Ben Robson – The week of 13th-17th May 2019

Last week was a tough week for equities, principally because US President Trump disrupted confidence by upping his vitriol in the US/China trade tariff discussion.

There used to be a saying that “when America sneezes the rest of the World catches cold” but I’m of the opinion that the reverse scenario is in play.

The Chinese, in general, are resilient, intelligent and ultra-hard-working, entrepreneurial and above all used to hardship. I see a drawn-out trade war as more detrimental to the US rather than China and perhaps the market perceives that too. Surely US markets can’t be so dependent on the China story that they are rocked by one bit of overseas policy. But it appears this is the case unless there are other factors at play, which of course there are!

Anybody that has skin in the game, I hope will realize that Investing and speculating are two different forms of trading and that time horizons for some speculators are in the millionths of seconds.

There are other technologies that collate massive amounts of information almost instantaneously and can execute huge orders on the back of a word or phrase that can be uttered by a person in power. Another factor- especially in currencies- is that there are mirages of deep liquidity surrounding “top of book” bid/offer spreads and that liquidity pools (just as mirages) can disappear when you try to touch them.

So, a downward spiralling market can have an asymmetric return profile and dump very quickly compared to, for example, the nice easy upward only rosy US equity narrative that we’ve generally been fed for the last two and a half years. Actually, Mr. Trump’s Twitter utterings are bad for retail US investors. The market is a great deal more sophisticated than him and the vast majority of participants. I’m not sure if he realizes this!

At the end of the week, we had the latest fantasy Initial Public Offering in the form of loss-making Uber that raised about US $ 8 Billion and has a market valuation north of $70 billion. It’s hard to see how a company that has a largely disgruntled workforce, many of who are living on the poverty line, can command such a price. In the words of one employee, “It’s absolutely insane!

How is this possible? This is Silicon Valley Nonsense math!” With the IPO of competitor “Lyft” around the corner, I tend to agree with that sentiment.

Deep in Asia Pacific, The Reserve Bank of New Zealand delivered a quarter of one percent rate cut to leave NZ interest rates at 1.5% and the Reserve Bank of Australia kept rates on hold at 1.5%. The main US data was CPI inflation which came in at a solid 2.0%.

To this week, and whilst US/China trade will be in the limelight, the broader Chinese economy will also be brought into focus with figures for Industrial Production and Retail Sales due to be released on Wednesday.

Industrial Production is expected to read 6.5% YTD Y/Y for April. Retail Sales are likely to have improved to 8.4% YTD Y/Y for April. Positive numbers for China, one could conclude, are positive for the periphery and so eX-USA, a growing China may be positive for Australia and New Zealand.

On Wednesday, Eurozone 1st quarter GDP will be released, expected at 1.2%. Y/Y as well as Canadian CPI (expected at 2.0% Y/Y for April) and US Retail Sales expected at 0.2% M/M for April. For me the one to watch is Canadian CPI. Last week, Canada released a very impressive Jobs report with 106,500 new jobs created. Strong CPI could strengthen the claim to hold some Canadian dollars.

Thursday’s big news is the Australian jobs report with 15,000 new jobs expected to have been created and the unemployment rate to remain at 5.0%. We round off the week with Eurozone CPI on Friday, expected at 0.7% M/M for April.

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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