China Slumps On US Sell-off, Hardline Speech From Xi
Asian equities slumped across the board following a massive sell-off in the US market. US equities shed more than 2.0% in Monday trading to set new 2018 lows for the broad market and blue-chip Dow Jones Industrials.
Adding to the woe were hardline remarks from Chinese President Xi Jinping. Xi said, in a speech, some thought would bring reform, that no one is in a position to dictate reforms to China. He says China should stay the course which is a nerve-wracking thing for trade-war weary markets to hear.
The Japanese Nikkei fell hardest, shedding more than 1.80% on Tuesday. The Australian ASX, especially sensitive to global growth worries, came in a not-so-close second with a loss of -1.22%. The Chinese Shang Hai and Heng Seng indices fell 0.82% and 1.05% while the Korean Kospi shed a much tamer 0.43%.
European Markets Weighed Down By Energy
European markets tried to stage a rebound in early Tuesday trading but were weighed down by the energy sector. The energy sector is moving to new lows on the back of rapidly declining oil prices, prices that fell to new long-term lows in overnight trading. Shares of energy companies were down an average 1.5% with little in view to support them other than hope OPEC’s production cut will help tighten markets.
The European bourses were mixed at midday Tuesday, led by the DAX and lagged by the FTSE. The German DAX was in the green with a gain near 0.30% while the FTSE posted a loss near 0.35%. The FTSE is struggling with the additional pressure of the upcoming Brexit deadline. PM Theresa May survived here vote-of-confidence but now faces the more challenging task of getting parliament to back her plan.
US Markets Rebound Tuesday, Supported By Data
The US market was able to stage a significant rebound on Tuesday as all sectors move higher. The early futures trade was supported by hope for the FOMC and some better than expected economic data. The Housing Starts and Building Permits figures both rose unexpectedly as construction spending begins to increase. The gains have Housing Starts up more than 3.2% from the last month and trending higher on a year over year basis.
The surprise jump in starts may be related to the FOMC and interest rates. The FOMC is meeting now and expected to hike rates in their statement tomorrow. The Fed is also expected to pause the pace of rate-hiking after this which means homebuilders need to act now if they want to lock in the lowest possible rates. Rates are still expected to rise next year, just at a slower pace than before.
The Tech sector led the market higher with the NASDAQ Composite posting a gain near 0.75% in early pre-market trading. The broad market S&P 500 and Dow Jones Industrials were right behind with gains near 0.60% each. Today’s trading is likely to be light with the FOMC release due out tomorrow, trade tensions in the air, a holiday next week, and the end of the year in sight.
The demand for risky assets is gradually recovering, supported by the US-China’s “trade truce” which is not in hurry to ends. Futures on S&P500 rose by 0.4% this morning, after growth by 0.8% the day earlier. The Shanghai A50 is growing by more than 2% in hope of Chinese government stimulus.
Positive dynamics of stock markets caused the US Dollar to be rolled back from monthly highs on DXY. EURUSD has received the local support near 1.1300 levels yesterday.
Over the past month, the pair fluctuations’ amplitude has decreased noticeably, but it looks more likely to squeezed spring, rather than calm.
Today, in the EU markets’ focus is the ECB meeting, which often causes strong volatility. Mario Draghi is expected to confirm that the Central Bank will finally stop buying assets by the end of this year. For EUR, definitely, the vital impact will be from any comments on the monetary policy prospects.
Earlier, the ECB was about to start raising rates next autumn at least, but now these dates are in risk to move after the Fed’s rhetoric softening and general slowdown of the world economy. In this case, the euro can be hit, so that the technical factors will come into play.
Falling below 1.13 mark, which was an important support previously, can launch a new wave of decline. Two previous stages of the retreat were turned into the 7%- and 5%- fall of the single currency.
Commensurate with the previous two, the new downward spiral may send EURUSD below 1.08. More distant bearish targets and news key support are possible as well: as low as to 1.05 on the chart.
Note that the ECB tone mitigation seems the most likely to take place.
Also, we can not exclude completely that Draghi will prefer to take a wait and observe how the things unfold: confidence in the EU economic growth and the inflationary pressure build-up will significantly reduce the difference between the ECB and the Fed policies. Under these conditions, EURUSD will be able to rebound to the upper boundary of the November’s trading range near 1.15. Growth above this mark will display clearly a significant outlook revision and, perhaps, become a pivot point of the recent trend.
Asian markets were up across the board as news of a truce between Chinese President Xi Jinping and US President Donald Trump swept through the market. The agreement reached during the G-20 Summit in an unrelated meeting puts a halt on tariff escalation and gives teams on both sides 90 days to work on a concrete trade agreement. Areas of contention include technology, agriculture, and intellectual property.
The Japanese Nikkei lagged the market with a gain of 1.00%. The China-centric Shang Hai Composite and Heng Seng Index both posted gains greater than 2.5%. Others in the region closed with gains near 1.75% as easing trade tensions (and a dovish FOMC) point to renewed global growth.
Miners Lead The EU Market At Midday
Mining and auto stocks were up more than 4% at midday in the EU. The news of easing tariffs threats bode well for both sectors who’ve been threatened by increasing cost and declining demand related to the US/China trade dispute. EU based miners have a heavy exposure to China which helped drive shares of Antofagasta, Glencore, and Anglo American up more than 6%.
The German DAX led the major indices of the region with an advance of 2.5% in early trading. The gains in Germany were moderated to about 2.25% by midday but were still leading by a significant margin. The UK FTSE was a distant second with a gain of 1.61% while the French CAC trailed the powerhouse-markets with an advance of only 0.90%. Brexit negotiations and the Italian budget stand-off are still unresolved.
US Futures Point To Big Gains, Dow Surges 450 Points
The US futures market indicated a strongly positive open for the major indices on Monday morning. The NASDAQ led with a gain near 2.25% but the blue-chip Dow Jones Industrials and broad-market S&P 500 were both close behind with gains near 1.80%. The surge is due in part to the Trump-Xi agreement which is being viewed as a best-case scenario event, the surge is also due in part to the Fed’s dovish turn of sentiment. The combination is a powerful catalyst that should open the doors to future, global, GDP growth.
Secretary of the Treasury Steve Mnuchin expressed hope on Monday morning teams on both sides would be able to turn the tempory truce in a lasting agreement. Despite the ray of hope provided by the agreement, some pundits are already pointing to glaring differences of opinion that could easily derail any future improvements in relations. This week traders will be on the lookout for signs the two sides are following up on the truce announcement.
In energy news, the price of Brent and WTI both spiked about 5% in early Monday trading and helped lift stocks. The move is driven by expectations OPEC will vote to cut production at their meeting in Vienna scheduled for this week.
The U.S. and China have declared a truce in the trade war, and have agreed not to introduce new tariffs, and try to reach an agreement in the next 90 days. As a result, the U.S. dollar has been languishing at lower levels while the stock markets have been rapidly climbing upwards.
Shanghai’s stock exchange, blue-chip index, China A50, has risen by more than 3% so far while Hong Kong’s Heng Seng has increased by 2.7%. Meanwhile, futures for the American S&P 500 have climbed by 2.5%, marking a 6.8% growth over the last 10 days.
The dollar retreated to its monthly lows against the Chinese yuan, decreasing by 0.7% since the start of the day. Crude oil has increased by more than 5%, thus rising to $62 and $53.4 per barrel for Brent and WTI respectively.
In addition, oil price surged due to the expectation of a decline in production in 2019 following the meeting of OPEC and other major exporters scheduled for this week.
It seems that investors preferred to focus on the positive signals and in particular, on the fact that there will be no new tariffs in the next three months. Meanwhile, the pressure arising from the fears of a growth slowdown in the light of trade tariffs had pushed the shares of the Chinese companies down in the preceding months. As a result, the China A50 index had reached a lower level of the trading range for the last 5 months, below 11,000. In the case of the development of positive dynamics, China A50 index, which is now at 11,250, may not meet substantial resistance up to 11,800.
S&P 500 will have to pass an important test earlier. During the knee-jerk reaction on Monday, the index climbed above the 200-and 50-day moving averages, which according to technical analysis, is a strong signal to buy. At the moment, futures are situated around 2810, at which point the index retreated to a decline in October and November. Thus, its ability to climb above that point will reflect the positive attitude of market participants and as a result, it may rapidly return to the October’s highs.
The dollar will have to pass an equally important test. The dollar index fell by 0.5% this morning, testing the support area for its uptrend. The demand for risky assets has been growing and the main reasons were the expectations of a breakthrough in trade negotiations as well as the softening of the Fed’s tone. All these factors may break the U.S dollar’s upward trend.
Although this trading session started off weakly, the US stock indices have increased by 0.3%-0.4% on Tuesday, showing signs of a rebound. US futures point to a higher open before the opening. The meeting of the leaders of the USD and China in the upcoming weekend has sparked a positive market sentiment. However, we believe that one should not heavily rely on this meeting’s outcome.
None of the parties has expressed a desire to retreat from its positions in the sake of settling the trade disputes. Trump talked tough on the trade tariffs issue and has thus stated that it is highly unlikely that the U.S. would refrain from imposing higher tariffs in 2019.
Neither the United States nor China, have yet fully felt the effect of the tariffs that have already been imposed. The tariffs imposed aimed to reduce foreign trade imbalances, but businesses, on the contrary, sought to increase purchases during the year in order to avoid another increase in tariffs. So far, the foreign trade deficit between USA and China is close to record highs. Today, U.S. trade in goods data for October will be released, which is expected to increase the deficit. These indicators may be used by the American side in order to consolidate its bargaining position.
There has been market nervousness in regards to the upcoming meeting, and the dollar has returned around 6.95 which is considered high for the current month. The stock index of the 50 blue chips has added 1.3% on Wednesday morning but however remains at multi-month lows. The dollar is growing for the fourth consecutive trading session while the dollar index has returned to 16-month highs.
In all the three cases, the proximity to extremes attracts the attention of market players, and if there is a clear signal, it may be the beginning of a significant rally.
It is more probable, in our opinion, that the current growth trend on the dollar is a safe-haven investment while further uncertainty regarding the trade tariffs will remain in place.
In this case, a breakthrough from the dollar index’s resistance area, around 97.50, can send the DXY to the round level of 100.
In the likely case that China A50 index falls below 10800, and if the parties do not find a mutual agreement, the index may quickly roll back to the area of 10000-10100, which was the lower border of consolidation in early 2017.
For the yuan, a negotiation failure between President Trump and Xi may serve as a starting point for further weakening. Weakening the yuan may be the easiest way to save the economy from a rapid weakening. In fact, the weakening of the yuan since April is 11%, which is comparable to the current 10% tariffs.
Asian Markets Are Mixed As Trade Concerns Resurface
Asian indices were mixed on Tuesday as trade concerns resurface. Ex-China was up an average 0.80% in the wake of the US rebound on Monday while Chinese and Hong Kong-based markets were more cautious. The Shang Hai closed with a loss near -0.04%, the Heng Seng near -0.17%, as new shots are fired in the trade war.
US President Donald Trump says he may put a 10% tax on Apple products coming out of China and that put pressure on the entire Apple supply chain. Shares of Taiwan Semiconductor and Pegatron were both able to recover their losses before the close of the session but others were not so fortunate. Catcher Technology fell nearly -2.25% while Foxconn, assembler of iPhones, shed -0.42%.
Geopolitics Weighs On European Markets
European markets were drifting lower at midday as trade concerns, Brexit uncertainty, and Italian budget issues weigh on sentiment. Losses were broad but small relative to market moves in recent weeks. The DAX was leading with a loss near -0.35% but the FTSE and CAC were close behind.
On the trade front, President Trump says the Brexit may affect the US ability to trade with the UK and does not appear to support the deal despite the EU’s affirmation over the weekend. Regarding Brexit, Prime Minister Theresa May still has many hurdles to overcome and faces a parliamentary vote on the deal in two weeks.
In Italy, lawmakers are sticking to their 2019 budget plans despite word on Monday they were cutting deficit targets in order to avoid sanctions from the EU. The news, amid other concerns, had the financial sector trading lower led by 3.0% losses in Metro bank and BBVA. In earnings news a profit warning from Thomas Cook. The iconic travel and leisure brand says profit will fall short of guidance and suspended its dividend causing stocks across the sector to fall.
Trump Moves Forward With Tariff Plans
In the US, markets were trading lower in early futures action as President Trump indicates he will move forward with plans to raise tariffs. Trump said in an interview with the Wall Street Journal that it was highly unlikely the US would delay raising tariffs to 25% despite the meeting scheduled for him and Chinese President Xi Jinping. The meeting is not expected to produce concrete changes in trade relations but it is expected to deliver positive developments, Trump’s comments have cast a shadow of doubt on the outcome now.
While traders are focused on the Trump/Xi meeting other events are likely to move the market as well. Tomorrow there is a speech from Federal Reserve Bank Chairman Jerome Powell that will be closely monitored for signs of Fed dovishness. On top of that, Thursday is the release of the PCE Price Index, the Fed’s favored tool for monitoring inflation, as well as the minutes from the last FOMC meeting. The SPX and Dow Jones Industrials were indicated to open with a loss near -0.42% while the Nasdaq was looking at losses near -0.60% on trouble in tech related to the Apple tariff threat.
Asian markets were cautious in the wake of Tuesday’s US sell-off. The US broad market index fell -1.82% on worries in tech and traders remain wary. The Hong Kong Heng Seng led gains in the region with an advance of 0.50%, the Shang Hai was not far behind with a gain near 0.20%. Others in the region posted losses but the declines were small. The Australian ASX weighed down by commodity outlook, led decliners with a loss of 0.51% followed by the Nikkei’s -0.35% and the Korean Kospi’s -0.29%. Word in trade gives traders another reason for caution. An update to the US trade representatives investigation into Chinese trade practices says China has made no change to its core trade practices. The report went on to provide support for President Donald Trump’s program of tariff’s and casts a shadow of doubt on the upcoming meeting between Trump and Xi. This market watcher does not expect to see much in the way of change after the meeting but I do expect a positive outcome regarding rhetoric and outlook.
European Market Up On Banks
The European markets were broadly higher in light trade at midday. The major indices were supported by the financial sector, led by Italian banks, as oversold markets find buyers. The financials were up about 1.0% in early Wednesday trading leading the major indices to move higher as well. The UK FTSE led the charge with an advance near 0.85% while the DAX and CAC were trading higher by 0.75% and 0.35%. In financial news, the EU Commission is set to issue a reprimand to Italy’s rebellious government. Italy has refused to alter its plans for spending and now the EU is going to sanction the nation with a fine. The dispute comes amid growing concern Brexit negotiations are going to fail, an event that will have a far-reaching effect on global economics. Theresa May is expected to appear in Brussels and may provide new information later in the day.
US Market Led By Tech, Oil
US markets were up in early Wednesday futures trading as tech and oil prices rebound. The FANNG names, all down more than 20% as of yesterday’s close, rose between 1-2% and may move higher in the near-term. The tech sector has seen a major sell-off driven by slowing-growth fears that have set the sector up for rebound over the next few months. The market is looking forward to a robust holiday shopping season (up >5% annually) and that will drive outlook, results and share prices higher. Energy provided another support for the US market in early Wednesday trading. WTI rebound nearly 3.0% from Tuesday’s fresh one-year low. The energy market is selling off on fear of global supply glut but overextended and ripe for reversal. Traders should expect today’s action to be light and on low volume. Tomorrow is the Thanksgiving Holiday and the market is closed. Friday action is likely to be light as well.
The origins of the European Union can be traced to the period after WW2, with the main driver being the achievement and preservation of peace. The post-war period was particularly difficult – with Europe being badly damaged after two world wars – and as a result, the vision of a European Union was born as a natural step in the aftermath.
After the fall of the Berlin wall in 1989, work began on integrating European countries in terms of four ‘freedoms’: movement of goods, services, people and money. This integration would bring down the traditional boundaries between countries and create a continent-wide area of seamlessly integrated markets. The rationale and vision for creating such a union were undoubtedly justified and ambitious.
The Maastricht treaty was finally signed in 1992 by the founding member-states. As it currently stands, the EU is a political union of 28 member-states, having started in 1998 with 11 member-states meeting a number of euro convergence criteria:
Exchange rate stability
Long-term interest rates
It is also a monetary union of 19 member-states, having started on the 1st January 1999 and with physical coins & notes being introduced on the 1st January 2002. It should be noted that there are more countries scheduled to be added to the EU in the upcoming years.
The motivation for joining the European Union has always been very strong, with many obvious benefits for member-states. EU-funded subsidies provide a great incentive for weaker countries to join the union, as they can be used for infrastructure development and other projects. As a result, there have been some serious questions regarding the validity of the criteria for certain countries prior to joining (the most obvious one being the Budget Deficit and Debt-To-GDP ratio of Greece).
Current Structure of the European Union
Twenty years after its inception, the European Union has morphed into something much heavier and more complex than originally envisaged or possibly intended. Below is a non-exhaustive list of some of the major functions and issues of the EU:
The European Central Bank (ECB) sets the monetary policy.
The Eurogroup (represented by countries’ finance ministers) makes political decisions regarding the eurozone and the euro.
The European Union Court of Justice is the chief judicial authority of the EU and oversees the uniform application and interpretation of European Union law.
There are specific EU Departments for the Environment, Communications, Competition, Data Protection, Migration, Trade, Energy and many others.
There is fiscal integration, where there is a peer review of each country’s national budgets, although a particular country cannot be forced to apply criteria dictated by other countries.
Technically there is no provision for a country to exit the Eurozone (it is ‘irreversible and irrevocable’). However, in 2009, an ECB study argued that expulsion remains conceivable.
The European Union has developed complex policies & regulation on things like agriculture, fisheries, livestock, manufacturing, financial services etc.
There is increased talk (most recently by French PM Macron) about forming a common European Union army, which has been met with broad criticism and concern.
Current Problems Faced by the European Union
The biggest problem within the EU is probably the vast divide between the north and south countries, in terms of mentality, productivity, and fiscal prudence. This is a structural problem that existed from day one, but which hadn’t surfaced while the Eurozone was still nascent and growing. It was always going to be a herculean task to integrate such diverse countries within one economic and currency union. The divergence in productivity between countries like Germany and Greece is huge, as is their attitude towards budget balance and public sector operation. This translates in persistent and considerable deficits in southern countries, while northern countries manage to run a much tighter ship.
This is a problem that already existed for many decades, and which traditionally has been overcome by weak countries using their exchange rates. Countries like Greece, Portugal, and Italy would devalue their currencies every decade or so, issue more debt and kick the can further along. With interest rates in their sole control, southern countries could effectively inflate their debt away, slowly reducing the purchasing power of their currency (and their citizens).
With the European Union as it currently stands, this option no longer exists for individual countries. They all now have the same currency – the Euro – and their ability (and cost) of issuing debt is dictated solely by the markets themselves. As we have seen with Greece’s case, when a country is in distress it becomes practically impossible to access the debt markets for funding, and so the country needs to be bailed-out (or indeed bailed-in by its own depositors). In contrast to the United States of America, there is no possibility of free transfer of funds from surplus states to deficit states. This means that countries like Greece, Portugal, and Italy are left to their own devices when it comes to making ends meet.
It’s also very difficult to have one single interest rate strategy for a wide range of countries with very different characteristics. The ECB obviously tries the best it can, given the constraints, but it’s a particularly difficult task to follow an interest rate path that satisfies member states which might be in an expansionary phase and others which are in recession.
The net result of these structural differences between European countries – and something that was clearly evident in the recent European crisis – is that downturns are much more severe in southern countries. In the past few years, Germany only experienced a mild slowdown, while southern economies were crippled. Youth unemployment, one of the most important forward-looking indicators, plummeted in countries like Portugal (20%) and Greece (>50%). Unfunded liabilities have rocketed higher, making them a ticking time-bomb. Low GDP per capita and extremely low wages were a natural result, as the countries faltered.
So, what’s the solution to this conundrum? Is there a solution?
Yes, there is – if governments engage in a fiscally prudent manner, after the initial period of difficulty, the resulting surpluses should bolster their economies and bring stability & optimism. Where there are stability and sound fundamentals, investment (both internal and external) follows. Unemployment drops and productivity rises, in a virtuous circle.
The Italian government’s approach to the current situation, however, is quite different. Their rhetoric is strongly on the populist side, promising a lot but unable to demonstrate how it will be executed or funded. They insist on a higher than normal budget deficit, hoping that this would kick-start the Italian economy and be the spark that initiates an economic recovery. The EU wants to see a deficit well below 2%, but the Italian government is pushing for 2.4% (and perhaps more). The ECB currently sees the Italian budget deficit reaching 3% by 2020, a fact that’s very worrying indeed.
But can the Italian government just choose an arbitrary large deficit level in hope that this will help them reach their goals? The answer is no because deficits need to be funded. Future unfunded liabilities also need to be serviced. As Italy no longer has the option of printing its own currency, it will have to access the debt markets, running the same risks that Greece did in 2012. If its loose fiscal policy doesn’t yield quick results, chances are that it will face the same financial distress as Greece did.
Finally, as many politicians are quick to point out, ‘Italy is not Greece’. That statement is correct! Italy is a much bigger country than Greece, in every way. Their total government debt is approaching 2.5 trillion Euros, and that’s not a number that can be bailed-out like Greece’s was. If the Italian situation gets out of hand and confidence drops dramatically, this problem could be like a nuclear bomb to the foundations of the Euro itself.
It’s not all doom and gloom, however. If the Italian government manages to successfully bring the country back into a solid growth trajectory, that would be a great boost for the country and the Eurozone as a whole. The next crisis could well end up bolstering the European Union and pushing the Eurozone countries towards a more integrated and constructive future.
Looking at a long-term chart of the Euro Index (EXY), we can see that it’s been in a broad downward channel since the 2008 Global Financial Crisis. We are currently on the confluence of the neckline of an apparent head & shoulders pattern and the 200WMA. The Euro now has to make a big decision and the Italian developments will no doubt play a big role in this.
The U.S. dollar is in the midst of a two-stage breakout relative to its long-term performance against the Chinese yuan. The greenback began its major advance in the early parts of 2014, and these trends continued for almost three straight years before showing signs of reversal. The USD/CNY forex pair then fell back through its long-term moving averages before finding its footing in the middle of April of this year. The bull rallies which have followed have been forceful, and the pair now appears to be on the verge of a major breakout which could send its valuations significantly higher.
Critical Resistance: 6.9633
Critical Support: 6.2419
Trading Bias: Bullish
USD/CNY Forex Strategy: Buy Breakout of 6.9650
The latest impulse moves in USD/CNY have sent the pair back through all of its major moving averages. Activity in the moving averages themselves confirms this activity, as the 50-week EMA has broken above both the 100-week EMA and the 200-week EMA. Indicator readings are bullish, with the CCI holding within its mid-range levels. This suggests the pair has not yet reached over-extended levels (despite this significant run higher).
The balance of the evidence here strongly suggests a bullish potential for continued moves higher. Breakout traders can look to establish buy positions on a violation of resistance at 6.9633, which marks the prior highs from the end of 2016. Alternatively, a downside break of prior support at 6.8685 suggests a period of sideways stalling in the pair. Given the extent of the market’s previous run higher, a move like this would not be entirely surprising. Directional behavior in the EMAs for the USD/CNY pair appears to be readying for a more elevated approach, so traders can look to these indicators for further evidence of reversal within the dominant trends.
With the US midterm elections just a few days away, it’s worth thinking about what they could mean for global markets. If the polls have it right, the Democrats will take the House quite comfortably, while the Senate will remain in the hands of Republicans.
If that is the case, for the first time since the 2016 election, the GOP will no longer control the White House, Senate, and House, which will introduce a new dynamic to Washington.
Some Historical Perspective
Firstly, it’s worth looking at history for some perspective. The party in opposition to the president’s party does usually win more seats during the midterm election. So, it would not be unusual for the Democrats to win the House, the Senate, or both. In this case, there are also a large number of Republicans retiring (39 to be exact), so more seats than usual do not have an incumbent defending them.
While it’s often assumed that a Democrat-led house is bad for the stock market, and will be in this case, historically a Democrat controlled house has actually been slightly better than a GOP controlled house for stocks. At the same time, it’s worth remembering that we are in the tenth year of a bull market.
Historically, we have also seen market volatility increase ahead of the midterms, as we are seeing now. But, since current market volatility has several other causes – the trade war, rates, and valuations – it may not automatically end after the election.
Likely Outcome of Expected Results
If the Democrats do take the House, there are several likely outcomes. The first will be more gridlock in Washington, with fewer new laws being passed. This could be both good and bad – depending who you ask. Fewer legislative changes could mean more certainty, something investors like.
Trump and the GOP will have a hard time introducing new tax cuts or making the last round of tax cuts permanent. Some analysts even think it’s possible some tax cuts would be reversed.
Trump would also struggle to ratchet up the trade war with China, which may put his whole trade strategy in jeopardy. This would have implications for global markets, and in particular for emerging markets.
A Democrat-controlled House would probably lead to new investigations into Trump, his campaign and his business interests. The topic of impeachment may well come up to, though it would be unlikely to go very far as any verdict requires the support of 67 senators. It’s also believed that Robert Mueller will announce his findings on alleged collusion between the Trump campaign and Russia.
And Finally, large gains for Democrats would turn attention to the 2020 election and the chances and implications of the Dems taking the Senate and White House.
Of course, this is all assuming the results are in line with the polls. There are two possible surprise outcomes, namely the GOP keeping both the House and Senate or the Democrats winning control of both. Because both scenarios are unexpected, they would lead to large reactions from the market.
As far as markets are concerned, the midterm elections aren’t taking place in a vacuum. Investors are concerned about the trade war, interest rates, valuations and the sustainability of earnings growth.
If the Democrats do take the house, the knee-jerk reaction will probably be lower stock prices as further tax cuts would no longer be on the table. If an initial shock doesn’t have a knock on effects, markets will then look at the longer-term implications including the global economy and the trade war.
Gridlock in Washington may actually lead to more certainty with regard to policy and regulation as major changes would become less likely. It would also be in both parties’ interests to continue investing in infrastructure – but there is always the possibility that one or other party may try to scuttle a new bill for political gain. This would be very bad for markets.
Over the next two years, there will be plenty of opportunities for Washington to trigger new periods of volatility over the debt ceiling, investigations into Trump and possible impeachment hearings.
In the event that the Republicans retain the House, a relief rally is almost certain, but that may be followed by a new era of uncertainty as Trump attempts to double down on his policies.
The US Dollar
The USD has been a rocket for most of 2018, in part at least because of the trade war. A Democrat-controlled House would stand in the way of further escalation of the trade war, and potentially reverse some of the previous measures. Many analysts believe this will lead to USD weakness, although one would expect that to some extent this would be priced in by now.
Gridlock in Washington may also stall further tax cuts and possibly even slow government spending, both of which could also lead to USD weakness.
If the GOP does happen to retain control of the House, we can expect a strong rally in the USD as this is the result that is probably not priced into the market.
The biggest beneficiary of the Dems winning the house may be emerging markets. Emerging market assets – currencies, bonds, and equities – have all been under pressure since before the trade war started and are heavily oversold. A de-escalation of the trade war would lead to the expectation of revitalized demand for raw materials from China which may trigger a sharp relief rally for emerging-market assets. Dollar weakness would support such a rally too.
If the Democrats do not win the House, we can expect to see another wave of selling in emerging markets.
The question, of course, is how much of the expected result is already priced in? For the most part, markets have been focussed on interest rates and the trade war over the last 6 months. Equities have fallen, but a host of other reasons have been given for that. In addition, on two occasions when polls showed the gap between the parties narrowing (in May and August) there was little reaction from markets. That would suggest the expected result is not fully priced in – and we may see some trading opportunities in the next week.
Though there is a significant amount of disagreement regarding the politics of controlling an economy, there are still a few things that fundamentally all economists can agree on: high employment is generally desirable, low inflation is generally desirable, and—perhaps above all else—a stable economy is one that can operate in a predictable way. Any time a national economy deviates from these objectives—and possesses high levels of unemployment and general economic instability—there ought to be at least some reason for outside speculators to be concerned.
Less than one decade ago, the Greek economy experienced one of the worst depressions to ever occur in the developed world. In an incredibly short amount of time, unemployment dramatically increased, the interest rate on government bonds skyrocketed, and seemingly all other economic metrics inspired panic to some degree.
Few economists were able to correctly predict just how bad the Greek economic crisis would actually be, but—especially with 20/20 hindsight—the existence of this crisis still remains relatively unsurprising. When compared to other countries tied to the Euro, the Greek economy had been measurably underperforming for quite some time.
Now, roughly six years following the peak of Greece’s economic crisis, Italy finds themselves in a situation that is all too familiar. In this article, we will briefly compare and contrast the economic situations of Greece and Italy, and also discuss ways active investors can potentially exploit the current situation to their advantage.
Similarities between the Situation in Greece and Italy
In order to understand the risks presented by the Italian economy, it is important to recognize why the situation in 2018 is so familiar to what we witnessed in 2011. Both Southern European nations have experienced relatively high rates of unemployment, though Italy’s current unemployment (about 10.2%) is nowhere near as bad as Greece was during its recent peak (27.9%).
Both nations have also experienced tremendously high amounts of national debt (Italy currently has a national debt over 2.3 trillion EUR, 131% of GDP), which have triggered talks of austerity measures and even declaring independence from the Euro. In 2011, Greece began to impose various austerity measures which—at least according to Keynesian economics—seems to have been the incorrect move for a country that was already tremendously low on working capital.
Consequently, austerity measures in Greece witnessed the government become even more desperate for funds and increase 10-year bond yields from roughly 5% to nearly 40% in less than one year. Italy’s reaction to its current economic situation is yet to be seen, but an increased interest in populist politics (5 Star) and Euro-skepticism suggests that it may be moving in the same direction that Greece once was.
Differences between the Situation in Greece and Italy
The details involved in international economics can be quite complex and comparing Greece to Italy will naturally involve a more nuanced and comprehensive approach. There are still some things that make Greece and Italy significantly different and the effects of these differences will vary tremendously.
Though Italy is suffering from many of the same economic woes that Greece experienced a decade earlier, the degree to which they are suffering is not nearly as bad. The Debt-GDP ratio is more sustainable (suggesting that austerity might not be necessary), unemployment is lower, and Italian bonds have experienced comparatively little volatility. All of these figures suggest that if there is a “tipping point” that caused the Greek economy to collapse, then Italy has not passed it (yet).
One difference that should be more concerning, however, is the scale at which the Italian economy operates. While, in terms of nominal GDP, the Greek economy is only 53rd largest in the world, the Italian economy ranks 9th (and is the 4th largest in Europe). This means that the relations between Italy and the rest of the economic world will be significantly more important. Furthermore, while Greece’s crisis took place in a “pre-Brexit” world, the fact that Europe has already witnessed one major power (slowly) begin the process of leaving suggests the Italians may consider a similar route as well.
Opportunities for Investment
Though, as a collective, we should be rooting for the world economy to fare well, there is still no doubt that any sign of systematic volatility means there will be opportunities for some highly rewarding (and risky) investments. In response to what has been happening in Italy, there are several good chances to earn a return on your investment:
Exploit the likelihood of increased bond yields by shorting Italian 10-year issues
Monitor the situation in Italy and invest heavily in other currencies as soon as the Euro begins to lose value
Buy the Italian/German bond spread to take advantage of the likely widening differences between them
Wait until the Italian economy reaches its probable low-point (likely in the next few years) and then invest heavily in Italian stocks
These are just a few of the potential options you have available. The investment that makes the most sense for you will depend on your risk tolerance and overall portfolio strategy.
The obvious weaknesses in the Italian economy are reminding investors of similar conditions in Greece not so long ago. Though the probability of a total economic collapse is small, the high probability of there being at least some economic turmoil gives investors a wide range of opportunities to act.
Futures on S&P500 have added 0.3% after the growth by 1.9% the day before. Japanese Nikkei225 has grown by more than 1% after 3.2% in the “green zone” the day before. Key Chinese indices are also in the black, developing a rebound from the local lows.
At the same time, there are a few points that do not allow us to fully surrender to the power of optimistic moods.
The demand for the dollar is often a good indicator of investors’ concern. And this trend is still in effect.
And this trend is still in force. The USDX rose by Wednesday morning to 96.80 and returned to the highs area from June 2017, where it rose briefly in August. It is worth highlighting the weakening of the single currency due to political problems in Europe (falling support for Merkel and budgetary disputes in Italy).
Sterling also suffers, because as it approaches the deadline, lawmakers still did not approve the plan for Britain to leave the EU, which increases the risks of “no-deal Brexit”. The GBPUSD failed on Tuesday below 1.27, losing 0.9% in a day.
The Chinese yuan continues to slide to the mark of 7.0, despite the rebound in the stock markets.
In debt markets, the yields of long-term U.S. government bonds are growing after a period of retracement from the local highs.
On the balance, it means that means that while the markets have moved away from the levels of extreme fear that they experienced last week, the negative trends stay hold. The main trend is still the growth of yields on US long-term bonds following the rise in interest rates in the United States, which reduces the attractiveness of investments in risky assets, such as currencies of developing countries and shares of high-growth companies. In turn, this pulls demand for the US currency and puts pressure on commodity asset quotes.
China At Risk of Massive Capital Outflows On Yuan Breaching Magical 7 Level
The Chinese Yuan is yet again on the receiving end, amidst growing concerns of potential repercussion on it breaching the magical 7 level against the dollar. The last time the Yuan was at this level was in 2008. With trade tension between the two countries showing no signs of cooling off, the Yuan is at risk of weakening further.
The Yuan has dropped by about 9% over the last six months in response to trade disputes with the U.S. concerns of further easing by the Country ’s central bank has all but exacerbated the situation. Further weakness could see the Chinese currency breaching the psychological 7 level.
The country’s de-facto central bank tried to prevent a further slide by announcing a cut on the reserve requirement. The move did ease some pressure, helping fuel confidence that a breach of 7 may not happen this year. Talk that President Donald Trump and his counterpart Xi Jinping will meet in November also appears to have brought about some form of stability.
Consequences of Yuan Breaching Magical 7
The last thing that regulators want to see now is a weakened Yuan. Any weakness going forward could result in an increase in capital outflows from the country. The result would be a decrease in foreign capital inflows that until now has helped push the bond and equity markets up.
Capital outflows as well as overshooting Yuan weakness would be catastrophic for The Chinese economy. The country’s economy has come under immense pressure on the U.S imposing tariffs on billions of dollar worth of goods.
The last thing that China needs at a time of economic instability is an upsurge in capital outflows. For instance, foreigners would shy away from investing in the country on the Yuan surpassing the magical 7 level.
According to standard Chattered Chief Economist Ding Shang, China won’t be the only country that would feel the effects of the Yuan surpassing the 7 level. The economist expects emerging market currencies to also experience some form of weakness on the Yuan falling past 7.
Head of markets strategy at United Overseas Bank, Hang Koon, also expects emerging currencies to experience some volatility on the Yuan weakening further against the dollar.
A weakened Yuan to some extent is normally a good thing. This is partly because it helps fuel the country’s export market. However, in the wake of recent trade tariffs by the U.S, China is finding it hard to ship more products, especially to the U.S.
Debt Refinancing Headache
The Yuan weakening further could also make it extremely difficult for Chinese companies to service their mountain of foreign debt. The Yuan rising above the magical 7 level would force the companies to incur more to offset their foreign debt obligations, compared to when the Yuan is much stronger in relation to the dollar?
The Chinese government could also struggle in its attempt to move, to a more market-oriented exchange rate system should the Yuan weaken further. China has worked tirelessly in recent years to avert the risk of local financial market volatility by using all the necessary available policies to stabilize the Yuan.
The sale on the U.S. stock markets was gaining momentum yesterday. DJI fell by 2.4%, S&P500 lost more than 3%, and Nasdaq plunged by 4.4% in just one trading session. Increased volatility has returned to the markets following the disappointment reports from chipmakers STMicroelectronics (-6.6%) and Texas Instruments (-8.2%).
Moreover, the housing market attracts more and more attention in the latest months. The data published on Wednesday reflected the decline in New Home Sales by 5.5% to the lowest levels in almost 2 years. For today the release of the index of Pending Home Sales is scheduled, and another weak figure of sales can increase worry of investors.
On the one hand, it is hardly expected that banks and homebuyers will quickly forget the lessons of the previous decade. At the peak of the cycle in 2005, the sales of new homes were two and a half times higher. Now, banks and households are likely to be careful about issuing mortgages, despite the lower interest rates. However, stagnation and even declining sales are causing excitement. Earlier this data served as an excellent leading indicator of consumer activity. The current recession is seen as a harbinger of falling household spending in subsequent quarters.
The upcoming publication of Durable Goods Orders is another indicator of Business confidence. The impressive growth of orders for expensive equipment with long-term use reflects confidence in economic prospects and can reduce the degree of anxiety around the prospects of the U.S. economy because of the weakness of the housing market. The indicators of stronger expectations can support USD and the US stock indices.
In addition, the focus of the markets on Thursday is ECB’s conference. The speech by President Mario Draghi very often causes the increased volatility of the single currency, as the head of the bank gives answers to the most burning questions of journalists. This time, there will probably be questions about the influence of the Italian situation on the plans to minimize QE and higher rates.
The EURUSD pair on Wednesday lost 0.7%, falling to 1.1390 overnight. On Thursday, it finds some support near the psychologically important level on 1.1400, but the trading activity is reduced in anticipation of the ECB press conference.
Chinese markets are booming on Monday morning, supported by the hopes for incentives. However, the risks associated with Saudi Arabia and the alertness around the Italian budget, and Brexit constrain the U.S. and European markets.
Chinese indices add almost 4% in the morning, developing a rebound of the last Friday. Chinese blue-chip index on the Shanghai Stock Exchange China A50 returned three-quarters of the loss in October during the Friday and Monday rally.
At the end of last week, we saw a slowdown in the growth of the Chinese economy to the slowest pace since 2009. At the weekend, the representatives of the Central Bank and various commissions announced that they had been preparing a relief to support the economy. President Xi Jinping also announced the forthcoming measures to support the country’s private sector. Large-scale support for growth is another parallel to the current situation and that in 2009. Then, Beijing printed out impressive incentives for hundreds of billions of dollars, which successfully supported the economic growth. This positive example inspires the markets this time. Markets hope that the forthcoming incentives can be as effective and can avoid the negative effects of trade conflicts.
Chinese stimulus is not enough for markets to overcome risks for Europe and the U.S.
On the other hand, large-scale incentives are a sign that Beijing is not aimed at quickly resolving of the trade disputes with the United States, preparing for long-term economic consequences. But, apparently, market participants do not look so far, preferring to buy out the Chinese shares, the indices of which lost about 30% of the peak levels of January.
Nevertheless, the futures on Indices of the USA show, cautious optimism, adding 0.34% from the levels of the opening of the week. The sentiment about American indices is restrained by the fears about the consequences of the situation with the journalist Khashoggi’s murder. The U.S. response to that violence can trigger Riyadh’s answer and lead to significant economic consequences for Crude Oil prices and reduced cooperation between these countries. It is in Trump’s interests to contain the rise in oil prices before the November interim elections.
In turn, the European bourses maintain a cautious attitude, as on Monday Italy should present explanations of the European Commission about the reasons of exceeding the deficit parameters in the budget for the coming year. Also on Monday, Premier May will speak in the UK Parliament with explanations around the negotiations with the EU on Brexit.
Dollar returns to growth in world markets after hawkish FOMC’s minutes. The Fed members agreed on the need for further monetary policy tightening, which brought the dollar back its growth momentum. The dollar index rose to 10-day highs at the 95.42 level, as the protocols updated the market momentum to buy the U.S. currency. Formally, there is nothing new in the current policy bias for the markets, as the Fed chairman voiced this position during a press conference in late September after the increase in rates, which led to a 2% increase of the U.S. currency the following week.
However, the impulse of the dollar growth has dried up lately. Partly on the wave of the return of the demand for risks after a sharp sale on stock markets last Wednesday and Thursday, and partly because of the constant pressure exerted on the Fed by Trump. Commitment to further tightening policy on the part of the FOMC once again proves the independence of the U.S. Central Bank. Trump called the Fed his “main threat”, which is ironic, as the president himself made this threat to him. He proposed Powell as the head of the central bank, and his administration recommended to appoint a number of senior persons in FOMC. Now, they all advocate unanimously the position that Trump criticizes.
Among the important publications, it is worth mentioning the semi-annual report of the Treasury about currencies, where no country was named as a currency manipulator. This caution, despite the trade wars and the drastic weakening of the yuan in recent months, can be considered as a desire not to put too much pressure on China, leaving an opportunity for negotiations on trade.
The EURUSD pair decreased to 1.1500, where the pair has received support at the beginning of the month. Offshore Chinese Yuan Course (CNH) fell into the area of local lows for 6.93 per dollar. The strengthening of the dollar in global markets can cause a new wave of a weakening of developing countries’ currencies. With regard to the Chinese currency, it is worth paying attention to the dynamics near 6.96. Near these levels, the PBC held interventions earlier in August to protect the course.
Yesterday, the U.S. stock markets were covered by the strongest sale-off since February. Previously, we pointed to the disturbing signs in the dynamics of the American markets: the beginning of the American sessions for last week was marked by a sharp decline, and the debt markets continued to pressure, causing a rise in the yield of the U.S. government bonds. The trigger for the sale was the head of the IMF’s words, who called the current stock’s valuations “extremely high”.
The futures on S&P 500 sank in the previous day by 4.3%, falling to the lows since July. A flight from the risks spread over the Asian markets on Thursday morning: MSCI Asia ex-Japan loses 3.7%, sinking to the lows from March 2017, Chinese largest companies, China A50 Blue-chip index loses 4%.
Together with the stock markets, there is pressure on the pair of USDJPY, which lost 2.2% per week and has fallen below 112 in the morning. The Chinese yuan also shows the warning signs. USDCNH is traded near 6.94 – one step from peak levels since January 2017. The futures on the American indices remain under pressure from Thursday morning.
But it is worth mentioning a couple of positive points. The U.S. government bond yields have moved away from multi-year peaks, which can reduce the pressure on the stocks later in the day. It is also noteworthy that we do not see the strengthening of the dollar to most currencies.
The dollar index has been decreasing for the 3rd day, descending under 95.0. The currencies of developing countries move with a very measured pace, avoiding abrupt jumps, as it was in August-September. All this can be a sign of a short-term correction, which will not grow into a full sale.
The technical analysis also draws our attention to the fact that the relative strength index for the S&P 500 daily chart is below 20, at the lowest level in more than three years. Such low values of RSI indicate the high chances of market rebound in a short-term when the sales intensity decreases.
In favor of the rebound, there is also the fact that yesterday’s sale was not related so much to the deterioration of the economic data, but to the hawk rhetoric of the Fed and assessments of the situation on the part of the IMF.
The pressure on the stock markets is growing. It is dangerous that at once the pressure comes from several regions, causing fears that the period of synchronous growth last year may be followed by a period of synchronous braking. Pockets of fears are located in the USA, Europe, and Asia.
In the U.S., the pressure on markets is due to a concern that the Fed takes too hawkish position while the latest data indicates a possible failure in a series of strong outcomes. It is not a reason to panic for the markets, and the sale of American stocks at this stage is very measured. Investors record the profits by selling the shares of High-tech companies that grew faster than the others in previous quarters. In addition, the shares of the construction sector companies, which have stalled in recent months, are declining. It is noteworthy that since last Thursday there has been a similar character of S&P500 dynamics: the stocks have been sold abundantly at the very beginning of the American session and have partially taken back the decline at the end of the Day. This is similar to the fixation of profits by large players. Although the decline is measured, S&P500 had lost 2% from October 3 peak levels by now. The USDJPY, serving as a demand indicator for risks, had lost 1.5% during the same time, having reversed down from the area of important resistance at 114.50.
In Europe, the populist Italian government remains in the spotlight on the backdrop of a skirmish with the bureaucrats from Brussels. EU officials require that the country better satisfied the Union’s standards, and the high officials of Italy call Brussels “enemies” in response. All this results in the weakening of the Italy markets and presses on the single currency. The index of the Milan stock Exchange has updated 16-month lows, and the yield of the 10-year bonds has jumped to the highest levels since January 2014. The EURUSD had sunk to 1.1460 (lows since August 20) but later bounced back to area 1.1500, where it is currently trading.
In China, the pressure on stock markets remains because of the fears around the trade wars consequences following the statements by U.S. representatives on “fundamental contradictions” in views with China. The pressure on the Chinese currency continues to increase, and the PBC allows the yuan to fall below the mark of 6.9 per dollar. The weakening of the currency will let the export-oriented companies gain a competitive advantage against the backdrop of tariffs from the U.S., but it can also increase the deflationary pressure worldwide in the medium term and suppress the demand for risks in the short-term.
Friday data on the labor market were surprisingly weak. The increase in the number of new jobs by 134K has been minimal for the last 12 months. Same as a year ago, the employment rate was affected by hurricanes, leading to reductions in Services.
At the same time, the unemployment rate has decreased to 3.7%, the minimum level since 1969, and companies in the manufacturing sector added 18K jobs, continuing to increase the employment. No surprise was the rate of increase in wages, showing an increase of 0.3% per month and 2.8% yoy, as a result, the dollar lost 0.4% in the initial response, but largely played losses in the recovery of the demand for safe assets.
We should note why the 49-year lows of the unemployment rate are less important than the inexpressive increase in Employment.
Firstly, within a week, there were positive signals from other indicators that tuned the market to an even stronger report than the expected 185K growth. ADP reported an increase in private sector employment by 230 thousand, ISM noted the growth of employment indices in their surveys, weekly initial claims also felt better than expected.
Secondly, the unemployment rate is a relative figure depending on the proportion of the active labor force. And it remains under pressure due to the aging population. The unemployment rate is, therefore, lower as people leave the workforce.
Thirdly, the number of employees looks like a stronger indicator of business activity for the markets, as it allows us to judge the growth of companies.
Weak employment growth rates have not exerted pressure on the market so much because of their weakness (we have seen much lower in previous years), but because of the hawk position of the Fed, voiced in previous days. The markets are waiting for strong increases in rates, and weak employment rates give rise the doubts whether the Fed’s plans have suppressed the economy too much.
As a result, S&P500 lost 0.6% on Friday, and at the opening of trades on Monday is reduced by another 0.55%. Chinese markets are impressively losing at the start of trades on Monday due to the return of worries around the hard landing of the Country’s economy. PBC reduced the reserve requirement rate to 100 bps, which is designed to support liquidity in the markets, but it did not save from the fall of the Shanghai Exchange Index by more than 4%. MSCI of the emerging markets updates 17-month lows.
Asian currency market suffers tough times. Trade war tensions that started in January 2018 are supposed to keep going. The US and China are two major players in the tariff game. While this game seems to be positive for the US dollar, the Chinese yuan is loosing.
The depreciation of the CNH is enormous. Since the beginning of 2018, USD/CNH has surged from levels near 6.26 to 6.90. Is it the endpoint? Unlikely. The leading world banks came to the conclusion that the CNH traders should expect more difficult months for the currency.
The main reason that made the banks decrease their forecasts on the CNH’s rate is the trade war’s impact. According to the economic data, in the first half of 2018 China suffered the first current account deficit in 20 years. China also got the first quarterly current account deficit in 17 years. As a result, experts predict a narrowing surplus or more frequent current account deficits in the future. It’s highly possible as the US is going to keep rolling out tariffs on Chinese goods.
On September 24, the US imposed $200 billion worth tariffs (additionally to $50 billion worth tariffs imposed earlier this year). The levied duty is 10%, however, it’s anticipated to increase to 25% at the beginning of 2019. Even though China may retaliate with additional tariffs, the situation will just worsen.
Another important reason is the gap between the US interest rate and Chinese interest rate. The Federal Reserve has already raised the interest rate three times this year and is anticipated to do it once again in December. At the same time, the People’s Bank of China is expected to keep the interest rate on hold. Leading financial institutions assume that China will sacrifice the price of the Chinese yuan to support the economy.
JPMorgan was one of the first banks who cut its forecast for the Chinese yuan. They think that the People’s Bank of China may hold a looser monetary policy that is anticipated to support the economy without an intervention in the yuan’s rate. As a result, the central bank may let the currency slide further. JPMorgan sees the USD/CNH at 7.01 by the end of December. The first half of 2019 will bring the pair to 7.19 (versus the previous forecast of 7.02).
Deutsche Bank AG considers the same reasons for the yuan’s decline. Bank’s experts see the worst scenario for the yuan in the next year. USD/CNH is expected to climb to 7.4.
Bank of America Merrill Lynch agreed with others and downgraded its forecast for the Chinese currency. The new forecast for the USD/CNH is 7.05 in the first quarter of 2019 (6.90 previously) and 7.10 (versus 6.85) in the second quarter. Moreover, talking about the current situation, the bank anticipates that the yuan will plunge by 2.5% by the next quarter.
However, not all experts are so pessimistic about the Chinese currency. According to the Bloomberg survey, there are analysts that predict the strengthening of the CNH and fall of the USD/CNH pair to 6.70 by the end of next year.
Who is more correct about the future of the CNH? Let’s have a look at the current situation.
On the weekly chart, we can see that the USD/CNH pair is trading at the highs of May 2017. The crucial resistance is at 6.9875 (the highest level since the beginning of 2017). In case the pair breaks above this level, there will be no doubts that it will surge further.
Making a conclusion, we can say that the yuan is under big pressure. Most of the experts predict the significant plunge of the Chinese currency. As the trade war is anticipated to escalate further, the Chinese economy and currency will suffer a lot. If only Mr. Trump changes its policy towards China, the CNH will be able to recover.
This article was written by Daria Bobrova, a senior analyst at FBS