A Comment -- General Comments From an Expert (A Commentary)

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. What is the US Dollar Index (DXY)? There has been a lot of news and headlines this year around the strength of the US dollar and its negative impacts on risk assets. The value of a currency can only be measured relative to the value of some other currency or asset, and the forces behind that typically depend on the strength of the economy backing it and that nations interest rate. For example, the USD/CAD exchange rate measures the strength of the US dollar against the Canadian dollar, and if this exchange rate increases it means that the US dollar is strengthening relative to the Canadian dollar. The reasons behind this strength can depend on the robustness of each economy and the interest rates that they have to offer foreign investors. The US Dollar Index (DXY) measures the value of the US dollar against a basket of six foreign currencies. Those foreign currencies include the Euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and the Swedish krona. The euro is the largest component in the basket of currencies, representing just over half of the basket. The index started in 1973 with a base of 100, and the values since then represent the US dollars’ strength/weakness compared to this base.

Will today's strong rally have rally or be another blip? True, many metrics were pointing to an oversold market though nothing has changed fundamentally. Headwinds remain such as China's ongoing strict lockdowns from Covid, rising U.S. wages and Russia's war in Ukraine.

There could be some respites in October, but the September nightmare could continue. Three events next week will tell us the direction. Non-farm payrolls, which he expects to show too much hiring; speaking engagements by the Cleveland fed chief, which is a hawk. Balance sheets are too strong for an apocalypse to happen. That said, we're paying the price for years of easy money, so it will be painful.

Based on volatility data by Mark Sebastian Normally, the VIX climbs as the S&P falls, but that didn't happen in September. Rather, the VIX has sedate, until the last few days this week. Why? The many VIX call options which act as a hedge and limits the volatility score. Add to that bond volatility. Sebastian's downside target is 3,386, when you should start buying. So, there's more downside.

Believes technology companies will recover once interest rates peak & technology will perform well. FANG stocks good place to invest now before economic recovery. Optimistic on future of tech industry for long term investors.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Market Update. The markets have been on a sharp decline over the past couple of weeks as bond yields have been steadily rising. The Federal Reserve announced a 75 basis point rate hike and plans for another 1.0%+ before the end of the year, causing yields to spike and markets to drop. The Bank of England (BoE) recently announced it will restart QE by purchasing long-dated government bonds to stabilize the market, as cracks started to form with the sudden rise in bond yields. Canada's GDP came in slightly higher than expectations for the month of July, with an increase of 0.1% as opposed to an expected decline of (0.1%). Further rate hikes for the remainder of 2022 are expected across the North American markets and right now the indices are testing their lows. Higher yields in the US have supported a higher dollar, and this has put pressure on traditional asset classes.

News from Europe keeps getting worse. Fair observation. If one major trading block falls into the economic abyss, very likely the rest of the world will follow. Lots of smugness in NA with what's happening in Europe. High USD and CAD is highly correlated with headwinds for foreign unions as well as high unemployment and recession. We all live in glass houses, so a bit of sanity is needed to see the full picture.

Cost of energy to industry. In the whole Eurozone, you had some very strong economies like Germany and France. If you add cheap currency and cheap energy, you got a perfect storm for opportunities for growth. But that's unwinding now, quite rapidly.

Britain and tax cuts. We may not be too far away from a crisis of confidence in the new British PM. People ultimately vote with their wallets. A lot of carnage. Devastation in currency, spike in unemployment. Things aren't going to get better anytime soon. If we saw a bottom, could put capital to work, but not anytime soon.

Global shipping. 2020-21 was solid, as freight rates were high. Since Covid, logistics backlog unwinding. New supply coming on will depress prices. Decoupling of US shipping operations from other parts of the world, which will be a negative. He plays the space through Maersk, which he sold on valuation. Wait till these stocks come down. Don't touch here, the macro is not great. Even shipping that supports oil and oil storage might be just a trade.

Semiconductors. You want to buy analog chips that favour low-grade, industrial applications. The massive flow of funds into semis is now unwinding significantly. Primary trade on semis is a long-term short. A buy could be 18 months away at least. His preferred stock is ADI.

European banks. Take a hard look at the Ukraine conflict and decide whether it will be localized, so that after the recession, the rest of Europe will get back to business. If so, as the currency falls, could be an opportunity to buy at record low levels and hold as they recover. If you're not looking through that lens, you probably shouldn't be there. He's not adding any more banks right now until he sees the status of non-performing loans after the recession.

Canadian vs. US banks. In Canada, the large banks own a mortgage asset, and they underwrite, administer, and collect on it. So you have a large iceberg underlying the profit cycle of Canadian banks. Quite resilient. For US banks, mortgages originate at the community banks and then move up the channel and can be sold. Income from these is largely transactional. If transactions slow, as in a rising interest rate environment, this would be a revenue headwind, and you'll see a spike in non-performing loans. US banks will trade down, probably more than Canadian ones. But when we bottom out, there will be a significant opportunity. Wouldn't touch a US bank now. Not a huge fan of banks right now, but if he had to choose, he'd buy a Canadian one.

Sectors for a recession. Historically, commodities such as metals or energy are the #1 performers during a recession. The other categories are consumer staples and pharma. Gives an opportunity to participate in inflation.