Let’s start this off with a reason to be cheerful- Dubai will hold the World 2020 expo. Congratulations to Sheikh Mohammed bin Rashid Al Maktoum for his unerring vision and the Dubai leadership for their implementation of infrastructure which we all hope will make this a fantastic event.
Brexit will be done! Another reason to be cheerful. UK prime minister Johnson has promised a new “golden age” for Great Britain. With a thumping majority in the House of Commons, Johnson- another man with a clear vision- will hope to sign legislation and the deals that launch the UK forward after three years of treading water.
The US will have an election. And depending on how incumbent President Trump’s impeachment hearing goes, we are likely- if the Republican-held Senate votes to quash the impeachment articles- to see Trump as the favorite to secure a second term in office.
So how is this going to pan out in the markets? For many business cycles, the World has taken its lead from the US. On the positive side, US stock markets are at record highs, US employment is nearing full capacity and US bond yields are historically low.
Counter flip, inflation is rising, there are a number of ongoing trade disputes, and some FAANG stocks and other technology-driven stocks which make up large parts of various indices are seemingly overvalued or are in danger of yielding some of their competitive advantages.
I often ask myself if the photo taking and gossip circulation generation of social media users will suddenly realize that there is more to life than being glued to a smartphone and that if a phone with camera is what you are after then there are so many varieties that some of the astonishing prices that people pay for the latest gadget seem largely unjustified! Will people get bored with it all or is it just a fact of life?
Similarly, the car industry is highly competitive. Electric cars are gaining market share. And in tandem, development of efficient batteries with longer duration is likely to make that industry even more competitive. The industry could be set for some consolidation.
I also worry that IPOs, particularly Unicorn inspired IPOs are less likely to be snapped up, principally because I feel that people are going to start looking at what makes up value and ultimately profits.
My last word on stock markets is I feel an uneasy sense that we’ve been here before as recently as 2000-2002. Nasdaq’s 78% drop from top to bottom in that era is always at the back of my mind. My overall assessment of stocks is that they are over-valued.
I don’t see any terrific movement in interest rates. The UK may be set to cut by a quarter of one per cent at some stage during the year.
The US Federal Reserve will in my mind be pressured in Trump’s election-year to cut, even in the face of mounting inflation. Other main G7 countries already have low rates or even negative rates. The US Fed will try to remain impartial to Presidential pressure but may be forced to act if US stocks take a down-turn.
I’m not an emphatic fan of gold nor oil. Gold has had a good run since October 2018. A lot of people see it as a safety hedge and there is obvious demand in Asia. Holding gold has a negative carry. There are probably more interesting currency plays to be had.
The oil price depends on so many factors but demand and (restriction of) supply are the key drivers. The big suppliers will still wish to sell their oil if demand dwindles and so my feeling is the price oil is likely to be more dependent on demand factors in 2020.
There is no easy currency play. Volatility in G7 currencies has dissipated as interest rates have diminished, and HFTs have kept currencies more or less range-bound in 2019.
The US will call the shots in currencies in 2020. Trade tensions with China will also have a hand in the fortunes of some currencies. While there are so many different styles to trade currencies, my advice would be to watch out for the data, and within the data watch out for abnormal moves and ask whether they are justified or whether the data will be mean reverting.
Overall, I have a fairly neutral view on markets this year but believe there are elevated risks in US stocks and oil prices. I would urge traders to consider competitive or non-competitive advantage in stock plays, to keep a keen eye on demand and supply factors in oil and take a close look at the data when figuring out which currencies to trade. In an election year, look for a few boosters for the US economy or reasons to keep electors happy. Trade deals may also give some markets a fillip.
Good luck and good trading- Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
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