A Full-Fledged Tech Cold War Could Cost the Global ICT Sector $3.5 Trillion: Deutsche Bank

A full-fledged tech cold war could cost the global information and communications technology sector around $3.5 trillion over the next five years due to loss of domestic Chinese demand, costs of shifting global supply chain currently located in China and higher operating costs due to the emergence of two divergent tech standards, according to Deutsche Bank.

“We conduct a top-down analysis of the impact on the Global Information & Communications Technology sector from a full-blown cold war. It shows that the ensuing demand disruption, supply chain upheaval and resultant ‘Tech Wall’ that would delineate the world into rivalling tech standards could cost the sector more than $3.5 trillion over the next five years,” said Apjit Walia, global technology strategist at Deutsche Bank.

“We believe 5-8 years is an appropriate time period although some supply chain experts believe the time to relocate the cluster of supply chain networks could take as long as 10 years. Globally, China has about 13% of revenues of the ICT sector amounting to around $730 billion per annum. In the worst-case scenario of a full-fledged tech cold war, the ICT sector would stand to lose these revenues.”

The recent tech rally has been at odds with economists maintaining a gloomier global economic outlook. The rally is largely driven by the optimism of economic recovery and a much stronger rebound in the technology sector. However, equity analysts believe technology shares are most vulnerable due to worsening U.S.-China relations.

The S&P 500 information technology sector has returned about 10% in 2020, including reinvested dividends. Although during the tech bubble of the 1990s the sector has never booked over 14% of the S&P 500’s earnings, its profit contribution surged to more than 20% of S&P 500 net income in recent years.

The post-COVID-19 tech recovery and a potential tech cold war are two of the most salient aspects of the current market dynamics. Tensions between the U.S. and China continue to rise and spread to other parts of the world with much discussion on the probabilities of the various tail scenarios.

“A nuanced observation of the tariff and geopolitical issues between the two countries over the past few years suggest they are primarily a smaller strategy that is part of a larger Global Tech Cold War. The DB Tech Cold War Index has been trending higher since 2016 with peaks coinciding with tit-for-tat measures by the US and China on technology IP protection and countermeasures. It made an all-time high in April 2020 with the COVID-19 crisis fueling tensions and has spiralled higher since then,” Deutsche Bank’s Walia added.

“The political headlines are matching the sentiment among the populace. Recurrent surveys we conducted from April to June show that post-COVID tempers remain at elevated levels with 41%+ of Americans and 35%+ of Chinese stating they will not buy each other’s products. An election year in the U.S. further complicates this geopolitical dynamic.”

According to Tipranks’ Analyst Consensus By Sector, 151 technology stocks out of 596 were rated “Strong Buy”, 320 were rated “Moderate Buy”, 106 were rated “Hold”, 19 were rated “Moderate Sell” while none were rated “Strong Sell”.

“WARS” Zones Of Another Kind, The Wuhan Acute Respiratory Syndrome

So, traders will pivot from the other Wars, Trade and Iran, and into the “WARS” zones of another kind, the Wuhan Acute Respiratory Syndrome zone, where the latest travel restrictions now confine nearly 60 million Chinese.

Traders who would be typically discussing the weekend football results are now sadly focusing on mortality scores this morning. And trust me, absolutely no market professional likes making money off misery, but we all have a job to do to protect client’s savings. So, risk profiles need to be adjusted as the Wuhan frenzy factor kicks in, and risk markets enter the fear zone, a highly pandemic place in its own right. Even more so after President Xi calls the rapid spread of the virus a grave situation.

So defensive strategies will be priced at a premium out of the gate as investors shed China and global risk proportionally to the mounting reports of confirmed Wu- flu cases worldwide. Suggesting the market risk lights could start flickering between amber and red.

While much of the focus has been on the usual suspects’ luxury, travel, and tourism, just calculating the number of canceled tourist trips, declines in retail trade and similar factors are not sufficient to get a full picture of the impact of “WARS.” The structural changes to the global economy complicate the economic analysis of this because there are linkages within economies, across sectors, and across international trade and capital flows that need to be factored.

The biggest threat to the global economy is not just because the disease spreads quickly across countries through networks related to global travel. But also, because any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalization.

Unlike 2003 where SARS was less impactful on the developed world market, the rest of the world could feel the pinch this time around. And if the virus stunts China’s domestic economic growth in an echo of the SARS epidemic nearly 20 years ago, the falls could be even more precipitous than projected. And there are two reasons why: 1) consumption is now a more substantial part of China’s GDP, and 2) China’s overall growth trajectory. In 2002, retail sales accounted for 34% of nominal GDP; this share is now over 40%. And since China has been at the forefront of the global economic recovery this year, mostly driven by consumption, there could be a massive knock-on effect globally as China’s pivot from a brick and mortar economy to a services powerhouse means they import much more from abroad than they ever did

There has already been a significant markdown in China exposure and leisure stocks – as positioning had been extremely consensus in both. But not only could we see a multi-sector ASEAN equity market fire sale unfold, but a massive chunk of the nascent great global growth trade of 2020 could unwind. After all, a possible one percent haircut to China’s GDP is not a trivial matter, and indeed, when China sneezes, the world catches a cold.

According to the IMM commitment of traders, equity futures long positioning has continued to rise to new records, call volumes have surged to the highest since October 2018, and sentiment indicators are at the top of their historical band. Over the last three months, equity funds have also seen inflows of $75bn, the strongest since early 2018, with cyclical sectors being big beneficiaries, especially Tech, Financials, and Industrials. Indeed, the market’s fear factor has given way to greed, which could leave current positions precariously perched. Pullbacks of 3-5% in the S&P 500 have been typical every 2 to 3 months historically, but now we’re stretched to about 3.5 months, and if a significant Wu-Flu risk wobble occurs, we could see more profound positioning unwinds as a pandemic panic ensues.

There is nowhere that China’s economic influence is more on display than in Asia. The key driver of ASEAN’s steady growth over the past decade has been the rapid growth in bilateral trade with China. China has been ASEAN’s largest trading partner in the past ten years, with two-way trade reaching $292 billion in the first half of 2019. And thus, makes the rest of Asia extremely vulnerable to a China economic slowdown.

And although I have the usual assortment of crazy trade ideas going through my head, unusual for me, I’m starting to think cash is the right place to be for the next few weeks instead of trying to stand in front of the Wuhan freight train. It’s too early in the year to go into a trading hole.

Oil market

Oil sold off aggressively last week on concerns about the impact on China’s economy of the outbreak of a SARS-like virus. Brent was down close to 6% on the week as trader moved to price in a worst-case scenario around Chinas travel and transportation demise. But now traders are left with the impossible task of factoring in the global demand impact as the outbreaks are getting reported worldwide, not to mention a potential 1 % hit to China GDP. Given the extremely tight linkage between China’s economic growth and its appetite for oil, there’s no place to hide for oil bulls and as we saw last week, taking a bullish leap of faith proved to be a fruitless exercise in frustration.

Since the Wu-Flu incubation period is estimated at between 5 days and two weeks, we’ll need to assess the true extent of the damage after the Lunar New Year holiday, so I suspect the balance of oil markets demand devastation risk remains on the wobble until then.

Gold Markets

Gold is performing well in large part because of the slump in US yields since the new year. This fact seems to be offsetting the impact of a strong US dollar to a more considerable degree. And with the Fed on hold, so a risk-off induced break lower in yields could be relatively unobstructed, which would be very bullish for gold.

Also, the details of Friday’s US PMI report were a little downcast. New business did rise, but at a slower pace. Both manufacturers and service providers recorded a more gradual expansion of new orders than expected. And new export orders placed with US private sector firms dipped into the contractionary territory at the start of 2020. Which supported also provided a fillip to gold priced on Friday

But a Wuhan flu triggered sell-off in equity markets will likely drive gold demand out of the gates today, and long-term strategic buyers could compound the move higher as they start to position for the Wu-flu to spread at a faster pace in the coming weeks. The more rapid pace of contagion will represent another significant headwind to global growth. Given how early we are in the newfound growth cycle, more policy easing will be needed to support growth, which could be viewed as bullish for gold. A policy response from the PBoC is a given. But the big question is if the Feds need to react at some point down the road. All of which would be bullish for gold

Still, the effects on the US economy are a long way’s off as trade flows between China and the US have been reduced to a trickle due to tariff wars. And with only two, at this juncture, reported flu cases stateside, it’s not going to have a significant impact on US consumers, but its the fear factor that’s impossible to gauge. None the less at this stage of contagion the Wu-Flu is unlikely to have a material effect on the FOMC policy.

But in case you needed more reasons to buy gold this week, all eyes and ears will be honed on Chair Powell’s FOMC presser. Still, more specifically, Powell will be grilled about the financial stability risks created via the Fed’s liquidity injection due to balance sheet expansion.

There’s no blueprint for unwinding the balance sheet without some element of risk. But the fear heading into this FOMC meeting is a communication misstep. At some point, the Fed will need to communicate a temporary pause in the Fed’s repo activities as it can’t go on forever. Still, a misstatement could easily trigger a huge adverse market reaction. This in itself demands some protection either via long gold or downside USDJPY structures.

ASEAN currency markets

Depending on how widespread the outbreak gets, we could see more shifts in the market long ASEAN axes with tourist-heavy THB and the global growth-sensitive TWD as most vulnerable in this case.

The preferred way to trade this through FX is THB – with the economy dependent on tourism, the loss over China New Year will weaken GDP and weigh on the Baht, precipitously.

The THB remains the most exposed to the new coronavirus outbreak as Thailand is a top destination for Wuhan tourists. Analysis of seat capacity on flights by OAG shows that the two largest international markets are Thailand, with nearly 107,000 seats and Japan with 67,000 seats available.
Coronavirus – Tracking Down the Bug (OAG)

Other analysts estimates suggest a 3% haircut to tourists during the Lunar New Year holiday week.

But if the virus stunts economic growth in an echo of the SARS epidemic narrative and triggers a deeper slowdown in China and weakens the RMB. Then the Yuan correlated basket of KRW and MYR have the most to lose so we could see a further unwinding of capital market risk in South Korea and Malaysia this week.

G-10 Currency Markets

G10 FX vols are holding in for now in though spot markets will be quiet in Asia due to the Lunar New Year holidays across the region. Implied levels are already low, and concerns regarding the new coronavirus outbreak continue, so market makers do not want to be short vol just in case fear escalation. If the virus outbreak continues to expand, it could significantly impact the currency market where the safe-haven JPY and CHF should shine while the USD will attract its lion share of safe-haven flows. I don’t like either of those trades mind you 1) due to Japan’s economic proximity to ground zero, and 2) the SNB doesn’t care about the US Treasury currency manipulators tag.

The Euro continues to struggle even in the face of a moon shot on this week’s ZEW data, and while hints of a move towards a symmetric inflation target are a small positive within the context of the ECB policy review. Still, without a more supportive fiscal policy input and a bounce in rates, the Euro could languish.

But the Euro has been a critical funding currency of the “carry trade” this year, especially into the ASEAN basket. Hence, as local currency bullish bets unwind, it could add some support to the underlying EUR risk as those shorts get covered.

As for the market short dollar narrative, the US dollar will undoubtedly be a big talking point during the US presidential election, and the Fed is likely to end up cutting rates following the strategy review. But these events are later in the year, and for now, it’s hard to fight safe-haven US bond driven currency inflows.

AxiCorp’s Innes discusses Wu-Flu on morning podcast 6:23 min

Gold Daily News: Thursday, January 16

Yesterday’s U.S. and China Phase One trade deal signing ceremony brought a lot of attention, but little has happened in gold and silver. However, we saw big movements in platinum and palladium. The first broke sharply above $1,000 mark as it gained almost 4% and the latter has reached yet another new record high nearing $2,200 mark.

Right now, the price of gold is flat and silver is retracing some of yesterday’s advance. On the other hand, both platinum and palladium extend their short-term gains this morning.

Today, the markets will await the U.S. Retail Sales number. It is supposed to be the most important piece of economic data this week. But that’s not all. At 8:30 a.m. we will also get the Philly Fed Manufacturing Index and just before that, at 7:30 the European Central Bank will release its Monetary Policy Meeting Accounts. Then, the ECB President Lagarde will speak at 1:00 p.m. Last but not least, at 9:00 p.m. there will be China’s GDP number release.

Check more of our free articles on our website – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up for the free newsletter today!

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Paul Rejczak
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Sunshine Profits – Effective Investments through Diligence and Care

Gold and Silver Recover After Lower Than Expected NFP

Metals such as gold and silver were trading negative on Friday on a mix of improving market sentiment and a profit booking movement ahead of the weekend. However, both metals reacted positively to the weaker than expected nonfarm payrolls data that was published today.

The same story happened with palladium and platinum that are now in recovering positions. Copper is extending its already daily gain.

U.S. job market extends its weak note

The United States created 130K new jobs in August, below the 158K expected by market and the previous data of 159K. The last month was revised 5K down from 164K.

On the other hand, the wages growth rose 3.2% in August, above the 3.1% expected by the market. However, the number is a slowdown from July’s revised 3.3% data.

The unemployment rate remained at 3.7% another month, while the participation rate of the labor force rose to 63.2% in August from 63.0% in the previous month.

Gold recovers almost all it’s daily losses after NFP

XAUUSD 1-hour chart Gold September 6
XAUUSD 1-hour chart Gold September 6

Gold reacted positively after the weak nonfarm payrolls data in the U.S. and it is recovering almost all its daily losses.

Early in the day, the metal broke below the 1,520 area and fell to test the 1,500 critical level, but after the employment report, it jumped to be traded at 1,517. Currently, the unit is trading 0.16% negative on the day at 1,516.

On the week, the metal is ready to close its second negative week in a row as the unit has not been able to break above the 1,550 area. XAU/USD needs a run above the 1,527 to close positive on the period. Meanwhile, it is posting a 0.30% weekly decline.

Silver turns positive after NFP

XAGUSD 1-hour chart Silver September 6
XAGUSD 1-hour chart Silver September 6

Silver exploded after the nonfarm payrolls data on Friday and recovered all its previous daily losses to turn positive on the day at 18.65.

Previously in the day, silver was trading down amid improved risk sentiment and profit-taking ahead of the weekend. XAG/USD fell from the 18.60 area to trade at 18.00, its lowest level since August 27.

However, the U.S. employment report ignited the pair and sent it back to 18.70, where it is trading right now with a 0.35% daily gain.

On the week, silver is ready to close its fifth positive week in a row, thought the unit is trading well below weekly highs at 19.50.

Copper negative after testing the 2.6400

XCUUSD 1-hour chart Copper September 6
XCUUSD 1-hour chart Copper September 6

Copper is trading negative on Friday as investors are closing positions around the 2.6400 area before the weekend. After testing its highest price in over a month at 2.6420, XCU/USD is now 0.25% up on the day at 2.6180.

XCU/USD is ready to close its second positive week. The base metal is posting a 3.10% weekly gain right now. It would be its best week in over six months.

Soybeans, Corn Collapsed After a Good AMIS Report

Grains such as soybeans, corn, and wheat are trading down on Thursday as investors are digesting the latest AMIS crop report and optimistic news about new trade talks.

The market sentiment improved considerably on Thursday. Investors welcomed the announcement of a new round of trade talks between the United States and China in October.

However, a new crop report showing that forecast for supply in grains was lifted sharply, “mostly reflecting a massive upward revision for the US,” pushed prices down.

According to the Agricultural Market Information System market monitor for September, “world maize production has been lifted sharply in view of a massive upward revision for the US. Rice production is also seen higher while wheat production is expected to increase to a record. In the case of soybeans, a projected year-on-year decline in output is unlikely to become a concern, as overall supplies remain adequate, especially given the dampening impact of African Swine Fever on feed demand in China.”

AMIS highlighted that money managers liquidated long positions in wheat and corn, “establishing modest short holdings for both.” However, in the case of soybeans, “it added to its net short position m/m.”

Soybeans down on Thursday and lost two days of gains

ZS1 Soybean 1-hour chart September 5
ZS1 Soybean 1-hour chart September

Futures of soybean are trading down on Thursday as investors are digesting the latest AMIS report. Improving supply expectations and long position liquidations are pushing prices lower.

Early in the day, soybeans traded higher to 8.78, intra-day high. But the news and a rejection of that level sent the unit down to 8.65. The contract of soy is now priced at 8.65, which is 1.10% negative on the day.

Technical indicators are suggesting more declines in the short and middle term. The next support is at 8.63, followed by the 8.60 area. Be aware of stop-loss triggering below 8.60.

Corn consolidates losses around 3.59

ZC1 Corn 1-hour chart September 5
ZC1 Corn 1-hour chart September 5

Corn is trading positive on Thursday for the first time in the last five sessions as investors are digesting the AMIS report.

“In the US, the crop is progressing under mixed conditions across much of the corn belt due to the late sowing this season,” the report says. “Final yields will depend on how the weather performs over the next month.”

In this framework, futures of corn attempted to bounce from 3.56 per bushel, but the 3.61 level contained the unit. Corn is now trading 0.10% positive on the day at 3.58, but it is losing steam.

Wheat posts second day of gains, but it stopped its advance

ZW1 Wheat 1-hour chart September 5
ZW1 Wheat 1-hour chart September 5

Wheat is performing its second day of gains on Thursday, but recent crop report news hurt the unit and it pared gains at 4.69.

The unit is now trading at 4.66, 1.03% positive in the day. Oscillators are suggesting a turn in the direction for the unit, but the 4.64 is supporting the contract. Watch out for the 4.60 area, followed by the 4.56 and 4.50 levels for supports.

Gold Down Amid Trade Optimism, Copper Recovers From a 2-year Low

Gold and silver are trading down on Thursday as market sentiment improved on news that the US and China will talk again on October and the better than expected ADP report in the United States.

Metals are mixed on the day, gold and silver are posting losses, but copper is extending its recovery from 2-year low, while palladium and platinum are consolidating highs.

China-US trade war talks

China’s Ministry of Commerce and US top trade representatives confirmed that both countries would have a new round of negotiations in October.

“Both sides agreed they should work together and take practical actions to create favorable conditions for the negotiations,” China ministry statement said.

ADP employment better than expected

The ADP reported today better private employment conditions in August with the creation of 195K new jobs in the last month, well above the 149K expected by market. On the negative note, July data was revised 14K down to 142K.

Gold down to test 1,535

XAUUSD Gold 1-hour chart September 5
XAUUSD Gold 1-hour chart September 5

Gold is retracing from a 6-year peak as investors are digesting reports of a new round of talks between China and the United States in October.

On Thursday, XAU/USD is trading down for the first day in the week with the unit now testing yesterday’s lows around 1,535. The sentiment has changed for gold at least in the short term, and technical indicators are suggesting more room for the downside.

However, as far as the metal remains above 1,535, and the more critical 1,520 area, it remains bullish. Resistance lines remain at 1,560 and the psychological level of 1,600.

Silver trades down amid improved sentiment

XAGUSD 1-hour chart September 5
XAGUSD 1-hour chart September 5

Silver is falling from nearly 3-year highs at 19.54 on Thursday as investors are betting on riskier assets following the confirmation of talks between China and the United States on October.

Traders were waiting for the 19.50 as a possible selling area, and now the price hit it. Besides, the change in the sentiment provoked by the talks is suggesting a more conservative approach on metals purchases.

Currently, silver is trading 2.0% down on the day at 19.20. Technical studies suggest more room for the downside, at least in the short term. The 19.00 area is now supporting the pair. If the unit breaks below there, the next level of play will be the 18.65-75 area.

Copper recovers from 2-year lows

XCUUSD Copper 1-hour chart September 5
XCUUSD Copper 1-hour chart September 5

Copper is trading positive for the second day as the unit is extending its recovery from September 3 minimum at 2.4756, its lowest level in over two years. A set of ugly manufacturing data around the world this week pushed copper prices down; however, a weaker dollar is lifting the mineral the last days.

Currently, XCU/USD is trading at 2.6250, 1.45% positive on Thursday. Technical studies are suggesting that a bullish extension could happen in the short term. If correct, copper would find resistance at 2.6400, 2.6800, 2.7400, and finally 2.8000, July highs.

Remember that any trade war resolution would be good for copper prices, as well as any improvement in manufacturing data as the base metal is a key player in power and construction.

Palladium extends advance, ready to test double top at 1,600

XPDUSD Palladium 1-hour chart September 5
XPDUSD Palladium 1-hour chart September 5

Palladium is trading positive for the sixth straight day as investors are welcoming trade war talks confirmation. The unit is now testing the 1,570 area, and it has 1,600 on sight.

Technical indicators suggest that a bullish continuation is possible in the short and middle term. As mentioned above, XPD/USD will find resistance at 1,570 and 1,600. To the downside, the unit is well supported by the 1,550 and 1,500 areas.

Platinum rejects the 1,000 area and falls for the first time in three days

XPTUSD 1-hour chart Platinum Sept 5
XPTUSD 1-hour chart Platinum Sept 5

Platinum is trading negative on Thursday for the first time in three days as investors are pausing their purchases of the base metal due to the trade talks confirmation between the US and China.

Previously, investors jumped into the XPT/USD as an alternative for gold and silver, but as both metals are falling on Thursday, so does platinum. Technical conditions remain bullish for the metal, but it is right now overbought, so a period of consolidation is expected.

Grains Mixed on Better Crop Conditions and Hopes for US Grains Demand

Soybeans, corn, and wheat are trading mixed on Wednesday as grain investors are digesting news from the USDA regarding crop ratings and US grain exports.

Soybeans higher amid robust export inspections

ZW1 Wheat futures 1-hour chart September 4
ZW1 Wheat futures 1-hour chart September 4

Soybeans are trading positive for the third day in a row, but the movement remains in a small range between 8.60 and 8.80. Investors welcomed news about an increase in export inspections.

The U.S. Department of Agriculture reported they inspected 1.28 million metric tons of soybeans for overseas delivery between August 23 and 29, which was a 33% increase from the previous seven days and also an increase from the 776.277 metric tonnes reported in the same period of 2018.

Soybean investors are taking the news as a signal that the demand from U.S. supplies has started to grow again.

Besides, the weekly crop report was released and showed that soybeans crop remained unchanged with a 55% rated good/excellent, which is considerably lower than the 66% a year ago. Soybean blooming and pods are also below five-year averages.

In that framework, futures of soybeans attempted a decisive run overnight, but the unit was capped at 8.74. Then, it started to fall to current levels around 8.69. Soy is currently flat on the day.

However, the odds have changed for soybeans as technical indicators are signaling a bullish extension is gaining momentum in the daily chart. The positive sentiment is even more prominent in the 1-hour chart with oscillators and moving average pointing to the upside too.

If the pair holds above the 8.68, it will recover until the 8.74 again. Then, 8.78 is waiting for the unit.

To the downside, below the 8.68, soybean contracts will find buying interest at 8.62 and 8.60.

Corn extends decline for the fourth day

ZC1 Corn futures 1-hour chart September 4
ZC1 Corn futures 1-hour chart September 4

Futures of corn are trading lower again on Wednesday as investors crop conditions have improved in the last week. Corn is now heading to test August 14 low at 3.58.

Corn crops were rated 58% good or excellent, above the 57% condition the previous week. According to the USDA, corn was in dough stage at 81%, well below the 93% in the five-year average.

Earlier in the day, corn was trading slightly positive, but after failing at the 3.63 level, it started to fall and it broke Tuesday’s lows at 360 and extended drops to the current 3.59. Corn is now 0.50% negative in the day, trading at lows of the session.

Technical indicators suggest that the unit is oversold so that a brief bounce could be expected. However, both the 1-hour and the daily chart suggests more dovishness.

If corn consolidates levels below 3.60, next support will be at 3.58, followed by 3.55 and 2.50. Any potential upside will need the unit to break above 3.63.

Wheat pared gains at 4.60, back to test 4.55

ZW1 Wheat futures 1-hour chart September 4
ZW1 Wheat futures 1-hour chart September 4

Futures of wheat are showing some signal of being alive with its first positive session in the last five trading days. On Wednesday, wheat is consolidating losses after the declined performed since August 28 high around 4.78.

The USDA reported that U.S. spring wheat harvest is 55% completed, well above the 78% average by this time in the previous five years.

Early in the day, wheat tested the 4.60 in an attempt to recover more ground from Tuesday minimums at 4.50. However, the unit was rejected by the 4.60 area, and contracts were sent to be traded at 4.55.

The unit is still 0.45% positive in the day, but technical indicators are signaling that the upside recovery is not too active. A retest of the 4.50 area is expected unless the unit breaks above the 4.60 resistance.

Gold Pared Gains at $1,550, Will It Explode? Expert Believes in $1,900

Gold will jump to 1,900 and a lot higher.

Hi FX Emperors, Canadian Billionaire and chairman of Leagold, Frank Giustra, affirmed in a recent interview that gold would explode in the future as the world is facing dark economic times ahead.

“I think we’re in the third and final phase of the gold market that’s started in 2001, and this will be the most explosive phase for gold,” Giustra told Kitco News this week.

Asked about an XAU/USD forecast, Giustra said that gold would reach 1,900 in the next months and a lot higher, but it depends on a lot of things. “It will be reckless not to have gold in your portfolio.”

According to Giustra, “the world is in uncharted waters right now. We’re living in a world with a global debt bubble, and any time you get debt bubbles of this magnitude that are global that are fueled by speculation, something’s going to happen” he said.

When is all this going to happen? Giustra said that the signal for the beginning of the bull rally in gold was the Fed’s reversal policy from hiking to lowering rates this year.

Will it explode? Certainly not today

Gold is trading negative on Wednesday as investors are cheering news from Hong Kong as leader Carrie Lam said that she will withdraw the extradition bill that sparked mass protests months ago.

On the other hand, the UK Parliament voted against the British Prime Minister Boris Johnson plan, and it opened the door for another Brexit delay. It helped the Pound and global risk interest.

Gold pared gains at 1,550

XAUUSD 1-hour chart Gold September 4
XAUUSD 1-hour chart Gold September 4

Gold is trading negative on Wednesday after two days of gains; however, the unit remains moving inside the range it has been in the last eight sessions.

The metal tested the 1,550 level overnight, but the unit was unable to break above the resistance. Then, it started to fall until it found support at 1,530 in the American morning.

XAU/USD is currently trading at 1,540, 0.53% negative on the day. The hourly chart looks bearish in the short term, but some signals of recovery are appreciated in the technical indicators.

To the upside, the unit needs to consolidate levels above the 1,540 price and then launch a new attack for the 1,550 area. Above, August 25 high at 1,555 is waiting for bulls.

To the downside, supports are at 1,530. Below there, check for more buying interest at 1,520 and the psychologic 1,500.

Silver extends rally and test prices above 19.50

XAGUSD 1-hour chart Silver September 4
XAGUSD 1-hour chart Silver September 4

Silver is trading positive for the fourth straight day on Wednesday as investors are buying the metal on a speculative movement and an alternative to gold.

Earlier in the day, XAG/USD jumped to trade as high as 19.60, near two-year highs. However, the unit couldn’t sustain gains, and silver started to consolidation to the downside.

XAG/USD found support at 19.20 and it is now testing the 19.40 area again. Currently, silver is 0.45% positive on the day at 19.35.

TD Securities head of global strategy Bart Melek believes that can be at $25 by Thanksgiving.

“Silver is catching up here. It is getting a bid from gold. The U.S. dollar fell a bit. Rates again dropped significantly, and equity markets went into flux. Essentially what it meant to us is that we will get our $19-$20 silver target quicker,” Melek told Kitco.

Melek considers that above 1,560, gold will jump until 1,600 quickly. Then, silver will be able to reach levels not seen in years. “The gold-silver ratio has taken a dramatic turn lower. A more normalized level for the gold-silver ratio is in the 60s. Silver can easily achieve $25 by Thanksgiving.”

Soybeans, Corn down; Wheat at 4-month lows

Corn, soybeans and other soft futures such as wheat are trading down on Monday as investors are digesting the last set of tariffs on Chinese products, improved weather and supply conditions.

Soybeans start trading with a negative gap

ZS1 Soybean 1-hour chart September 3
ZS1 Soybean 1-hour chart September 3

ZC1 Corn 1-hour chart September 3
ZC1 Corn 1-hour chart September 3

Futures of soybeans are trading negative on Tuesday as investors are digesting improved weather forecast and concerns amid the trade war and the new set of tariffs that the United States put on play Sunday.

Soybeans are currently trading 0.60% negative in the session after opening the day with a negative gap at 8.66. Then, the unit fell to be bought as cheap as 8.59, where it found support. It is now at 8.64.

Technical indicators suggest more room for the downside with Momentum, Awesome Oscillator and MACD signaling bearish conditions in the 1-hour chart.

However, in the bigger picture, soybeans are trading in a range between 8.55 and 8.80.

Soybean investors were slightly less dovish last week as the CoT showed that net short positions were declined to 75,551 in the August 27 week from 76,820.

Corn falls for the third session and tests the 3.64 area

ZW1 Wheat 1-hour chart September 3
ZW1 Wheat 1-hour chart September 3

Corn is trading negative for the third session as the unit is testing the 3.64 area as investors are digesting improved weather conditions in the last days.

According to the CoT report, investors increased their net-short positions in corn to 96,370 in the week of August 27, the highest level in three months. Up from 82,266 the previous week.

So, with investors betting on lower prices, Corn futures look ready to break below the 3.64 area. Besides, technical indicators in the 1-hour chart are also signaling for more drops in the next few hours.

Below 3.64, corn will find support at 3.63 and then 3.60. Finally, the grain would open the door for a retest of the 3.58 area, August’s lows.

Wheat extends decline to lowest since May 16

Futures of wheat are trading down for the fourth negative day as investors are digesting reports of abundant global supplies. However, the CoT report showed that net short contracts declined to 37,330 for hard-red winter futures contracts in the week of August 27, down from 40,404 the previous week.

The trend in futures of wheat is clearly bearish with the unit extending declines steadily from the 4.77 area traded on August 29. Earlier in the day, the unit broke below the 4.62 area and after a small pullback, it extended loses to test the 4.56 level.

Currently, Wheat futures are trading at 4.57’6, which is 1.05% negative on the day. In the one-hour chart, technical indicators are mixed with oscillators going north but Momentum and moving averages signaling for more drops. So, a brief period of consolidation is expected around 4,58, but the big picture remains bearish.

Wheat will see next support at 4.53, then, 4.50 and the 4.30 area. To the upside, ZW1! is contained by the 4.60 area and then, 4.62 will act as resistance.

Grains to Close Week, Month With Losses, All About Trade War

Grains are trading mixed on Friday but with a negative note on August as investors are still waiting for trade war developments. As for now, conciliatory words between US and China are giving some hopes.

“The most important thing is to create the necessary conditions for continuing negotiations, said Gao Feng, a spokesman for China’s Commerce Ministry. However, he said that China has an arsenal of measures for retaliation. However, they don’t want to use it.

Despite the conciliatory tone, the market is reluctant to believe in everything China and the United States said, as it seems they want to have a prolonged trade war. Farmers, then, are suffering the consequences.

Soybean ready to close August with gains

ZS1 Futures of Soybean 1-hout chart August 30
ZS1 Futures of Soybean 1-hout chart August 30

Soybeans are trading positive for the third day in a row as investors welcomed conciliatory feeling between the two parts involved in the trade war. On Friday, futures of soybeans jumped to trade as high as 8.78 per bushel, but the level resisted and it sent the unit back to previous levels.

Profit-taking ahead of the end of the week and month is keeping the grain out of higher prices. Currently, soybean is trading 0.60% positive on the day at 8.73.

On the technical analysis front, odds are for a bullish extension in the short and middle terms as studies on both, the 1-hour and daily charts, are pointing to the upside.

On the week, soybean is closing the first positive period in the last three weeks. The oilseed is posting a 2.10% weekly gain, recovering almost all losses experienced in the previous two weeks.

In the monthly chart, soybean is closing August with a 0.63% gain as the unit was on time to reverse losses in the first half of the month, but the benefit is not that big. August would be the third month of gains in the last four. The monthly chart also suggests that the grain is moving in a long term range between 8.44 and 9.30.

Corn down amid profit-taking

ZC1 Futures of Corn 1-hour chart August 30
ZC1 Futures of Corn 1-hour chart August 30

Corn is trading down for the second day as investors are closing positions ahead of the end of the month. Early in the day, the contract attempted to break above the 3.74 level, but it wasn’t successful.

Currently, corn is trading 0.40% negative at 3.69. The unit is now testing the 3.69 area, which is the support that is containing the downside. Below there, the next frontier would be 3.66.

On the week, corn is giving signals of life as the unit is performing its first period of gains after the sell of experienced in the last three weeks. Thought the move is on a consolidation phase rather than a recovery.

The month is also an ugly picture for corn as it is closing its third negative period. The unit has now entered on full steam into the long term range traded between July 2014 and May 2019 between 3.40 and 4.00.

Wheat breaks below 4.62 and trades at lows since May

ZW1 Futures of Wheat 1-hour chart August 30
ZW1 Futures of Wheat 1-hour chart August 30

Futures of wheat are trading negative on Friday with the unit breaking below the 4.62 area and extending drops to 4.59, its lowest level since May 16.

Previously in the day, wheat traded around 4.66, but a break below the 4.64 triggered stop losses that fueled declines to 4.62, where another batch of stop losses was activated. Then, the unit found support just below the 4.60 area.

Currently, the unit is trading at 4.60, 2.50% negative on the day.

On the week, the unit is falling 3.50%, extending losses after the previous week small recovery.

On the month, wheat is falling for the second period, with August performing 5.28% down in the period. Overall, wheat is inside a downtrend with the 4.20 area as the most likely destiny.

Grains roundup for August 30

Coffee is down in the day, week, and month as futures of coffee weren’t able to break above the 98.00 area. The contract is now traded at 95.25, 2.15% down. On the week, coffee is 0.11% down after attempting a recovery that was capped at 98.50. In the bigger picture, coffee is closing August with a 3.25% decline, extending the already sell-off of 10.30% of value performed in July. Technical analysis suggests more declines in all frame times.

ZC1 Futures of Coffee 1-day chart August 30
ZC1 Futures of Coffee 1-day chart August 30

Sugar is having the same story of coffee with declines in the day, week, and month. The trend in the sugar futures is even more visible to the downside with prices at 11-month lows around 11.10. The unit is closing its fifth negative week in a row, and its second month with red numbers in a row. August is 8.20% negative for sugar.

SB1 Futures of Sugar 1-day chart August 30
SB1 Futures of Sugar 1-day chart August 30

Happy weekend and stay safe!

Soybeans Extend Gains, Wheat Down but Signaling a Bullish Recovery

Corn, Soybeans, and other softs futures are trading mixed as investors are booking profits ahead of the end of the month. Besides, grain traders are watching weather conditions in the Midwest of the United States.

Soybeans positive for the second day

ZS1 Soybeans 1-hour chart August 29
ZS1 Soybeans 1-hour chart August 29

Futures of soybeans are trading positive for the second day as investors are trading in a mix of profit-taking ahead of the end of the month, good news in the trade war and improving crop reports.

Soybeans accelerated in the last few hours to break above the 8.68 short term resistance, and it is now trading at 8.70, its highest level since August 26. Improvements in the trade war and new commercial options for US grains lifted the unit.

Currently, the oilseed is trading 0.40% positive on the day at 8.69, and the 8.70 area is working as a strong resistance. Technical indicators are still slightly bearish, but RSI and MACD are suggesting a short term bullish continuation. So, traders could expect an 8.72 test in the case the unit breaks above the 8.70 level.

Above 8.70, check for the 8.80 and 8.90 as possible buying zones.

Wheat down for the second day after performing a brief bullish recovery

Wheat is trading negative on Thursday as the unit was unable to break above the upper side of the range it has been trading in the last two weeks.

With a range between 4.66 and 4.77 acting as frontiers, wheat remains to trade in consolidation mode ahead of the end of the month, possible profit-taking and more developments on the trade war.

As reported yesterday, wheat was turning positive in the short term from sub 4.70 levels; however, it respected the range earlier on Thursday and it capped the grain’s recovery. After testing the 4.77 area, wheat was sent down to check the 4.72 area.

Now, the 1-hour chart is showing technical indicators suggesting more room for the downside, where the 4.70 area would be waiting for the pair for a new test.

In any case, remember that range’s bottom side is at 4.66, which will act as support in the case the grain flies to that part of the chart.

Corn extends recovery

ZC1 Corn Futures 1-hour chart August 29
ZC1 Corn Futures 1-hour chart August 29

Corn is trading positive for the second day as investors are closing positions ahead of the end of the month.

On Thursday, corn rallied from 3.64 intra-day low to trade as high as 3.74, its highest level since August 22. Then, the unit felt vertigo, and it started to fall to more moderate prices. It is now trading 0.40% positive at 3.72.

The 1-hour chart is now showing an increasing bearish sentiment backed by the MACD and RSI technical studies. Immediate support is at the 3.71 area, then, 3.69 and 3.66 are the levels to watch.

Gold down as US and China Agree on a ‘Calm Attitude,’ Silver Extends Rally

Calm attitude.

Hello FX Emperors! It is the latest trendy topic as China’s Ministry of Commerce spokesman Gao Feng said China wants to solve trade war with a “calm attitude.” It activated risk appetite, which sent gold down.

On the other hand, silver continues with its rally as investors are betting on the metal as an alternative of high gold prices.

China and the US maintain ‘effective’ communication

“We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with calm attitude,” Feng said Thursday, and for once, it seems to be true that both countries are willing to calm down the situation.

USD/CNY is performing its first negative day in the last eleven sessions as the pair is falling 0.20% on Thursday to its current 7.1493. However, the 7.1400 level looks like the new line in the sand for the China government.

If you believe in technical analysis, studies are now suggesting a possible correction, but technicals don’t matter here.

Feng also confirmed that the United States and China have effective communication. Coincidentally, US President Donald Trump used the “calm attitude” notion on his remarks about the Trade War earlier this week.

Gold lost all previous gains and trades down on Thursday

XAUUSD 1-hour chart Gold August 29
XAUUSD 1-hour chart Gold August 29

Gold is trading negative for the second day after investors welcomed Gao Feng commentaries on a “calm attitude” as a catalyst for risk appetite. Besides, the dollar index is trading positive for the second day.

Previously in the day, XAU/USD advanced to break a short term resistance at 1,545 and to trade at highs since August 25 at 1,550. However, Feng remarks sent the metal down. The unit is now trading 0.24% negative in the day at 1,536.

Feng words certainly motivated the movement, but it is also due to possible profit-taking ahead of the end of the month as Friday will be the last trading day of August.

Also, as FX Empire Analyst James Hyerczyk highlighted in a recent article, “with the market pricing in a 25-basis point by the Fed in September, and really only the yield curve inversion indicating a possible future recession, gold traders have no incentive to chase the market higher at current price levels, which leads me to believe the hedge funds may be taking a little off the top and booking profits.”

In the 1-hour chart, gold looks oversold with the MACD making a negative crossing. The unit is now testing the 1,533 support and consequently, the 1,530 area. Below there, the move could lead the cross to check the 1,525 level, which is the most significant support in the short term.

In the 1-day chart, technical studies are suggesting a possible correction in the XAU/USD with a test of the 1,500 area on the cards. The dynamic uptrend coming from November is acting as support at 1,504.

Below the 1,525 level, if you go short, then the XAU/USD would face support, or profit-taking, at the 1,510 area. Next, 1,500 and 1,490.

Silver extends gains to fresh highs since April 2017

XAGUSD 1-hour chart Silver August 29
XAGUSD 1-hour chart Silver August 29

Silver is trading positive for the fifth straight day as investors are betting on the XAG/USD as an alternative of high gold prices.

On the day, silver jumped to trade at highs since April 2017 at 18.65, but sentiment improvement sent the unit back down. It is currently trading 0.74% positive in the day at 18.50.

Technical studies are suggesting a short term correction that would drive the pair to the 18.40 area and then the 18.20 level.

Gold Positive on Trade War and Germany Recession Concerns, Silver Rallies

Is Germany heading to a recession?

Hi FX Emperors, it is the question everybody is asking as GDP numbers in Germany confirmed a contraction in the Q2. Also, Gold and Silver buyers are taking advantage of a risk aversion environment and a cheap dollar.

Metals such as gold and silver are trading positive on Tuesday as investors are digesting economic data in Germany and the news about the trade war between the US and China. Besides, a cheaper dollar is making holding in gold more attractive.

Meanwhile, the Yuan has declined again, and after its ninth consecutive day of losses against the US Dollar, it is now at its lowest level since February 2008.

Germany confirms recession fears

The Gross Domestic Product in Germany declined 0.1% in the second quarter, according to the Statistisches Bundesamt Deutschland Office. Year over year, German GDP was unchanged, while the GDP WDA figure rose 0.4% in the last twelve months.

German numbers were in line with expectations, but it is a confirmation that Germany could be facing a recession in the next few months.

The news fueled metals amid their conditions of safe havens. Also, it pushed down the euro, but the dollar is not that strong lately, so the decline wasn’t significant. The picture remains gold supporting.

Trade war: Yuan continues its depreciation

Recent commentaries about possible talks between Washington and Beijing are lifting market sentiment; however, investors don’t want to believe it at all and they prefer to be ready in case of another escalation or Tweet from the US President Trump.

However, the good news doesn’t look like that as the Yuan continues with is decline against the US Dollar.

It could be a mix of a weak dollar and the intervention of the PBOC to push Yuan prices down, but the truth is that USD/CNY rose to new highs at 7.1690 on Tuesday, maximum since February 2008.

Only in August, the dollar-yuan rallied 4.0%. It would be its biggest monthly increase in over 25 years.

Gold trades in consolidation mode after Monday’s rollercoaster

XAUUSD 1-hour chart August 27
XAUUSD 1-hour chart August 27

After peaking at its highest level since April 2013 at 1,555 on Monday, gold is now trading in consolidation mode around 1,530 on Tuesday. The unit seems to be supported by the 1,525 area but also contained by the 1,535.

Technical conditions remain mixed for the XAU/USD, but fundamentals are leading the metal with a bullish sentiment ready to explode.

Saxo Bank commodity strategist Ole Hansen said that “it’s clear that the main focus is on the U.S.-China developments. Reports from China on the trade front indicate we are nowhere near any change in the current standoff on trade.”

Also, “with the growth numbers in Germany pointing to a recession, there’s not much of an excuse to sell gold if you are holding any, keeping the market more or less unchanged even though we had a toning down of the confrontational tone on trade.”

To the upside, watch resistances at 1,535, 1,540, 1,535 and the 1,550 area. Above that, obviously the multi-year highs at 1,555.

Silver jumps to 18.00

XAGUSD 1-hour chart August 27
XAGUSD 1-hour chart August 27

Silver is extending its rally on Tuesday after breaking above the 17.75 area on Monday. Today, XAG/USD jumped to trade as high as 18.00 early in the day, its highest level since September 2017.

Currently, silver is trading 1.55% positive on the day at 17.93, clearly in a consolidation phase before the next bullish leg.

Technical indicators suggest more room for the upside with the 18.00 level being as the next resistance. Above, check 18.25, 18.50, and 18.70 as the following selling zones.

Gold Fever is Spreading

Indeed, what a difference a fortnight makes. From a vocal chorus of indifference and reliant on central bank demand to Friday’s fear of missing out momentum which propelled prices to a new 2019 high.

“Gold is back in play, and Blue horseshoe loves “yellow metal”.”

Gold climbed to the highest levels in more than a year. But adding to Golds allure is that prices traded well despite rebounding equities and a firmer USD. And while the prospect of lower U.S. rates and dovish Fed expectations remain supportive, Gold appeal goes well beyond that and is moving higher on own its accord as a safe and inexpensive hedge against the abundance of tail risks rapidly wagging.

Trade war and recessionary fears

The G20 summit will be significant for risk assets and while we don’t know if tariffs will escalate from here, but we do know there’s a substantial risk that they will. And while we remain unsure how the Fed will react this week, but we do know that if tariffs escalate, it will be a potent threat to U.S. growth and so the likelihood of an aggressive Fed cut will also rise. Gold represents insurance against those risks. If you live in tornado alley you would be crazy not to buy home insurance so with a category five recessionary storms brewing; it only makes sense to purchase Gold as portfolio insurance.

Geopolitical risk

I’m far more worried than the market about the activity in the Strait of Hormuz probably because I traded Gold through both  Gulf wars, and I know how quickly browbeating can escalate.

So, in my view, it was escalating Global geopolitical risks that triggered Friday’s move, but this type of haven appeal is are very volatile and extremely sensitive to headline risk so tread carefully.

While the Gold bulls were a bit disappointed $1350 didn’t hold, we did notch a 12-month high suggesting at minimum Gold’s relevance as an essential safe-haven asset will continue to build.

Also, given the lightning pace of Friday’s move, we suspect Gold remains under-owned and will be super reactive to geopolitical headline risk and global recessionary waxing.

Any negative will trigger another massive wave of buying. So, buckle up we could be in for nervy times.

After the rebound in U.S. retail sales on Friday, the markets pared back extreme FOMC dovish bets. So, with the speed of Fridays climbs, overextend Gold positions pared risk and prices collected lower into Friday’s U.S. close. But we view any pause or pullback, even as shallow as they may be, as an opportunity to buy.

Central banks buying

And despite all the talk about lower U.S. rates and trade war hedges, it’s the official sector that remains the consistent pillar of support. And given the move to de-dollarize reserve, this demand will likely continue especially with trade war and the geopolitical risk abound. The great thing about central bank demand is that Gold remains in the vault doing little more than collecting dust for a very long time. So, there is little risk for these flows to reverse anytime soon

China’s Central bank continued to hoover up Gold to the tune of 16 tonnes of bullion last month alone. So, if you’re looking for a backstop for your gold position, you won’t have to look too far, especially if you’re an Asia based gold trader.

I remain unwaveringly bullish on Gold and continue to buy as it remains one of my highest conviction trade into 2020.

This article was written by Stephen Innes, Managing Partner at Vanguard Markets LLC

On the Record


Vanguard Markets Gold flow has started with a bang. Once my quants are happy with our risk parameters and overall hedging models, the next project is a Gold database which will track ETF flows, physical demand, pricing structure in both China and India, the COT and of course the official sector buying and any other stuff they find strong correlated “values”. Indeed, my inner gold bug is emerging from its cocoon.

Latest Trade War Developments

Between Trump tweets and Chinese whispers via state-controlled media, it can be difficult to pinpoint precisely where things stand in the ongoing battle between the world’s two economic superpowers. Christopher Dembik says the CNYUSD rate is the best proxy we have. Here’s why.

As Saxo Head of FX Strategy John Hardy and I both mentioned yesterday, we need to look closely at the Chnese yuan this week. In my view, the yuan fixing is the right proxy to understand how the US-China trade negotiations are going. And it isn’t pretty! Since the end of last week, the yuan/dollar fixing has been cut by 45pips to 6.8365. As negotiations are probably going nowhere in the coming days, we could see the fixing moving closer to 6.90. However, I don’t think that the psychological threshold of 7.00 could be reached as it would have deep negative consequences on local firms that use their CNY profits to repay their USD debt. A large devaluation is still a risk but is not the central scenario for the Chinese authorities.

Softer tone in the US vs tougher tone in China

Yesterday evening, senior Trump administration officials tried to appease tensions. US secretary of the Treasury Mnuchin confirmed, without giving much detail, that the US-China trade talks are still ongoing. The tone is clearly different in China where the official media, such as CCTV and People’s Daily, adopted a tougher stance. It is interesting to note that in the previous rounds of trade disputes that occurred since Autumn 2018, People’s Daily articles mostly used the term “trade friction” instead of “trade war” until now… As of yesterday, all the articles and TV reports mention “trade war”. This terminology change means a lot and confirms that the negotiations have entered a more dangerous phase. In addition, China has tightened its “national security” review for foreign investments, which can be considered as another step in the retaliation process.

This is not 2018 again in the FX market

Looking at the initial reaction of the market yesterday, it is likely that the USD will not benefit from the trade war, contrary to what happened in 2018, as investors expect its main US impact would be to damage the economy and increase the likelihood of Fed rate cut this year. Investors are betting that there is a 60%-70% probability that the December 12 Federal Open Market Committee will see a rate cut. Policymakers are starting to pay attention and it may influence forward guidance in the upcoming June meeting by increasing the focus on the market reaction to the trade war and macroeconomic effect of higher tariffs (leading both to higher inflation and less growth which wwould pose a serious policy dilemma to the Fed).

Trump’s approval rate is still high

On the US domestic front, President Trump is now seeking $15 billion to bail out farmers in order to mitigate the negative impact of the trade war. Interestingly, more and more Republican Congressmen that were interviewed yesterday on US TV were very vocal against the latest measures decided by the Trump administration. It is, however, unlikely to have any influence on the ongoing process or to push the administration to comprise with Beijing. Trump is looking at polls and the message they send is bright and clear: as of yesterday, 42% of US voters supported Trump’s policy (FiveThirtyEight). His electoral base has remained stable, faithful and very broad since he was elected.

What’s next?

  • By May 18 – Potential US tariffs on global auto sector.
  • June 1 – China’s move to raise the rate of additional tariffs to 25% on 2,493 US products (representing $60 billion worth of US imports) will come into effect. In addition, list 3 tariffs from 10% to 25% decided by the USA against China will truly be implemented for all products. For the moment, an exemption applies to list 3 products exported before May 10 and arriving in the US before June 1. For these products, the duty rate is still at 10%.
  • June 17 – The USTR will hold a public hearing on potential duty of up to 25% tariffs on virtually all Chinese goods (list 4 tariffs) that are not currently covered by previous tariffs hikes. It will be followed by at least a week of discussions.
  • June 28 – Likely meeting between presidents Trump and Xi at the G20 meeting in Osaka to reach a compromise on trade issues.

Central scenario for coming weeks

In the coming days and weeks, the market reaction will be key to monitor, and it may have a much important impact on Trump’s will to compromise with China than any other factors. So far, risk-aversion has been contained. The VIX is revolving around 20, still far from the risk zone of 22, but we should expect a sudden spike in volatility as the wrestling match between China and the USA continues. Our central scenario has not changed. Though the probability of an agreement has decreased, it is still likely to happen but not as early as expected.

The latest events do not prove that there has been a breakdown in trust between the two parties, but it will certainly be much more complicated to reach a fair and balanced agreement due to recent tensions. I fear that China will be reluctant to compromise at first as it could be perceived that its position is dictated by outsiders. Paradoxically, the “close relationship” between the two presidents could be a disadvantage in the negotiation process. If we remember the negotiations between the Soviet Union and the USA in the 1970s as part of arms control talks, there was little trust between both countries and certainly no privileged relationship between the two leaders. However, they understood it was their common interest to find a middle ground. Such a situation is not that certain as it seems abundantly clear that President Trump is convinced that tariffs will mainly hurt China and benefit the USA.

The first real deadline is June 28, at the occasion of the G20 meeting in Japan, that could be the opportunity for both countries to find a solution regarding the last points of disagreements. In case of failure, it would open the door to a nastier course of events this summer and potentially the implementation of list 4 tariffs.

Christopher Dembik, Head of Macro Analysis at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire.

Future of American Stocks: Buy or Sell?

Last year was difficult for the whole equity market. The trade war between the US and China, a slowdown in the global economic growth, global uncertainties that worsened the market sentiment, too tight policy of the Federal Reserve affected stocks a lot. Usually, after the rain, the sun always shines. Has the time of the sun come or it’s still rainy weather for the stock market?

S&P 500 Index

Source of the chart: CNBC

Points for the rise

  • The tight monetary policy of the Federal Reserve in 2018 led to the strength of the US currency and the slump of the stock market. In 2019, the Fed will unlikely to raise the rate even once. It gives hope to equities.
  • A trade deal is close. It seems like the trade relationship between the US and China has been improving. Comments on the soon deal come up daily. There are no doubts that it’s early to talk about the trade truce but improved market sentiment may push stocks up.
  • It can’t be considered as a strong economic factor but at the same time, it can’t be avoided. Recently, Mr. Trump tweeted his accusation of the Fed at a lower level of stocks than it could be. It means that Mr. President is interested in high stocks and will support their future rise.
  • BMO found an interesting trend. When the S&P 500 gained 10% or more in the first quarter since 1935, stocks climbed up 6% more on average for the rest of the year. The first quarter of 2019 gave a chance to put this theory into practice. 13% rise of the S&P 500 in the first three months of this year let hope for the bright future.

Based on the factors above, world financial institutions and financers made their forecasts on stocks.

Credit Suisse calmed markets with optimistic comments on the lack of the stock recession in 2019.

Jeremy Siegel, the Wharton School finance professor, doesn’t see signs of the recession, too. Moreover, Mr. Siegel doesn’t pay a lot of attention to possible Fed rate hikes. An uptick of 5-15% is highly likely by the end of this year.

Byron Wien, the Wall Street veteran, predicted new highs for the stock market in 2019. A gain of 15% is highly anticipated by Mr. Wien.

According to a CNBC survey, the stocks market will end 2019 around 3,000.

Points for the fall

Up to now, the S&P 500 shows a solid rise. However, the situation may be not that rosy for the stock market if the factors mentioned above turn around. The trade deal is not reached yet, global issues such as Brexit deal keep putting pressure on markets, especially risky ones. As a result, there is an opinion that the stock market may decline or even fall into recession.

Bank of America Merrill Lynch lowered its S&P earnings forecast for the year to a growth of 4% compared to its earlier forecast of 5%.

Morgan Stanley warned about two or more quarters of the negative or flat growth. According to the bank’s analysts, the forecasts for the first quarter of 2019 were lowered. It means that even if the actual earnings readings outperform, it won’t be a sign of the great surge in the future.

Many analysts see the upcoming recession in the horizon but it doesn’t mean that it’s bad for traders. Falling stocks may be used as a good buying opportunity.

In conclusion, we can say that the future of equities will highly depend on three major factors such as Fed monetary policy, the trade war and the global sentiment. There are no doubts that the situation will change from time to time during the year. To predict the market moves, follow the news to be up to date. As soon as the global situation worsens, be ready for the fall of the stock market. Use it as an opportunity to buy cheap stocks. In the case of the risk-on sentiment, prepare for the stocks’ surge.

A Big Sigh of Relief on the US Jobs Numbers

Global equity indices closed on a high note on the back of the Friday report. After a horrifying print in February, the U.S. labour market rebounded forcefully last month as the employment data showed the US economy added more jobs than expected in March but the disappointing wage growth, considering how tight the labour market is, continues to undermine the Feds effort to reflate the economy. But indeed, the Goldilocks economy should keep the economic bears at bay, at least over the short term. While the solid data print does walk back some domestic recessionary concerns, it doesn’t alleviate potential adverse knock-on effects from a possible worsening economic climate in China, Europe or even Brexit fallout.

But the improving economic landscape in China is bullish suggesting the global economy could catch a much-needed tailwind especially for the sickly manufacturing sectors in Europe that are mired in their worst slump since the 2013-14 recessionary lows. Indeed, the booming manufacturing scrim at the end of 2017 is all but a distant memory.

Frankly, I don’t find the NFP as a significant influence as much as I see the shifting economic tides in China a critical impulse.

While equity market revelled, the US dollar reaction was muted as US yields fell and bond curve flatteners were the flavour of the day as investors heaped into US bonds on the weaker than expected average hourly wages print which suggests the Feds will continue to remain on hold. While the strong NFP headline dispels thoughts of a Fed interest rate cut, the wage data dismisses any ideas of a rate hike suggesting equity markets will continue to edge forward on the dovish Fed outlook. But the big question investors now face is from Economics 101: As we reach full employment, hiring gains will likely cool but will it be enough to trigger a Fed ease?

FOMC Minutes

We expect the minutes to provide a good window into the Federal Reserve Boards mindset amid their strenuous effort to find harmony and strike a balance between conflicting forces that are asymmetrically associated with the pillars of the dual mandate. Ultimately, the markets will try to determine the Feds near, and medium-term reaction function while keeping in mind that policymakers views have a lot more to do with divergence from inflation targets than with builds or drops in the natural rates of employment.

But ultimately the markets will be looking for details why the Fed thinks it was appropriate to hold rates steady through 2019 and then resume rate hikes in 2020. Not the easiest of needles to thread as they must be uber careful not to send off any economic alarm bells, so we expect the Fed to explain their rate cycle recalibration in terms of inflationary shortcomings and little else.

Overall, we expect the FOMC minutes to steer the ship on a steady as she goes path.

Oil Markets

Hedge funds continued to pile into US crude future as bullish bets rose by more than 4 % last week according to the CFTC.

Our model suggested we had an optimistic set up entering last week, but we didn’t expect this much of a positive juice. However, our bets were helped along by but surprisingly positive economic data (PMI) out of China and the US which will continue to ease concerns of a potential threat to global oil demand. The PMI data is one of the best forward-looking indicators and last week numbers paint a very positive backdrop for oil prices.

Bullish signals continue to emanate based on last week price action even more so when traders quickly sidestepped the surprise US inventory builds, which only managed to slow not thwart this bullish oil rally.

The OPEC saga continues to support as the ongoing crisis in Venezuela shows little signs of abating. And Saudi Arabia continues to drive the bus with its ability to influence prices by tweaking domestic exports.

At $70 prompt Brent we believe OPEC supply cut compliance is fully priced in, but the market is now pivoting to escalating tensions n Libya, a possible slowdown in shale production and the nascent global economic recovery.

In Libya, OPEC’s persistent ‘rabble-rouser’ producer, political tensions could escalate and threaten oil production after the eastern regional military commander General Khalifa Haftar (LNA)ordered his forces to march on the capital, Tripoli, where the UN-backed government is based. With this critical OPEC oil producer on the fringe of a full-blown civil war, the potential for supply disruption is real. Given global supplies are tight it would not be out of the question to see prompt Brent overshoot to $ 75 per barrel if the eastern oil terminals which are currently under the LNA control come under fire from competing factions.

Traders have been focusing on non -OPEC supply growth and Shale Oil ability to respond to rising prices. However, a possible slowdown in US domestic production as its been reported by numerous inside sources that independent exploration and production companies are trimming spending as they focus on earnings growth instead of increased output.

The nascent global growth recovery is worth keeping an eye on but in a market starved for good news the fear is that asset prices start marching ahead of economic reality. But with the economic supply and demand function looking supportive we could see a significant near-term bounce on Libya supply disruption or news of a US-China trade agreement, both arguably unpredictable factor but pretty decent wagers in the overall all oil markets calculus

Also, the focus for the rest of April is veering towards the US decision on Iran sanctions waivers, which expire in early May. An extension of waivers has the potential for a time to assuage some of the pressure on global supply, but not to the extent necessary to offset renewed concerns on Libya and the crumbling situation in Venezuela. The bullish game plan remains in play.

Gold Markets

It was a mixed payroll report for markets, but Gold prices recovered slightly as Bulls took solace in a slower pace of US wage increases in March, which support the dovish market expectation of Fed policy through 2019. But ultimately the wild card remains the US-China trade negotiations, as its expected equity markets will spike, denting near term gold appeal, if news of an agreement is signed.

Gold ETF continues to see outflows as investors look to take advantage of improving risk sentiment driven on the back of US-China trade optimism. But the stronger-than-expected March readings of the manufacturing PMI in the US and China have subdued fears that the end of the global expansion was approaching fast which may further reverse out more bearish views on dovish central bank policy.

Currency Markets

I thought I was much more optimistic than the market when it comes to trader’s reaction to a US-China trade deal, but after chatting with my colleagues in Tokyo and Singapore over the weekend, it seems everyone is more optimistic than me and by a wide margin!! So now I am suggesting that we could see an even more significant bounce in risk sentiment on the day before “mean reversion” over the ensuing 24 hours. Assuming we do get a trade deal.

Weeding out all the distraction including Presidents Trump who is now calling for a rate cut and everything else just short of helicopter drops, trading currency markets is no less certain today than it was a month ago after the Federal Reserve Board and the ECB squeezed every drop of volatility out of the markets by their dovish shifts.

But there are so many mixed signals to deal with that suggest no one wants to get stuck looking to pass the hot potato on a US-China trade deal or Brexit kerfuffle.

But ultimately the central banks are still on hold and flows will flock to carry, which in G-10 will keep the dollar downside in check.

The Euro

The ECB is widely expected to remain on hold at its April meeting, and no one is expecting any fresh policy insights. I’m sitting in the March 2020 rate hike camp with everyone else but waiting for a consistent signal for improving EU data which will support Bund yields higher and tow the EURO along for the ride. Until then I expect the EURUSD slumber feast to continue.

Aussie and Kiwi

Traders will be keying in Debelle this week to shed some light on the RBA dovish tack, but with a big China economic calendar over the next two weeks, this will be key for the Aussie and Kiwi as much as it will be the key driver for the global reflationary theme. While to the extent the imminent US-China trade deal is priced in or not, it’s ultimately the comprehensive global growth narrative that will drive the Aussie and Kiwi fortunes given their critical roles in the global supply chains.

Malaysian Ringgit

Much of the current debate is centering around the BNM, but some factors that were contributing to some elements of dovish bias are gradually being alleviated.

Oil prices (prompt Brent) is trading above the key $ 70, and we could see a significant bound in prices on a US-China trade deal. Also, a US-China trade deal would likely bolster Palm oil prices and be incredibly supportive of the shrinking current account balance.

On a trade deal, the USD haven status should diminish, but with the dovish global central banks firmly on hold, the US still offers the best G-10 carry although we could expect more supportive carry flows.

However, some negatives do linger concerning the tepid domestic inflation prints that do suggest the BNM has room to tweak monetary policy lower slightly.

However, ultimately the MYR should benefit from US-China trade agreement, and that should keep the Ringgit in check over the short term.

This article was written by Stephen Innes, Head of Trading and Market Strategy at SPI Asset Management

President Trump Not Stepping Back, New Tariff Thread for China

This move from President Trump could be counted as a countermeasure to China’s decision to raise tariffs about $50 Billion on U.S products. This was also in response to the U.S for applying first, the tariffs.

President Trump stated: “China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong”

On the other hand, a released statement by China’s Ministry of Commerce on Tuesday saying that China will come back with “qualitative” and “quantitative” measures if the tariffs that President Trump announced really applied.

The statement noted: “Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions, and is a disappointment for the international community”

As far as the market the JPY gained momentum to the upside on Monday morning in Asia session.

That happened after the US President gave some clues about the possibility for introducing new tariffs on the US $200 billion worth of Chinese goods.

Once more Investors probably will stay away in fear of a possible unpredictable volatility that may result in huge losses.

According to investing.com, the dollar index fell about 0.15% to the level of 94.27 at 12:30 and the USDJPY slid about 0.74% to 109.73 after President Trump Annulment about the Tariffs.

This possible trade war now is threading to create more pressure on the Chinese economy. Not only that but possible expansion globally of the treat now looks more real.

Now concerns about liquidity in China started to show by the unexpected move of China’s Central Bank to inject about 200 billion yuan in medium-term funds into their banking system on Tuesday to make sure that they’re going to hold if a full-blown trade war starts. They are probably getting in defensive mode after seen that U.S president Trump not stepping back.

This article was written by Marios Athinodorou, TeleTrade’s market analyst, and commentator. Among others, Marios is delivering weekly trading webinars. Sign up for upcoming webinars here.

Risk Appetite Shows Signs of Life in Markets, US Futures Rise as Trade War Concerns Ease

The Nikkei Index has put in a positive day of trading as risk appetite has emerged in Asian markets. 

Washington and China Trying to Avert Trade War, Global Equities Stabilize

Global equities have moved away from the cliff this morning as Asian markets proved capable of reversing off lows and producing buying action. The Nikkei and Topix Indexes have seen better values and the Hang Seng composite has also been positive. Wall Street will be watched intently after Friday’s steep declines. The three major Indexes are being called to open higher per the outlook from the Futures Markets. Data will be extremely thin today, but reports are starting to circulate that Washington is quietly approaching China regarding the recent tariffs implemented, and both nations are trying to avert a trade war. It should also be noted European equities have been positive early.

Three Appearances by Fed Participants, Euro & Pound Remain Solid

There will be three appearances from Federal Reserve members today in the States at various venues. Forex has been relatively calm as storms have prevailed in the global equity markets. The Euro remains within its stronger boundaries, and the Pound has also kept up its winning pace against the U.S Dollar. Growth numbers which will come from the States on Wednesday will be the focus for investors this week and forex is certain to react to the Gross Domestic Product results. The Yen has been slightly weaker as risk appetite’s sudden appearance in Asia has spurred on buying of the U.S Dollar against the Japanese currency.

Risk Adverse Trading Eases in Gold, Speculators Looking for Downside

Gold has come off its highs and is near 1345.00 U.S Dollars an ounce as risk adverse sentiment in the broad markets has eased. The precious metal gained well last week, but it is now within the vicinity of important resistance. Speculators may see this as an opportunity to look for more downside from the commodity in the near term.

Fed Members Commanding Spotlight, Dudley in D.C for Panel Discussion

Fed member William Dudley will participate in a panel discussion which will get underway at 16:30 GMT in Washington.

  • 16:30 PM GMT, U.S, Fed Member William Dudley Speaking
  • 20:30 PM GMT, U.S, Fed Member Loretta Mester Speaking

Yaron Mazor is a senior analyst at SuperTraderTV.

SuperTraderTV Academy is a leader in investing and stock trading education. Sign up for a class today to learn proven strategies on how to trade smarter.

The US Has All the Tools to Win a Trade War

Advocates of Trump and the current administration will be cheering the president on, but whether the U.S President will find his supporters by his side in the months ahead remains to be seen. Trump’s does have a point, however, it’s a risky path.

There are multiple implications to using the threat of a trade war to expedite the rebalancing of trade terms with America’s key trading partners and when considering the fact that the trade terms have evolved over many decades, ripping off the band-aid that has, not only provided support to the U.S economy, but also the global economy, is not going to come without pain.

U.S consumers and manufacturers are at greatest risk.

A sudden increase in the cost of imported goods from China, would likely to lead to a material pullback in domestic consumption. U.S manufactured goods are just unable to compete and to be frank, even with tariffs, goods from China may ultimately be the preferred option. A material pullback in domestic consumption, something that the U.S economy relies heavily upon, is certainly to the detriment of the economy and the voter.

On the flip side, China is a key market for many U.S multinationals, including the likes of Apple, Microsoft, Boeing, IBM and General Motors, to name but a few. China is more than capable of hitting U.S manufacturers where it hurts, ultimately slamming the U.S economy and the U.S Dollar.

However, the US, still, has more tools to win a trade war with China. Donald Trump plays chess with the Chinese. The US is the number-one consumer in the world and China would not be pleased to lose its biggest client.

China’s reserved response last week was likely to be in the hope of a resolution to trade indifferences that has led to the U.S President delivering on a campaign promise. The lack of a more aggressive response certainly suggests that China is looking to avoid a trade war, while demonstrating an unwillingness to sit by and be bullied by the U.S.

There are ultimately many ways that China can hurt Trump and the Republicans. A cut back on soybean and other agricultural imports would see Trump’s support lifeline from the mid-West be crippled, a move that would undoubtedly hit the President’s ratings and prospects for a 2nd term.

Another retaliatory approach could be through a sell-down of its current Treasury holdings and reduced participation in auctions, a move that comes at a time when the U.S is in serious need of foreign investment, protectionism in place or not. Domestic appetite for U.S Treasuries alone would just not cover it. China’s holdings of U.S debt surged by a reported $126.5bn last year, the largest increase in 7-years.

The downside to such a move would be a material decline in the value of China’s foreign reserves, though the Chinese government is more than capable of devaluing the Yuan, a move that would certainly rile the U.S President even further. Once again, China will be on the defensive side.

Granted that the U.S may be able to win the current battle, but winning the war will be an altogether different proposition, with a full-blown trade war likely to only see losers, with no winners.

Can Trump’s move really make an impact on the current U.S trade deficit?

Well, only if trading partners sit back, accept the tariffs without retaliation. As the markets saw last week, no major global economy is going to sit back, particularly China. The only question that remains, is whether Trump will really push through on a trade war and how aggressively China and the rest respond.

Recessions and a Global Depression have resulted from previous trade wars. While Trump spent much of the early part of the year boasting about the record highs in the Dow, the S&P500, and the NASDAQ, the bragging has stopped and it could soon be the U.S economy and the global economy begin to pay the price…