By Ben Robson
In a week of cascading equity markets, it might be time for even the most sanguine of investors to take heed of the wise words that are being spelled out by some of the wisest industry leaders and World organizations. On Friday, J. P Morgan C.E.O Jamie Dimon, on commenting on his bank’s quarterly results, cited trade tensions, US domestic monetary policy and Brexit amongst many of the risks to the economy, saying “so far we still have a strong economy in spite of these increasing geopolitical issues bursting all over the place.” Over the weekend at the annual meeting of the World Bank and International Monetary Fund in Nusa Dua, Indonesia, geo-political risks, trade tensions and tariffs were top of the agenda, with the IMF downgrading its forecast for World GDP in 2018. Peoples’ Bank of China governor, Yi Gang was quoted as saying that “a lot of people are preparing for this trade tension to be a prolonged situation.” US President Trump’s short-term fiscal stimulus and belligerent foreign trade policy seems to now be manifesting in the markets, which after a boost in the US, are finally giving way and reflecting on the importance of Worldwide dialogue and trade. If China is prepared to “tough it out” then Trump’s policy will be seen as increasingly isolationist. And the countries of rest of the World will find ways to trade with each other.
While US stocks may have bounced off their lows on Friday, expect another volatile week in Worldwide markets. Frankly, there are no really “good news” stories and so increasingly, I feel, we should turn our attention to currencies and commodities and use both broader economic trends and wider geo-political relationships to help us formulate our trading strategies.
From a US perspective, we have two very important announcements this week; retail sales and the minutes of last month’s FOMC meeting. Of these, the minutes, released on Wednesday, are eagerly anticipated to gauge the level of hawkishness of the FOMC committee. Expect fireworks if the committee is too hawkish. (That is, trade equity markets with care).Mr. Trump, as usual has been quick on the offensive, saying the Fed has “gone loco” with its small incremental interest rate increases. But the Fed has a job to do and part of its remit is to contain an over-heating economy. Most indicators in the US (save inflation) point to a very strong economy and so the Fed must act accordingly. Retail sales on Monday, expected at 0.6% (M.o.M) for September should confirm that the US is still enjoying its boom moment.
The other main focus this week is likely to be Brexit and a forthcoming meeting in Brussels scheduled from Wednesday until Friday. UK Brexit Secretary Dominic Raab met with EU negotiator Michel Barnier on Sunday in a pre-meeting, largely concerned about customs issues. There is possible rebellion in the ranks of the conservative party with ex Brexit minister David Davis stoking the Tory rebels. None of this is good for the British pound. Consumer Price Indexes will be released from New Zealand (Monday- exp 1.7% Y.o.Y, 3 quarter), the UK (Wednesday- exp 2.6% Y.o.Y September), Japan (late Thursday exp 1.3% Y.o Y. September) and Canada (Friday- exp 2.7% Y.o.Y September). Australia releases its employment report on Thursday with 15,000 new jobs expected to be created and the unemployment rate to remain at 5.3%,
If equity markets are volatile, especially in Asia, then watch out for yen strength. Also, gold is often considered a hedge in times of stress. Good luck and good trading. Watch out for me on video on Wednesday and Thursday.
This Article was prepared and accomplished by Mr. Ben Robson in his personal capacity. The opinions expressed in this article are Ben’s own and do not reflect the view of Equiti.