weaker US dollar

Prioritise quality companies. If an investor needs to take a defensive stance, it is worth turning to quality stocks, as their robust balance sheets and stable cash flows should insulate them from unforeseen downside risk. With this in mind, many of the largest technology and Internet stocks meet these criteria, while exposure to highly cyclical sectors and companies with excessive leverage should be kept to a minimum. Thus, in order to increase the resilience of your portfolios, you should focus on high quality companies, strong dividend payers and also not forget about regional diversification, as lower valuations and a weaker US dollar can also make global stock markets outside the US attractive.   The general understanding is that the market is likely to come out of the correction this year with expectations of a continued recovery in the second half of the year and a return to a bullish trend. This recovery is expected to help recoup portfolio losses from 2022.   However, there are several factors that pose risks to the market in the near future. These risks include the potential for a bear market, which could be triggered by inflation statistics such as the PCE index and strong labour market conditions. Another risk is the narrow scope of the current rally, where only some sectors have shown growth while others, including cyclical, defensive and growth sectors and assets such as bonds, have remained weak. There is also uncertainty about the timing and severity of a possible recession this year. The market is now looking at the likelihood of a moderate recession, which is already factored into current expectations and prices.   Once there is more clarity on these risk factors, portfolio allocation can be adjusted accordingly, considering both bonds and stocks, with a focus on the second half of the year and recovery of losses incurred in 2022. Two scenarios were considered for such an adjustment:   Scenario No. 1, the positive outlook, sees the market rising and breaking through significant resistance levels of 4200-4300 in the SPX index, which would lead to a rally. In this case, it would be prudent to increase long positions. Risky stocks should be held until they reach the most likely level of local recovery, and then locked in. For positions that still have potential, they should be held. The portfolio as a whole should then be rebalanced, creating a new balanced structure with a 25% allocation to cyclical assets, 35% to growth assets, 10% to protection and 30% to bonds.   Scenario #2, the negative outlook, assumes that the market continues to decline either from the current level or below 4100. In this scenario, protection should be strengthened by using inverse ETFs and reducing long positions (using stop losses) until the target stock is reached. This approach aims to minimise further drawdown until the correction is finally resolved in 2023.   The US stock market has thus experienced a strong recovery since the start of the new year, supported by a resilient technology sector, growth in the semiconductor industry due to AI development, a strong Q1 2023 reporting season, a pause in the Federal Reserve's rate hike, expectations of future rate cuts, lower inflation, a resilient economy, a smooth economic landing and a debt limit increase. While risks are still present, a focus on longer-term investment strategies can help investors benefit from the market's upward trajectory and continued recovery in 2H.  

HUF: Sticking to the script Yesterday's meeting of the National Bank of Hungary did not bring much news. The bank board reassured the markets again that it is in no way planning to increase the pace of rate cuts from the current 100bp per month and that is our view until September when central bank rates should converge to 13%. The first change to the base rate then comes in November, which will start off the series of 100bp cuts according to our forecast. From a market perspective, yesterday's meeting didn't bring much new to our market view. EUR/HUF was slightly higher intraday after yesterday's press conference, but so far we see that as more of a global story. The US dollar index and gas prices moved slightly higher again yesterday, both negative for HUF. However, in both cases, we see this as a short-term issue and still expect a stronger HUF supported by stable policy direction, high carry and weaker US dollar in the medium-term.  

The Commodities Feed: Gold hits record highs Gold prices jumped above US$2,100/oz, surpassing their previous highs made in August 2020 on growing expectations for US rate cuts next year. A weaker US dollar and lower treasury yields, along with increased geopolitical uncertainty, are prompting the higher prices. We also look at what else is making news this Monday in commodities.   Metals – Gold rises to record highs Spot gold prices jumped to record highs of US$2,135/oz this morning on rising expectations of easing monetary policy in the US before paring most of those gains. The latest comments from Fed Chair Jay Powell suggest that monetary policy in the US is “well into restrictive territory”, leaving the market speculating that the Fed might start trimming interest rates early next year. Meanwhile, an easing US dollar and extended weakness in the treasury yields continue to support the buying sentiment for gold. Looking at the speculative positions, the latest CFTC data shows that the money managers increased their net longs in COMEX gold by 29,516 lots for a second consecutive week, leaving them with a net long of 144,410 lots as of last Tuesday, at the highest level since 9 May. The speculative buying interest for gold is likely to continue in the near term, given the ongoing geopolitical tensions and expectations of lower interest rates in the US. In copper mine supply, First Quantum Minerals has suspended production guidance for the Cobre Panama mine for 2023. First Quantum stopped commercial production at the mine last week after the Supreme Court of Panama ruled against a contract between the government and the mining company. It is estimated that the mine holds around 1.5% of the share of the global copper mined supply. Meanwhile, the latest data from Fastmarkets show that treatment charges for copper paid by Chinese smelters have dropped below US$70/t for the first time since August 2022, indicating a tightening ore supply. The LME data shows that cancelled warrants for copper increased by 5,359 tonnes to 34,525 tonnes as of Friday, the highest since 20 July. Most of the increments were reported from New Orleans warehouses. On-warrant inventories for copper dropped by another 6,350 tonnes for a seventh straight session to 139,725 tonnes at the end of last week, the lowest since 12 September. The LME cash/3m spread for copper tightened to a contango of US$72/t as of Friday, compared to a contango of US$77/t a day earlier. In China, the recent data from the Shanghai Futures Exchange (ShFE) shows that copper stocks fell sharply by 9,729 tonnes (-27% WoW) over the last week to 26,149 tonnes as of 1 December, the lowest since May 2009. Among other metals, zinc stocks decreased by 3,425 tonnes to 34,541 tonnes (lowest in over a month), while lead and aluminium inventories rose by 15.6% WoW and 1.3% WoW, respectively, as of Friday.