Trading News: 3 Things Under the Radar This Week

Trading News — There’s an ominous technical indicator hovering over the U.S. dollar, which could mean a move away from the greenback. But don’t go looking for value in bitcoin, according to one fund manager speaking at the World Economic Forum in Davos, Switzerland this week. Meanwhile, as lower interest rates have been a boon to equities, the run of ever-cheaper money may finally be coming to an end, according to one investment bank.

Here are three things that flew under the radar this week.

1. Dollar Hits the Death Cross

While markets were captivated this week on fundamentals, with some calling the Wuhan coronavirus a possible Black Swan, technicals weren’t overlooked.

The U.S. dollar could be in the crosshairs of the infamous death cross. The death cross happens when a 50-day moving average goes below the 200-day moving average, which happened on the last day of 2019, according to Bank of America Merrill Lynch.

When that’s been triggered in the past, the dollar has gone down seven out of eight times since 1980, Merrill said.

Adding to concerns is the fundamental backdrop of a global economy that may not need the safety of the greenback as much as it used to.

“The global economy looks like it’s healing,” TD Securities Mark McCormick said. “The reduction of uncertainty will likely allow investors to take risks … they didn’t want to take before.”

Momtchil Pojarliev, head of currencies at BNP Asset Management, is betting the dollar will fall against the euro, Japanese yen and Australian dollar as growth in those countries accelerates and their central banks raise interest rates while the Federal Reserve keeps them steady. That should narrow the gap in yields that has buoyed the U.S. currency.

2. Ray Dalio Debunks Bitcoin’s Diversification Powers

Bitcoin has been hailed in some corners as the holy grail of uncorrelated diversification assets, but famed fund manager Raymond Dalio warned earlier this week that bitcoin has no place in the real of world of investing.

With interest rates looking lower for longer and rendering cash almost useless, Dalio pushed back at the World Economic Forum in Davos, Switzerland against claims that bitcoin has a place in a diversified portfolio, pointing to the popular cryptocurrency’s lack of intrinsic value and wild swings.

“There’re two purposes of money: a medium of exchange and a store hold of wealth,” he said. “And Bitcoin is not effective in either of those cases now … It’s too volatile. Because of the volatility, you can’t go next to it.”

While there would be many who share Dalio’s view that bitcoin currently lacks the credentials to be taken seriously as a form payment, some of the most important central bankers have conceded that bitcoin has a role to play in a diversified portfolio.

“Really almost no one uses bitcoin for payments, they use it as an alternative to gold. It’s a store of value, a speculative store of value, like gold,” Federal Reserve Chairman Jerome Powell said in the summer of last year.

“Bitcoin’s consistent statistically uncorrelated nature provides an excellent source of diversification within a portfolio,” Blockhead Capital said, citing its study that measured the correlation of bitcoin’s price performance to several other assets or indices.

3. Easing Is Ending?

The main case for central banks cutting rates is receding, making the case for more accommodative monetary policy from current levels harder to justify, according to J.P. Morgan. The argument for an economic mid-year rebound has strengthened, J.P. Morgan said in a note to clients this week.

“The easing cycle is … close to an end and central bankers can take comfort that their limited and unconventional toolbox proved effective in cushioning a substantial shock,” analyst Bruce Kasman and team said.

But the biggest challenge that major central banks will face is dealing with inflation.

“With the Fed having lost confidence in translating current growth and labor market outcomes to future inflation, core inflation will likely need to move above 2% before it considers reversing last year’s ease,” J.P. Morgan said. “In refraining from reversing last year’s mid-cycle adjustment until inflation rises, the Fed will break from its past pattern of removing insurance once it became convinced that the growth scare had passed.”

Unlike the Fed, which looks happy to overshoot on inflation, the Bank of Japan will likely be content to undershoot.

Meanwhile, the “(p)ersistently low inflation remains a prime concern” for the ECB, but “creeping financial stability concerns set the bar high for additional action.”

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Stock Market News: U.S. Stocks Fall After Second Coronavirus Case Emerges

Stock Market News — The S&P 500 erased early gains and fell 0.6 per cent around lunchtime in New York. The Nasdaq Composite, which had registered an intraday record high in morning trade, was down 0.5 per cent even as upbeat earnings from Intel — which surged to its highest level since September 2000 — lifted chipmakers. The Dow also lost 0.5 per cent.

The declines followed a rise in European stocks as investors appeared to brush off concerns over the market impact of coronavirus, while there were fresh signs of life in the German economy.

The Stoxx Europe 600 rose 0.9 per cent, down from session highs but snapping four days of losses as major bourses from London to Frankfurt climbed higher. The euro dipped, falling 0.2 per cent against the dollar, after survey data showed business activity in the eurozone remained unexpectedly weak in January.

Still, activity in Germany, the eurozone’s largest economy, beat expectations. That pushed the Dax 1.4 per cent higher for its best day in more than three months.

Investors had few cues from the Asian session, where Chinese markets were closed for the lunar new year holiday. Hong Kong’s Hang Seng rose 0.2 per cent in its half-day of trading, but has still lost nearly 4 per cent this week as concerns over the outbreak of virus have weighed on investor sentiment.

The World Health Organization on Thursday held back from declaring a global emergency over the outbreak, but said its panel was split “almost 50:50”.

Paul Donovan, a strategist at UBS, said structural changes to the nature of the global economy make it hard to draw a clear analysis from events so far.

“There may be a further shift to online retail sales, limiting the damage to the consumer,” he said. But, he added “the rise of fake news on social media may spread fear faster and wider.”

The outbreak has prompted S&P Global Ratings, the credit rating agency, to warn that if the situation worsened considerably the disease could knock 1.2 percentage points off China’s economic growth this year.

Sterling fell 0.4 per cent after upbeat UK PMI data failed to convince investors that the Bank of England will hold off cutting interest rates next week. The meeting is now on a knife-edge, with traders pricing in a 48 per cent chance of a rate cut to 0.5 per cent, prices in swaps markets show.

In the US, a majority of investors are betting the Federal Reserve will maintain its pause on interest rates after three cuts last year.

Stock Market: World Economy Going Through Longest Period of Falling Trade Since 2009

Stock Market — The downturn in global trade dragged on at the end of last year, marking the longest period of contraction since the end of the financial crisis.The volume of goods trade dropped 0.6 per cent in November compared to the previous month, and was down 1.1 per cent compared to the same month in 2018, according to a closely watched world trade monitor from the Netherlands Bureau for Economic Policy Analysis (CPB).

November marked the sixth consecutive month of year-on-year contraction, the longest period of falling trade since 2009 and a sharp reversal from the 3.4 per cent expansion in November 2018.

The rate of contraction slowed in November, however, down from a 2 per cent pace in October, which was the steepest fall in a decade.

The annual contraction in trade- which is the value of exports and imports adjusted for price changes — was geographically broad-based with the eurozone, emerging Asia, the US and Latin America all reporting falling trade volumes.

However, trade was up over the previous month in emerging Asia, while the downturn became more severe in the eurozone where trade volumes dropped 1.7 per cent compared to October.

The data confirm surveys released earlier this month that showed a deterioration in global trade running until the end of the year. The exports order component of the JPMorgan Global purchasing manager index remained in negative territory in November and December, although up from September’s reading.

“International trade remains the main drag on efforts to lift growth further, so any moves that reduce tensions and barriers on this front will be especially beneficial.” Olya Borichevska, from Global Economic Research at JPMorgan.

Economists expect trade data to improve in early 2020, reflecting the signing of the US-China phase one trade deal earlier this month, as well as improving conditions in emerging economies such as Turkey. But a strong recovery is not on the cards yet.

“We think a recovery in world trade will be very modest, despite the pause in US-China hostilities” said Adam Slater, chief economist at Oxford Economics.

“World trade growth at this pace is less than half its long-term average.”

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One thought on “Trading News: 3 Things Under the Radar This Week

  1. Pingback: Stock Market: 3 Things Under the Radar This Week via /r/economy | Chet Wang

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