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
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