The new year, 2016, has certainly kicked off with a bang within the global financial world. Within the weekly report, we try to highlight global economic concern and try to summarize as much as we can into digestible content to create a challenging though-provoking views. This is by no means a report that dictate or suggest an investment view, rather a discussions forum to entice different point of views.
source: Bloomberg
-
Will we see an OPEC emergency meeting in January?
-
Can the Chinese government add further stimulus to remedy the equity market before Chinese New Year?
-
Given the current economic climate, can the Chinese authority maintain a 6% growth?
-
Will the global equity rout continues or this is merely part of market re-evaluation?
-
Can Oil stabilize or doom for further price capitulation?
-
Can the FED afford 4 rate hike in 2016?
-
Real concern on which of the above will be the first 2016 Black Swan Event
The 2nd trading week of 2016 is back in full swing, traders are returning from their long holiday and trading volume has resumed. We also witnessed how each element that made up of the Inter-Market analysis (ranging from Forex, Commodities, Bonds and Equities) are trying to find their own trading level.
In the Forex world, several currencies pair have found new trading levels – from GBP/USD to USD/YEN and the most talked about USD/CAD. Commodities such as oil also entered new trading range, breaking below $ 29 per barrel with no bottom in sight. Safe-haven buying also saw big demand from Gold to government bonds while the Equity market across the globe struggle post Christmas rally.
Previously, we highlighted the possibility of post Christmas-rally hangover within the global equity market. Concerns were raised as Chinese equity market stormed lower despite several tactics were used to remedy the situation. Outgoing flow of money and dumping on any rally have certainly taken its toll on the recently implemented circuit breakers. Chinese officials later revoked the circuit breakers and talk of further stimulus and shoring up the Yuan were hastily introduced to stabilize the market.
With Chinese economy on the verge of turmoil, significant fear start to roll into the commodities sector. Questions were raised regarding the future demand from Base Metals to Oil and other industrial metals. Speculators fed on the news, fanning as hard as possible to produce a significant momentum to push oil prices much lower. This is despite ongoing tension in the Middle East between Saudi and Iran relation and later in the week, there were news that Iran caught US Navy sailors that were later released.
The following charts and news excerpts summarize the current market sentiments:
source: CNNMoney – Fear is back in the market place and safe haven assets looks far more favorable
source: Bloomberg – With Chinese economic growth worry, the global oil rout continues
source: Bloomberg – Baltic Dry Index not exactly growth inspired number is it?
VIX Weekly
VIX fear index has reached the level where we marked as resistance. We highlighted the possibility that a bounce within the fear index should find resistance at 31 .06 (see last article here http://globalbulliontimes.com/2015/12/13/santa-rally-flight-delayed/). Given the current setup, we can deduce a potential pullback after a retest to take out the resistance level. Ideally, price action should head back to the support zone we highlighted in the rising blue line. Global leaders and central banks should work and co-ordinate a remedy to reduce fear and drive the current market sentiment to stability. Failure to do so could spell more trouble ahead.
Dollar Index Weekly
Given the recent dollar strength, talk of further rate hike is off the table for now. Dollar index enjoy its safe haven status as money flow out of emerging economies as well as from other sector as investors look to protect their investment. We do not have to look to far as the EUR/USD also enjoy higher level as traders look to cover on their short to make up for the losses elsewhere.
source: Bloomberg
XAU/USD Weekly
In the next few weeks, we may witness further short covering rally in the gold market as traders look to offset the losses made elsewhere. Global equity rout may have left a vacuum as outgoing flow of money look for better investment opportunity. Recent article from Reuters also highlighted how Chinese investors grew wary of the stock market and may see better return from safe haven assets such as gold. In addition, there CFTC report still indicate record level of short positions which may unwind as price action head higher.
NO DETAILED TRADING PLAN EXCEPT FOR PRIVATE NEWSLETTERS
XAG/USD Weekly – Are we about to see another explosive short covering rally in Silver? We have argued and come to the conclusion that this is potentially the scenario as recent price action indicate “distribution” phase that flush out weak longs. Keep a close watch on this!
NO DETAILED TRADING PLAN EXCEPT FOR PRIVATE NEWSLETTERS
The white metal has also enjoyed strong demand as US Silver coin sees big buying volume
“On Monday, January 11, the United States Mint began selling 2016-dated bullion American Silver Eagle coins to its network of authorized purchasers (APs). First-day sales reached 2,756,500 coins, beating the entire amount sold in December, though the 2015 supply sold out on December 15.”
source: Silver Coins Today
Conclusion
We have covered extensively the global macro aspect as we head into the next trading week. Fear within the current economic climate is not healthy and further stimulus and jawboning from central bankers are much needed. As full trading volume return, a new trading range has been created in 2016 which promises not to disappoint as it will offer more market volatility. As per our previous reports, we highlighted many times the need to take caution in the current economic climate and we foresee potentially an unprecedented black swan events (note the significance here that it is not singular event but eventS!)