The Making of Coming Storm in February

The Making of Coming Storm in February

Everyone wants a peaceful Lunar New Year. However, the beginning of February has experienced some market rout while most Asia markets were closed. Dollar Index (USDX) jumps back to above 96.00 and puts a weight on commodity prices.

On 1 February, President Trump announced the suspension of Intermediate-Range Nuclear Forces (INF) treaty signed with then Soviet Union since 1987. The treaty bans the manufacturing and test of ground-launched missiles ranged beyond 500 kilometres. Despite the verbal defence of Russia leaders, some critics reckon the suspension could give U.S. regime more excuses to re-establish their missile bases aiming at Iran, China and North Korea.

After addressing at the U.S. State of Union of Members of Congress on 6 February, President Trump reiterated his “wish list” in building the Mexican border wall and reminded the Government would be shut again after 15 February if no deal is reached on this budget. He also remarked on the planned meeting with North Korea leader Kim in Vietnam during this month end.

On following day, Trump captured the media limelight again by announcing he will not meet Chinese President Xi before the deadline 2 March for trade talk. Dollar rose above 96.00 benchmark and weighed on energies and precious metals. Asia markets traded lower soon after the Chinese New Year season.

The most disastrous is Venezuelan crisis since U.S. Government imposed sanction on the state enterprise PDVSA since 1 November 2018. The Trump administration claims of helping Venezuela to restore democracy by removing the current President Maduro and recognizes Juan Guaido as the new country’s leader. Riots have stormed down the streets of Caracas city as Guaido has not been able to take control of Government function since he was elected.

It was reported that Venezuela owns a somewhat USD100 billion external debts, including the biggest creditors like China and Russia. Till now, the socialist petrostate is ranked as the largest oil reserves on the planet but endemic corruption has devastated its economy over years. In past decade, Beijing and Moscow have provided multiple financial aids by preventing a political collapse within the country. Therefore, the answer to the riddle will be unknown if the new Government will recognise or even repay the debt if Maduro is removed from Presidential office.

Some market analysts comment that China and Russia will benefit from cheap oil when the desperate country needs to encash their national reserves. However, we analyse the energy might rise soon if there is the crisis extends in Venezuela and oil production increases its stoppage in supply. At the end of day, we need to await a trigger point to plummet the Dollar value below 95.00 level and investors’ fund will begin to search for safe haven in Crude and general commodity prices.

On hind side, the execution of BREXIT will fall on 28 April. We predict the situation will be a mess as no deal is reached with European Commission till now. The U.K. Parliament is more eager to spread the internal fight in removing PM May than to resolve the national issue. Everyone fears and complains of the forthcoming “economic demise” but no one could give the solution to the “new revival” after it soon detaches from the other 27 bloc in European Union.

In summary, we extend our fore view that the U.S. – China trade talk may be extended to grant more bilateral trades in Q2 season. Dollar has not much good reason to strengthen further and fund should flow into energy instruments in March. On coming 19-20 March, the next FOMC meeting may have a rate hike with quelled sentiment to stock markets. Enjoy the mixture of market sentiment as volatility will increase in February and March.

In our opinion, the market eruption will come in May and June when Europe goes into BREXIT and more debt crises. Global financial markets could be in turmoil when European markets tumble and U.S. Bond yields rise again due to futile outcome of U.S. – China trade talk.

This year, we foresee a huge whipsaw in market volatility involving stock indexes, sovereign bonds, commodities and currencies. When most instruments become irrational and Gold prices eventually fall from its next top predicted at USD1380 /oz region, market fund may return to crypto currencies for hedge and rapid speculations. Prices and timing are your best friends when come to mitigating risk and extending profits!

~ DAR Wong is a veteran in global financial markets based in Singapore. The opinions are solely at his own. He can be reached at dar@pwforex.com