mixed interest rate sentiment kept European stocks muted. The STOXX Europe 600 closed at near -0.4%, and London’s FTSE 100 closed lower (-0.7%).

• Asian Markets: Faced selling pressure due to geopolitical and property concerns. The Hang Seng index closed nearly 3% in the red, while Japan’s Nikkei 225 closed just below 2% down.

Political Developments

• Argentina: President Javier Milei met with Apple, Google, Meta, OpenAI CEOs in San Francisco to boost investment in Argentina, focusing on the country's significant Copper and Lithium reserves. Milei's reforms aim to gain investor confidence with fiscal constraints from the government.

Cryptocurrency Highlights

• Consensus 2024 Web3 Conference: Key takeaways included advancements in blockchain scalability, interoperability, improved user experience for dApps, security, and multi-chain wallets.

• Crypto Derivatives: Professionals from the CME, TradingView, and TJM Institutional Services discussed the potential impact of a spot Bitcoin ETF on BTC's price, emphasizing its role in attracting sidelined investors.

• Bitcoin Price Prediction: Peter Brandt predicted a 230% surge in Bitcoin against gold, expecting BTC to reach a new high of 100 ounces of gold per BTC within 12-18 months.

 Here are other key highlights from last week:

• ConocoPhillips is buying Marathon Oil in $22.5 billion deal.

• NYSE Plans Bitcoin Options, bringing another TradFi giant into crypto.

• PayPal’s stablecoin went live on Solana.

• Pudgy Penguins Mobile game coming to Mythos Chain on Polkadot.

• Polygon Labs co-founder Sandeep Nailwal assumes new ZK role.

This week is packed with high-impact news:

Developments So Far This Week

Oil Prices:

• Oil prices dropped to a four-month low in Asian trade on Tuesday. This decline extended losses from previous sessions due to the OPEC+ signaling that it will start tapering off production cuts this year.

  • The move by OPEC+ to scale back production cuts is seen as bearish.

  • Sources suggest that OPEC+ might prolong oil cuts into 2024 and 2025.

Corporate News:

• Google announced layoffs, cutting at least 100 jobs across its cloud unit.

• GameStop shares experienced extreme volatility, gaining 64% and triggering trading halts.

U.S. Economic Data:

• ISM Manufacturing PMI (Monday):

  • The manufacturing sector continues to contract, with the ISM Manufacturing PMI coming in at 48.7, missing the consensus of 49.8.

  • This indicates a faster pace of contraction compared to the previous month. New orders saw a significant drop, falling 3.7 points to 45.4, the largest decrease since June 2022, suggesting weakening demand.

  • Production nearly stagnated, with the production index at 50.2, and prices continued to decline by 3.9% to 57.

  • Contributing factors include high borrowing costs, restrained business investment, and softer consumer spending.

• JOLTS Job Openings (Tuesday):

  • Job openings were reported at 8.06 million, missing the expectation of 8.4 million. This is the lowest level since February 2021.

  • The report adds to evidence of a softening labour market.

Upcoming U.S. Economic Data This Week

• Wednesday:

  • ADP Nonfarm Payrolls

  • ISM Services PMI

• Thursday:

  • Jobless Claims

• Friday:

  • Nonfarm Payrolls

  • Unemployment Rate

  • Average Hourly Earnings

Federal Reserve:

• No Fed speakers this week as the Fed enters its pre-FOMC meeting blackout period ahead of the June 12 Interest Rate decision.

Earnings Releases:

Notable earnings releases this week are outlined in the chart below.

Key Global Economic Events this week:

Tuesday:

• Swiss CPI

• Australia GDP

Wednesday:

• Bank of Canada (BoC) Rate Statement

Thursday:

• UK Construction PMI

• European Central Bank (ECB) Interest Rate Decision

• Japan Household Spending

Friday:

• Canada Unemployment Rate

• China Imports and Exports

• China Trade Balance

Trading Tip:

The “Summer Rally” in most years is the weakest rally of all four seasons.

Week 5/26/24 - 6/01/24 Recap

Special Tools and Strategies

In the last issue (#82), we introduced the concept of volatility and its significance in investing and trading. Now, let's delve into how we can track volatility using a specific tool: the VIX.

What is the VIX?

The VIX, also known as the Chicago Board Options Exchange (CBOE) Volatility Index, is a popular gauge that tracks implied market volatility in real-time. It represents the market’s expectations for volatility in the S&P 500 Index (SPX) over the next 30 days. Larger price swings indicate higher levels of volatility, making the VIX an essential index for understanding market risk and investor sentiment. Investors and traders use the VIX to help make informed investment decisions.

How is the VIX Calculated?

The VIX calculation involves a complex mathematical formula that measures expected fluctuations in the S&P 500 Index options over the next 30 days. Here’s a simplified overview of the process:

1. Option Selection: The VIX uses front-month options on the S&P 500 index that have between 23 and 37 days to expiration. These options capture the market's short-term expectations of volatility.

2. Implied Volatility: The implied volatility for each option is determined using models like the Black-Scholes model. This involves finding the volatility level that matches the observed market prices of the options.

3. Weight Assignment: Options with higher trading volumes and open interest receive higher weights, reflecting their significance in the market.

4. Averaging: The weighted implied volatilities are averaged to represent the market's expectation of 30-day volatility in the S&P 500 index.

What Do VIX Readings Mean?

• Low VIX (<20): Indicates a perceived low-risk environment with expectations of minimal market volatility. Investors see this as a sign of market stability.

• High VIX (>20): Suggests higher expected volatility, reflecting increased market uncertainty or fear. The VIX is often called the "fear gauge" because it spikes during market turmoil or periods of extreme uncertainty.

Trading the VIX

While you can't buy the VIX directly, you can trade securities that respond to its fluctuations, such as VIX futures and options. Here are some ways to trade the VIX:

• VIX Futures: Track the expected future value of the VIX. Traders can go long if they expect volatility to increase or short if they expect it to decrease.

• VIX Options: Allow direct betting on changes in the VIX. Investors can buy call options if they anticipate rising volatility or put options if they expect a decline.

• VIX Exchange-Traded Products (ETPs): Includes exchange-traded funds (ETFs) and exchange-traded notes (ETNs) that provide exposure to VIX-related returns.

Making Sense of the VIX

While the VIX provides valuable insights into market sentiment and expected volatility, it doesn't necessarily represent long-term market risk. Investors should use the VIX alongside other indicators and conduct thorough research before trading or investing in volatility products. Volatility products can be highly volatile and complex, requiring careful consideration of leverage, liquidity, and other market dynamics.

By understanding the VIX and its implications, you can better navigate the ups and downs of the market and make more informed investment decisions.

Disclaimer: This newsletter is strictly educational. The information this report provides does not constitute investment, financial, trading, or any other advice. You should not treat any of the report’s content as such. Please be careful and do your research.