News

Tuesday was the most interesting day in the Forex market. All data released in Europe was worse than forecasted. And in the U.S., consumer price data was higher than the analysts’ forecasts. In theory, the dollar should have strengthened. Instead, it fell sharply.

EUR/USD

The decline was also recorded in relation to all risk investments and commodity futures. If you follow the chart above closely, you can see that the EUR/USD pair is once again approaching a strong resistance zone. Over the past 2 years, a strong reversal has occurred several times at these levels. In addition, the price fell several points at once. But the more the same scenario is repeated, the stronger the exit from this scenario can be.

Pound Sterling

In England, very poor GDP figures are published for the second month in a row. Our spring forecasts are fully confirmed. After it turned out that the island offered no protection against COVID-19, the next problem was very acute. The same location on the island has led to an even greater production and logistics crisis than in the EU. All connections were interrupted. Most British people deeply regretted the choice made in the referendum.

Oil

Despite the news from South and North America, where the coronavirus situation is assuming a catastrophic scenario, the oil refuses to sink. It is already clear that the tourist season that has begun is in danger. Most tourists will not leave their country. And the resumption of a large number of scheduled flights is a dream.
Nevertheless, the oil is at the same level as 40 days ago, when it looked as if the corona virus had retreated with the arrival of the heat. Why is this happening? There can be only one answer. Production of the black gold has dropped sharply in recent months. This applies to the OPEC+ agreement. As well as countries like the USA, whose oil companies have reduced their production due to a sharp drop in demand.
Perhaps the oil industry has succeeded in finding a new balance between supply and demand. In which case, a long flute awaits us all summer long. And only then will everyone see whether the second wave of the coronavirus will reach the countries of Asia and Europe. And if it does, we can expect the biggest drop in oil to 20-25 dollars a barrel.

What’s waiting for us today?

05:00 Bank of Japan decision on interest rate
08:00 British Consumer Price Index June
15:15 U.S. Industrial Production for June
16:00 Decision of the Bank of Canada on the interest rate

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

14.07.2020 – Special Report. The S&P500 has just made the short leap into the annual plus. Was there something? Corona, maybe? Right – a second wave is imminent. And the company’s second quarter results could be horrible. In addition, the Federal Reserve could stop supporting the market. A number of pessimists have just spoken out about this. We are analyzing their statements.

The Fed warns

One of the most cited factors in the financial market at present is the fact that the Federal Reserve could simply step out of support for the market for a short time. In fact, the US budget deficit of $3 trillion has now reached the level of 14 percent of gross domestic product – the highest level of national debt since the end of the Second World War. The question is whether and how the Fed can and will continue to support the economy.
In fact, an important functionary has expressed himself in this very direction. Robert S. Kaplan, the president of the Dallas Fed, warned that emergency loans “won’t be left in place indefinitely”. He further stressed, “he is a believer that we will need to get back to more unaided market function without as much intervention from the Fed. We’re just not at that point yet. So, at some point, the Fed’s cheap money could dry up.

The Black Swan flies in

And the legendary Nassim Taleb also provided a bearish undertone. The creator of the Black Swan told CNBC that he does not expect a V-shaped recovery, which most investors believe in. We think: the charts say otherwise. However, according to Taleb, the rise in the market seems odd to him, as Covid-19 infections and deaths have increased. Although the masters of money printed this as if there was no tomorrow, this would not help.
Taleb expects that the fear of Corona would continue to plague the economy and the markets for some time to come. His conclusion: investors should not operate in the market without a “tail risk hedge”. We translate: A hedge for a completely unexpected and seemingly impossible event at the long, low end of the probability curve. Nassim Taleb literally: “If you don’t have a tail hedge, I suggest not being in the market [as] we’re facing a huge amount of uncertainty…

Crash warning ahead

And the readable blog “Motley Fool” also reminded investors that now was a good time to restructure the portfolio. Because there is a decoupling between the performance of the market and the real economy. Although millions of Americans live on unemployment benefits, the market has entered a rally. It said literally: “It’s evident at this point that another crash will happen; the only question is when. Here’s why investors should be bracing for a possible crash as early as this month.” So, at the end of July there’s the threat of a crash – we are excited.

Only a few stocks are supporting the rally

With this we let another bear have its say in the end. Bank of America Merrill Lynch warned against over-investment in the financial market – the value has now reached 5.6 times the US gross domestic product. Never before, however, has the market been so fractured, the BofA continued. If the S&P 500 consisted only of “tech, health care, Amazon, Google”, the price would be 4173, and if the S&P included “everything else”, the price would be 2924.

We think: In fact, a gigantic misallocation of capital concentrated in a few big tech stocks. And thus the danger of a correction increases – if something is wrong with one of the few winners – balance sheet fraud, slump in sales, political squabbling – the whole market suffers.

The Golden Cross

As always, the counter-opinion remains: The bulls have just received support from the chart analysis. The “golden cross” has been shown – this is the crossing of the 50-day line from below over the 200-day line. Historically, this is bullish for stocks, according to Lance Roberts of RealInvestmentAdvice.com. Bloomberg celebrated the event by saying, “The S&P 500 is sending a technical signal that has marked the end of every bear market in modern history.” The event has occurred 25 times in the last 50 years. However, in a few years it was also a false signal.

It’s all up to Corona

Our conclusion from all this: Much, if not everything, depends on the corona development. Should a second wave ride in the sand, the stock market will have further upside potential. We advise investors not to look at the reported cases – they are subject to diligence or political denial in the tests. In other words, a country like the US, which carries out an enormous number of tests, will be at the top of the list here; China, on the other hand, which does not publish credible data, is way behind. The only two known factors are the number of deaths in relation to the number of inhabitants. If they are reported correctly, they are the right indicator. The question remains as to how the conflict between America and China will escalate.
The Bernstein Bank is keeping an eye on it for you!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

As we estimated yesterday, the S&P 500 index opened with a gap up – at 3198.00. The US Federal Reserve continues to pump the stock market with new money. Investors are well aware of the current state of most American companies – the world economy is stagnating after quarantine.

S&P500

Indices

The U.S. stock market showed slight growth during trading on Monday. And the Nasdaq updated its all-time high. Optimism for investors is being added by applications for the development of a vaccine against COVID-19. Good corporate reporting shows that unemployment situation did not reduce consumer demand as much as expected.
Particular attention this week will be focused on the reports of major Wall Street investment banks. The main risk is the massive delinquencies in loans, negatively affecting the bank balance sheets.

Gold

On Monday, gold continued to be in an upward trend. It looks like it seeks to test the local high of $1829.80 per troy ounce, which was reached on July 08.
The growth of yellow metal is justified. The coronavirus is not improving in any way and the US dollar is weakening against other currencies.

Bitcoin

Despite the growth of gold, the stock market and oil, Bitcoins are still in a narrow corridor. Today, the first cryptocurrency reached a price high of $9343. The longer the narrow corridor compresses, the stronger its exit in one direction or another. The last time such a low volatility was observed was at the beginning of March 2020, when the strongest fall followed, to the levels of $3500.

What’s waiting for us today?

08:00 Harmonized Consumer Price Index in Germany for June
08:00 UK GDP for May
11:00 Business sentiment index of ZEW Institute in Germany for July
14.30 US Consumer Price Index June
15:30 Address by the Governor of the National Bank of Switzerland Jordan River

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

13.07.2020 – Special Report. Long investors had just recovered from the historic crash in April. Since then, the oil price on the spot market has worked its way back up from almost zero to around 40 dollars. But the rebound may soon face bigger problems. We shed light on the background.

Recovery of around minus 37 dollars

The history of the oil market could repeat itself: In the first quarter, traders had long ignored the production quota dispute between Saudi Arabia and Russia and the effects of the corona pandemic and hoped for the best. When the situation finally escalated on 6th March and Riyadh then turned on the pumps, oil contracts even imploded into negative territory until 20th April – WTI traded at minus 37.63 dollars on that day. Only when OPEC+ finally agreed on massive cuts did things start to pick up again. Until now – now there is the threat of turbulence again due to the production volume.

More oil is likely to be pumped soon

This is because a group of oil exporters around Saudi Arabia within R-OPEC+ — that is, Russia, OPEC and some non-OPEC exporters — wants to get the pumps running again. This was reported yesterday by the news agency Bloomberg and the “Wall Street Journal”. According to the report, from August onwards the output is likely to be increased again by around two million barrels. The background is the hope that demand will pick up again after the global corona lockdown.
On Wednesday the expanded cartel wants to hold a video conference on this. All in all, it could result in the drastic reduction in production decided in April being eased from 9.6 million barrels to 7.7 million barrels. We are not the only ones to suspect that this will lead to a well-known evil in the cartel: Fraud. In other words, some countries will not adhere to the quotas because the state treasury is empty.

IEA sees the valley crossed

Especially since the International Energy Agency had spread optimism on Friday: the worst corona effects are over. The latest Oil Market Report stated that the oil price has been remarkably stable in recent weeks. In the second quarter, global consumption fell by 10.75 million barrels per day – this quantity should recover in the second half of the year to only minus 5.1 million barrels per day.
And this is exactly where we come to the possible misjudgement. For one thing, a second, global corona wave continues to pose a real threat to demand for gasoline or kerosene. When air traffic and tourism will return to their old levels is in the stars.

Oil flood in China

On the other hand, there’s another piece of bad news for the bulls: The world’s biggest oil importer is running out of storage – China had taken advantage of the crash in oil prices and stocked up on Crude on a large scale. Last week, the Chinese business medium “Caixin” reported according to “Oilprice.com” that the onshore tanks had reached their maximum capacity. Referring to the figures of information service provider Oilchem China, it said that the tank levels for crude oil had climbed to 69 percent. What sounds as if there is still air at the top is obviously soon reaching its structural limits: according to “Caixin”, experts see the absolute maximum at 70 percent.

Millions of barrels are waiting for oil tankers

In total, the Middle Kingdom is bunkering 33.4 million tons of oil, an increase of 24 percent over the previous year. After massive purchases in May, the situation could become even worse, especially since sales in the traditionally strong refinery industry in Shangdong Province in the east are sluggish.
This means that the flood of oil is back up to the sea. According to Clipper Data, a total of around 70 million barrels are currently floating around off the Chinese coast. According to the analysts, this means that the amount of oil on the so-called “floating storage” has quadrupled since the end of May. This is the highest amount since the beginning of 2015 and seven times the monthly average in the first quarter of 2020. Oil tankers now have to wait 15 to 20 days before they can discharge their cargo.

Regional conflicts threaten oil production

It remains to be noted that there are bullish geopolitical factors for the oil price. The Syria conflict, for example, is still smouldering, with the potential for a regional conflagration if Iran or Israel intervene. Furthermore, the situation in Libya could escalate and cause oil production there to dry up.
And even closer to our doorstep, the danger of war has increased: If Turkey were to drill for oil and gas off the Greek coast, the question is whether Athens would be able to offer it. Furthermore, Ankara could provoke a war if it defends the maritime bar between Turkey and Libya, which has been unilaterally declared its territory. Then a conflict with Greece, the Republic of Cyprus and Israel is imminent – the three countries want to build a gas pipeline to Italy, which runs south of Crete right through the Mediterranean zone claimed by Turkey.

Sealed oil wells

And there are also other reasons for a bullish oil market – but they are more medium-term. For example, the hedge fund Northern Trace Capital sees a price of 150 dollars per barrel by 2025. In an interview with the “Wall Street Journal”, he justified this with the throttling of investments in the oil fields triggered by Corona. JPMorgan expressed a similar view – the bank sees 100 dollars per barrel. In other words, many oil companies have gone bankrupt, some have had to mothball the oil wells. But many producers have no money to reverse this move – and the banks are stingy with loans.
We will see which factors prevail – the Bernstein Bank keeps an eye on the matter for you and wishes you successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The American stock market ended Friday’s trading with growth. It was strengthened by higher oil and natural gas prices. The released data on the growth of consumer goods sales also contributed to it.

S&P 500

Indices

Just before the closing of the New York Stock Exchange, the S&P 500 index reached 3.179, rising by more than 1%. If you look at the chart above, you can see that the new highs are very close. Speculators will try to reach them to knock down the stops. It is likely that on Monday morning, the S&P 500 chart will show a gap up.
Despite this, investors are still very cautious. There is a fear that the stock markets may start falling again. The Fed selectively provides monetary support to American companies. Therefore it is not clear which of the sectors may become a new trigger for decline.

Gold

In this uncertainty, gold and other precious metals continue to rise steadily in price. However, the August contracts for the yellow metal ended Friday’s trading with a slight decline from Thursday’s closing level. Investors were in a hurry to fix the profit before the weekend.

Bitcoin

According to researches of analysts of Binance exchange, the rate of bitcoin for the last three months increased by 42%. And this is despite the fact that the trading volume in the 2nd quarter was higher than in the first.
Bitcoin is still close to the level of $ 9,200. There has been consolidation for 1.5 months now. There are all chances to see a slight decline to the 200-day moving average.

What’s waiting for us today?

17.30 Speech by FOMC member Williams
17.30 Speech by E. Bailey, Head of the Bank of England
20.00 Monthly report on the US budget for June.

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

On Thursday, appetites for risk decreased significantly due to the growing number of coronavirus cases in the world and in the United States in particular. Even good weekly data on the number of initial unemployment applications did not help.

S&P500

Indices

Next week, neither in the U.S. nor in Europe, governments are not planning to provide financial support to companies. Until July 20, the U.S. Senate is on vacation, and in Europe the nearest EU meeting in Brussels on July 17-18. Therefore, next week the world economy will use the capital that it has at the moment. Will companies be able to hold out? Probably, the lack of incentives will have a negative impact on the decisions taken, and investors will move out of risk assets into the dollar or metals.
On Thursday, DAX closed at 12489 and lost 0.04%. The American market was more scared. The S&P500 index dropped by 0.88% to 3140.

Pound Sterling

The British pound has been growing all week long. But there’s some disturbing news on the market. Boris Johnson said that Britain will not negotiate a Brexit agreement with the European Union. Eventually, negotiations may stop if France and Germany do not make concessions. Because of the conflict, the pound will slow down. On Thursday, the pair GBP/USD approached the daily SMA200 at 1.12680 and started correcting down to the zone 1.26. Further movements will depend entirely on the progress of negotiations between the UK and the European Union.

Oil

Uncertainty remains in the oil market. It is still not clear when demand will recover. The economy seems to be recovering, but problems with rising COVID-19 infection rates can make adjustments to these plans very quickly. On Thursday the price of WTI oil fell below $40 per barrel after the publication of a significant increase in black gold reserves in the United States. Further growth is in big doubt.

What’s waiting for us today?

8.45 Industrial production in France for May
14.30 Producer price index in USA since the beginning of the year
19.00 Number of active drilling rigs in the USA

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

09.07.2020 – Special Report. History repeats itself: the government in China is apparently making the same mistake as in 2015: five years ago, the regime was quite at the top and on the verge of bursting its bubble had asked its citizens to invest in stocks. Now we are hearing the same sounds – and China’s stocks are bullish. Indeed, Beijing is in a dilemma because of the yuan. We shed light on the background.

Everything has been there before

In 2015, the state media had praised the high stock prices – they were a “reform dividend” which would be paid out as a result of the new economic policy of President Xi Jinping. And Prime Minister Li Keqiang encouraged companies to increasingly take out loans backed by shares as collateral, recalls “The National Review”.

State press fires up the bull market

This time the state-run “China Securities Journal” praised the bull market, as the financial blog “ZeroHedge” noted. A front page commentary said that the post-pandemic bull market is more important to the economy than ever. And the “Shanghai Securities News” posted a stupid headline on WeChat according to the “National Review”: “Hahahahaha! The signs of a bull market are becoming more and more obvious. In fact, on Monday, the Shanghai Composite posted its strongest daily gain since 2015 with a plus of 6 percent.
And the CSI-300 is also showing an impressive run at the moment. The index has already gained around 15 percent this month alone, thus extending the recovery rally that has been underway since March. Admittedly, it is nothing unusual for prices in China to be extremely volatile. But investors should bear in mind the example of 2015, when around 1.3 trillion euros disappeared into thin air in just a few days.

Run on China stocks

The “National Review” warned that trading volumes on the stock exchange had climbed to the highest level since 2015 – and retail investors in particular had entered. This also reflects the limited opportunities for Chinese savers. One of the reasons for the current bull run was a new guideline issued by the China Banking and Insurance Regulatory Commission in January, which called for the diversion of savings into long-term funds and the capital market. Correspondingly, many commercial banks are likely to have advised households as the corona crisis eased.

Spread to Hong Kong

Furthermore, the spread between A-shares listed in the mainland and Hong Kong listed H-shares – the so-called A/H premium – has increased by a whopping 30 percent in the past month. The fact that the Chinese in the People’s Republic are willing to spend more money on the same share than their trader colleagues in the former British Crown Colony is a warning signal – not the economic fundamentals, but the loose monetary policy and the optimistic mood are tempting to buy.

Share purchase on margin booming

But currently the Chinese are obviously overdoing it – they are taking full risk: according to Bloomberg, the margin loans taken out with brokers have now reached 1.16 trillion yuan or 164 billion dollars – the highest level since 2015. Incidentally, the crash five years ago was also triggered by tighter regulation on debt to buy stocks. So look for signs in the news for restrictions in the margin lending of brokers – this could cause the bubble to burst again today.
In addition, analyst Masanari Takada of Japanese bank Nomura warned that while the masses may be right in assuming that fundamentals are recovering – corporate earnings rose by 6 percent in May. However, even a small break in the trend could reverse the leverage and trigger a sell-off.

Possible interest damper

Another problem for the stock market could be the recent strength of the yuan, which was recently quoted at 6.98 against the greenback and is of course also a consequence of the bull market. Unfortunately, however, it is curbing Chinese exports. As a result, sooner or later the PBOC will probably have to devalue the Yuan or raise interest rates – which would put a damper on the stock market. By the way, in 2015, the central bank had triggered such a sell-off when the Yuan fixation against the Dollar was lowered by 1.8 percent.
So you should also keep an eye on monetary policy: Because the recent hike in short-term interest rates suggests that the People’s Bank of China (PBOC) will not support the bull market forever. For example, the three-month shibor climbed to 2.13 percent in June from 1.45 percent in May.

Beijing wants to uncouple itself from the dollar

Which brings us to the yuan – and thus probably the real reason for the stock market boom. Recently, the state-run “South China Morning Post” published an article that brings into play an interesting connection between the currency and the Chinese stock exchange. Under the title “Time for China to decouple the yuan from US dollars, former diplomat urges”, Zhou Li, a former deputy director in the Communist Party, was given the floor. His warning: the dollar is a weapon on China’s neck. The country had to decouple itself and internationalise the yuan. The People’s Republic had to give up the illusion of friendship and prepare for an open conflict with the USA. To this end, international payments in yuan should be possible, and the renminbi should be increasingly used in the industrial supply chain.

Cash outflows from China funds

We think: Of course, a yuan uncoupled from the dollar would collapse as money flows out of the country. And this is the crux of the matter: As Goldman Sachs recently reported, there have been 11 consecutive weeks of net outflows from Chinese equity funds to the rest of the world. Against this backdrop, Beijing must provide rising prices. Brokers around the world should exchange dollars for yuan and buy Chinese shares.
Our conclusion from this mixed situation: The regime apparently wants a bull market to strengthen the yuan. But at the same time this weakens foreign trade. Speeches from the political arena should make investors prick up their ears. To be sure, they often trigger a stampede and prices continue to rush higher. But the big end could still come, because the professionals are selling their expensive stocks to amateurs. And because politicians suddenly change their minds, for example because priorities change or new people in the inner circle of power take over. In short: political stock markets have short legs.
The Bernstein-Bank keeps an eye on the matter for you and wishes you successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The situation in the cryptomarket resembles an early thaw, when everyone wakes up and takes action. Will the market of cryptos be able to strengthen its position or is it just an illusion?

Gold

On Wednesday, gold once again moved multi-year highs up to $1817. Now the bulls are going to have to work very hard to try and reach the historic 2011 high of $1921 per ounce.
What can you say about the current gold market. The precious metal received very good support from low interest rates, as well as large injections of fresh liquidity from major central banks.
In the current situation the gold is ready to continue moving up to the first buy range of $1820 – $1825, but it is likely to happen with some pullbacks down.

Bitcoin

Although Bitcoin does not show much volatility, you can see how the whole Blockchain industry and the ecosystem associated with it come alive. This gives reason to think that in the near future the demand for the first cryptocurrency will grow and the price will go up to $10000 per 1BTC.
The sharp price hikes explain that large investors with impressive amounts of money are entering the market. The optimism about the global economy growth also increases the desire to buy one of the most risky assets – Bitcoin. On Wednesday, Bitcoin made a breakthrough and rose in price by almost 2% to $9480.

Indices

The impression was that most investors in the stock markets began to live for one day, from news to news. How long can the market hold out in this state? It is difficult to answer this question. On Wednesday, White House Economic Advisor Larry Kudlow said the government has no plans to re-close businesses to fight the coronavirus. Encouraged investors reacted swiftly to this announcement with growth in major indices. However, the endless rise in gold prices gives a reason to think about the real state of the world economy. On Wednesday, the S&P 500 index was traded at the opening level – 3150.
DAX index on Wednesday fell by 0.97% mainly due to losses in construction and food industries. Important macroeconomic statistics were not released during the trading session, so investors relied on news and statistics on COVID-19 infection.

Euro

EUR/USD pair is trying to get out of the narrow range and with each trading session it is approaching the level of 1.1350. Due to the weakness of the US dollar, the next probable target is the area 1.1420.

What’s waiting for us today?

03.30 Consumer price index in China since the beginning of the year
08.00 Trade balance in Germany for May
14.30 Number of initial applications for unemployment benefits in the United States

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

World stock markets show mixed dynamics on Tuesday. Coronavirus is not retreating and there are more and more fears about the second wave of the epidemic. Will the markets react to this?

GBP/USD

The focus is on another stimulus package from the US government. It is expected to give out money to those who currently have low income. The technical picture on S&P500 remains positive. The index is above the daily SMA200, which is at 3017, but on Tuesday it is trading below the opening price by 0.6%.
The DAX index showed negative dynamics on Tuesday and closed 0.9% below. The data on industrial production growth in Germany was weaker than expected. On the other hand, the data shows that European industry is struggling successfully with the fall after the coronavirus pandemic and has almost overcome the damage.

Pound Sterling

On Tuesday, the pound reaches another high over the past few weeks and is steadily moving towards 1.2600. A break-up of this level will leave almost no chance for the bears to enter the market.

Gold

Finally, an attack of $1800 an ounce on gold. As we expected, the price stormed off with a powerful impulse in literally 2 hours. For buyers of gold it is very important now to consolidate above the level of $1800, but there may be a slight correction from this level down.

Oil

WTI oil is growing on Tuesday after information from the U.S. Department of Energy on the decline in U.S. oil production by 600 thousand barrels per day. After such statements the price of WTI crossed the $40/bbl mark and headed higher.
From now on the oil is waiting for the resistance level of $41.50. The focus will be on today’s data on U.S. crude oil reserves, which last showed a significant decline.
Production around the world is increasing, which entails the need for the most important energy source. Therefore, it is likely that the current dynamics will be interrupted and the oil will start moving towards the level of $50 per barrel, where it was at the end of February.

What’s waiting for us today?

01.50 Payment balance excluding seasonal fluctuations in Japan for May
11.00 Publication of the EU economic growth forecast
16.30 US crude oil reserves

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

07.07.2020 – Special Report. Exuberance on Wall Street: The US high-tech stock market has set new records. The Nasdaq Composite rose to 10,433 points and the Nasdaq 100 climbed to 10,606. And some big tech stocks have taken off to incredible heights. At the same time, a second corona wave is threatening in the USA and the economy is down. But no matter: the government support and the Fed are keeping prices up. The alarm bells should go off for experienced traders: This looks a lot like an artificial liquidity bubble. Or is there a fundamental recovery behind it?

Crisis winners Big Tech

These are very interesting figures that are currently reaching us from the high-tech stock market: Amazon has broken the $3,000 barrier for the first time ever. Alphabet is back to a market capitalisation of one trillion dollars. Both companies are crisis winners from the Corona pandemic, as a lot is currently being bought and searched for over the Internet.

Price rocket Tesla

And another stock catches the eye: Tesla has risen to the 1,400 dollar mark. The e-car manufacturer has now reached a market capitalization of 254 billion dollars. We’ll let that melt in our mouth: This is a company that will not be included in the S&P 500 because it does not meet the stock market’s requirement for positive net income. Currently, Tesla would be the 15th largest stock in the composite index. And the company is more valuable than Bank of America (202 billion dollars), Walt Disney (203), PayPal (208), Netflix (210), AT&T (214), Verizon (226) or Intel (250). At Tesla, one of the reasons for this is the hope for the implementation of the electric car. But there is above all the Federal Reserve, which supports the market with its trillions.

„Breaking Bad“ at the Wall Street

According to a broker, the high-tech stock exchange currently resembles a “Liquidity Meth Lab”. Investor Sven Henrich of NorthmanTrader warned that the markets are currently nothing more than an artificial giant, created by the money injections of the Federal Reserve. We add: If we stick to the lab analogy, we are dealing with a methamphetamine lab that makes tons of money, like in the cult series Breaking Bad. But it doesn’t produce any really important consumer goods except drugs.

Trader warns of the bubble

Tech shares are looking increasingly dangerous, all this is a bubble, Henrich warned on CNBC. Apple’s price-earnings ratio, for example, had risen from 16 to over 24 within a year. Amazon’s PEG-ration (Price Earnings Growth) had risen from 1.32 to over 3.0. At the same time, the bank index has already fallen by about a third this year, the investor explained.
But the analysis has become obsolete on Wall Street, fundamental figures irrelevant. The state of affairs is this: The unemployed and the poor are dependent on government support, the middle class has to live in constant fear of losing their jobs and only the top 1 percent of billionaires who invest in stocks are sponsored by the Fed. And all this against the background of the worst economic crash in decades.

Government money

In fact, more than 661,000 companies have received money from the Paycheck Protection Program (PPP), as the recently published figures show, most of them restaurants. These loans do not have to be paid back to the Small Business Administration if they are used for salaries and rent. So the economic situation is indeed disastrous. By the way, a lot of money went directly to Wall Street. According to the famous blog “ZeroHedge” a total of 1,436 Investment Advisors received money from the Paycheck Protection Program. This support is also an excellent way to speculate and inflate the bubble.

“Rocket Ship” Economy

However, there are also voices that are fundamentally good. For example, Jeff Saut, Chief Investment Officer of Capital Wealth Planning. He is also a regular guest on CNBC and has just raised his year-end target for the S&P 500 by a loose 400 points to 4,000 points. And this, even if the Fed should abandon its support.

Saut believes in the buying frenzy of consumers in the real world. The figures for the second and third quarters should therefore come as a positive surprise. As an example, he cited, of all things, the bagged gastronomy sector: restaurants in New York City or in St. Petersburg in Florida are full again. “The economy is doing a lot better than most of the economists think,” Saut said. And then the investment veteran pointed to 5 trillion dollars parked in money market funds. “We may stall here for a while…but I think you’re gonna get a rocket ship coming in the fall this year,” Saut said.

Bubble or messenger of the upswing

Our conclusion is mixed: On the one hand, experienced traders and investors are likely to be experiencing a deja vu at the moment – given the stellar valuations of some tech stocks, everything looks very much like the dotcom bubble of the 2000s. Then the stock market could be heading for a bad end analogous to the development in “Breaking Bad” – for example, the conservative chemistry teacher Walter White, who mutated into a freezing cold drug producer after his cancer diagnosis, died in a bloodbath.
On the other hand, the support of the Fed and government aid programs may indeed have averted the worst. And that people no longer want to be quarantined is something we are also seeing in this country. Perhaps the big shopping frenzy is yet to come and people are making up for the life they missed. Especially if effective drugs bring the recession to an end. In that case, tech stocks would be the early harbingers of the coming broad-based upswing.

The Bernstein Bank keeps an eye on the matter for you – and wishes you successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.