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03.06.2020 – Special Report. After the crisis is before the crisis in Italy. The corona pandemic is perhaps the final cause that could push Italy out of the European Union and out of the euro zone. Because Italy is weakening, whether the gigantic aid package of the EU will be accepted is uncertain – perhaps we are facing an Italexit. This could have consequences for the euro and the continent’s stock markets. We shed light on the current background.

Referendum demanded for the Italexit

As the blog ‘InfoBrics’ just reported the political movement Italia Libera presented a draft constitution to the Supreme Court of Cassation on 27th May calling for a referendum for Italy to withdraw from the European Union. Gian Luca Proietti Toppi, a lawyer involved in the draft law, said that it was necessary to reach out to Italians and “open their eyes to the harmful effects of participating in a Union without a soul”, which operates on a purely financial basis. By submitting the 50,000 signatures required, he wanted to open a broad debate on the possibility of “leaving the cage of the EU and the euro”.

Getting out of the euro

An exit from the euro would therefore be the logical consequence after the italexit from the EU. Toppi stressed that Italy does not need any new debts, which would only leave the country at the mercy of international speculators. According to Statista, Italy’s national debt in 2018 was a staggering 2,300 billion euros, and in 2024 it will probably be 2,251 billion. Who is going to pay it back? The Italian central bank expects Italy’s gross domestic product to fall by 13 percent in 2020. And then an interesting side note for the financial market: Italia Libera has already commissioned experts to draw up a plan to secure the savings of Italians. This is probably meant to mean saying goodbye to the euro by exchanging it for a new currency. Or into gold.

Everything is different because of Corona

Even if there are always such considerations that come to nothing: There may be a chance of success this time. The Italians remember bitterly that Christine Lagarde, head of the European Central Bank, said on 13 March that the corona virus was an Italian problem. From then on, many Italians took down EU flags and raised Russian and Chinese flags instead.
What have open borders brought Italy? The EU’s most important achievement has now shown some disadvantages. Europe has not bothered about Italy being flooded by migrants from Africa – maritime borders are not secured. “Il Giornale” had already reported last March that Carola Rackete, who is venerated in this country as a saint in certain millieus, brought murderers and torturers to Italy. It is precisely such naive do-gooders who shape the image of the Germans in Italy.
Europe has also allowed tens of thousands of Chinese cheap labourers in northern Italy to push the domestic fashion industry to the wall – this is where the corona epidemic raged most.

EU funds a drop in the bucket

Interestingly, the referendum application was submitted at the very moment when the EU Commission announced its gigantic aid programme. The EU wants to place European bonds totalling 750 billion euros on the capital markets. From 2027 the debts are to be repaid – and this is to be done jointly by all EU states. Of this, 500 billion euros are to be paid out as non-repayable grants and a further 250 billion euros as loans to the states and companies most affected by the Corona crisis. A massive redistribution from North to South: Italy is in the lead with non-repayable transfers of 81.8 billion euros, followed by Spain with 77.3 billion euros and France with 38.8 billion euros. But how does that help in view of the mountain of debt described above?
There is also another big but: the EU will only promote investment if it strengthens climate protection, promotes digitisation and increases the resilience of the European economy. What is an Italian restaurant or a family-run hotel on the brink of collapse supposed to do with these ecologically correct bureaucratic hurdles?

Eurobonds put to the test

The European bonds now planned are de facto Euro bonds. It remains to be seen whether they will get through – the EU heads of government must approve the plan. This is to happen at the EU summit on 18 June. Austria and the Netherlands in particular are blocking the EU from taking on debt to finance transfers for needy member states. Both countries are demanding that recipient countries only receive loans but no grants. Which brings us back to the aforementioned rejection of new debt in Italy. So what is too much for some is too little for others.

Italexit as a challenge for the stock market

Our conclusion: Italy may have no choice than to leave the euro zone. Tourism as an important source of income in the national budget has been badly hit by Corona, the country is outdated, and new waves of refugees from Africa are likely to arrive soon. New debts are out of the question for many Italians. If there is no cut in debt, the country will be crushed by its euro burdens. So it seems tempting to withdraw from the euro and default on all euro-denominated government bonds.
A default should cause the euro to shake. The question is what will happen to the approximately 490 billion euros that Italy has borrowed from the ECB via the Target 2 balances. Moreover, the crisis could spill over to France: according to figures from the Bank for International Settlements, the banks there held claims on Italian debtors of 286 billion euros at the end of 2019.
In such a scenario, the FTSE MIB share index is likely to initially go down on its knees. Above all banks and insurance companies – because, as the “Neue Züricher Zeitung” has calculated, Italy’s debt is initially primarily an Italian problem. According to the Banca d’Italia, domestic investors held around two-thirds of the debt, amounting to 2,444 billion euros.
But companies that export with a cheap new currency are likely to emerge as winners from the crisis. Italy bonds denominated in euros are likely to plummet to zero.
Needless to say, a successful Italexit would lead to turbulence on the major European stock exchanges, especially the DAX. Investors should therefore keep an eye on the issue.

The Bernstein-Bank wishes 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.

While protests are raging in America, many investors believe that these actions will soon be over and the economy will move forward. The situation is ambiguous, as many analysts believe that American society is on the verge of civil war because of the complicated racial situation.

WTI

European markets are optimistic about the situation and believe in economic recovery. The DAX index is rising to 12021. Still, a share of tension remains as the problems between the U.S. and China are growing. Countries are beginning to play against each other. In particular, China has banned imports of pork from the US. The US stock market was traded mixed. Due to strong protests in the regions, as well as curfews in New York, investors are concerned about the further development of the situation.

Euro

Euro on Tuesday shows excellent growth throughout the trading session. Due to the weakness of the dollar and big problems caused by the protests, the Euro gets a chance to become a growth leader this week. The level of 1.1150 is taken, ahead lies 1.12 and a possible move above 1.1230-1.1250. There is a possible reversal if the USA is clear about the situation with the protests.

Oil

Oil on Tuesday shows another day of growth. Black gold is already moving steadily to $40 per barrel in four consecutive trading sessions. Optimism about the OPEC+ meeting by the end of the week is moving the markets forward. There are no particular reasons for the price to fall so far, but OPEC+ decision is still a priority now. On Tuesday, WTI oil traded at $36.80 per barrel.

Gold

Tuesday wasn’t a good day for gold. The metal trades in the sideways trend and can not decide on the direction. On the one hand, there is a large amount of liquidity that entered the market, on the other hand, there are facts that point to economic recovery and quarantine in leading European countries. It is not yet clear who will prevail. On Tuesday gold falls and trades at $1727 per ounce.

What’s waiting for us today?

04.30 Australia’s GDP.
09.00 Change in the number of unemployed in Germany.
11.30 UK PMI Composite Index
15.15 Change in the number of non-agricultural employment 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.

02.06.2020 – Special Report. Instead of the feared bang, there was only one plop: the White House has imposed rather moderate sanctions on China. The stock market is celebrating. But what is not, can still be. Since Beijing has so far failed to meet its obligations under the customs agreement and is apparently counting on Donald Trump being voted out of office in the wake of the unrest, it is only a matter of time before the trade deal officially bursts. The grande finale of the trade war – or even a real war with China – could soon shake the stock market.

The trade deal is clinically dead

Highly interesting times in America and on Wall Street: Wall Street has so far let the riots in the USA roll off its back and has also ticked off China news from the commodity market with a shrug of the shoulders. Although Chinese buyers Cofco and Sinograin have been instructed by Beijing to partially cancel purchases of soya and pork in the USA. Instead, the companies are now buying in Brazil. A direct return to the rather soft American sanctions shortly before. And above all a Chinese declaration of war – the trade deal is probably dead. After all, China had committed itself to buying more American agricultural goods. Trump has not yet reacted.

Maximum escalation avoided

Previously, the US President had in principle left the trade deal with the Middle Kingdom intact – and he had only revoked special treatment for Hong Kong after Beijing extended its security laws to the former British crown colony. There are also restrictions on Chinese working and studying in the US. Trump has therefore – for the time being – refrained from any “nuclear option” against China, such as excluding Chinese banks from the dollar clearing system. As a result, the soft reaction of the Americans to the Chinese tricks on Monday led to several small rallies in the Asian markets.

Problems for the stock market postponed for the time being

Unfortunately, the danger of a new round in the trade dispute has not been finally averted. Garfield Reynolds, Bloomberg’s commentator on macroeconomics, said, “complexity is causing global investors to underprice the danger from U.S.-China confrontations over Hong Kong. “Far from being just a regional issue, the world’s two largest economies are sliding toward a more markets-negative showdown than anything we saw in the first three years of Donald Trump’s presidency.” So an ultimate showdown in bilateral trade may yet be to come.
And Goldman Sachs commented that if Trump decides that China has not met its obligations under the Phase 1 deal – which Beijing definitely has not – he could immediately raise some tariffs back to 15%. We think: Which could throw the stock market back into turmoil, as it has done every time we have had a negative comment on the trade dispute a few months ago.

The China trump is played before the election

We suspect that Trump will only pull this China bashing joker just before the election – he will once again rub all Americans in the face with the fact that the People’s Republic alone is responsible for the stalling of the US economy with its cover-ups in the Corona crisis and its breach of promise in the trade deal. And the US farmers in particular will be furious if China does not buy American products, as it once promised. The attack on China should benefit the Republicans. For the Democrats and their surrogates in the media – from CNN to the Washington Post or Twitter – are conspicuously holding back on criticism of Beijing.

Whom does the unrest hurt?

China currently seems to be very sure of its case – and is probably hoping for Trump to be voted out in November. The Chinese seem to be watching the riots throughout the country very closely. They are encouraged by the unbearable declarations of solidarity by the Democrats and the cultural chic in Hollywood for the antifa, sorry: Neo-Fa. If the Maoists are not mistaken: Outside the elites and universities, there is little support in the USA for the Red SA, which has captured the protests in many places. Especially not in the middle class – whoever has a house and a family is prepared to defend his property against the mob. A quick look at arms sales proves this. How socially just is it, moreover, when small self-employed people see their shop go up in flames? What does that have to do with police violence?
Anyone who thinks about it will also notice that the Riots rage above all in cities that have been ruled by democrats – sometimes for generations. Can’t or don’t they want to stop the plundering? Los Angeles, Minneapolis, Fayetteville, Atlanta, New York, Nashville, Seattle, Portland, Philadelphia, Chicago, Milwaukee, Salt Lake City, Washington DC, Detroit, Indianapolis, San Francisco, Kansas City, Houston, Charlotte, Cleveland, Pittsburgh, Denver, Dallas, Phoenix, Tampa, Baltimore, Oakland, Louisville. By the way, among them are the cities with the highest crime rates.

The consequences for the stock market

And here are the conclusions from all this for investors: If the unrest is quickly contained, Trump is likely to secure the applause of the silent majority. And the stock market.
In addition, he could reserve the right to impose major sanctions on China until shortly before the election and let the stock market run to or above its old highs for the time being. In the event of a new conflict with China, however, stock prices are likely to drop in a frightened manner for the time being. If Trump does not react at all, Wall Street will be pleased that there will be no new trade war for the time being. The Federal Reserve’s air money is supporting the market. As we have just learned, the Fed has bought into a number of large index funds, which is supporting the stock market. The masses of bailout money are pushing prices up.

The danger of the second wave

However, there is a danger for the financial market: The unrest in the USA may have triggered a new wave of corona. Manolo Falco, the co-head of investment banking at Citigroup, had already warned in an interview with the “Financial Times” that the financial market was “way ahead of reality”. He instructed his corporate clients to collect as much money as possible before the true cost of the pandemic became apparent. Falco added, “as the second quarter comes along and we start seeing the pain, and the collateral effects of that, we think this is going to be much tougher than it looks.”

The next Black Swan

That leaves another bearis factor. What nobody in this country has on the radar screen could be the next Black Swan: A Red Chinese invasion of Taiwan. Beijing might be tempted to believe that the unrest in the US has weakened Trump to the point where he can no longer respond. In fact, Communist Secretary General and President Xi Jinping, at the recent National People’s Congress, called on the army to prepare for war. In addition, media reports plus photos showing the People’s Liberation Army in Zhurihe training to storm a 1:1 model of the Chinese presidential palace have recently been circulating. Needless to say, an invasion would send stock market prices worldwide down and oil prices up north.
The Bernstein-Bank keeps an eye on the matter 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.

June starts with good news on the markets. First of all, we can already see that the U.S. economy is coming out of recession and starting to gain momentum a little bit. Of course, there is also the negative. Protests in the U.S. have hit the retail hard. Big stores like Wallmart are closing their branches all over the country because of looting.

AUD/USD

Summer is usually a quiet period in the markets, but the summer of 2020 is likely to be special. The difficult situation with the pandemic, the growing pressure between China and the US, the strongest protests in the US in recent years are causing irreparable harm to the entire world economy. Investors are still optimistic and are trying to buy. On Monday, the S&P500 index is still above 3000 at 3060. This gives us hope that we will go further upwards after all.

Euro

Problems with the protests in the USA and the weak dollar plays into the hands of the Euro owners. However, this week will be very busy with various events and macroeconomic statistics. The ECB statements will be very important for the Euro as the problems with the Bundesbank have not gone anywhere yet. On Monday the Euro traded at 1.1131 and came to a strong resistance level at 1.1140. The Bears are unlikely to let go of this situation. The current growth is very fragile and the trend may well turn down.

AUSTRALIAN DOLLAR

The Australian dollar has been rising for the third consecutive week. The country has coped with the coronavirus pandemic, and losses in GDP will make very small figures. The forecast for the Australian economy is positive, especially China is recovering rapidly, and Australia is the main exporter of raw materials. The Australian dollar broke through SMA200 at 0.6653 and rushed up. Now we need to consolidate above that level in order to continue the movement.

Gold

Gold is steadily approaching $1800 per ounce. Due to problems in the USA, investors feel that safe haven assets should enjoy popularity. Global stimulation of the economies of the world’s major banks is still increasing the demand for the precious metal. In the near future gold will try to make a retest of 1750 per ounce and probably will try to consolidate higher.

What’s waiting for us today?

06.30 Decision on the interest rate of the Bank of Australia.
09.00 Change in the number of unemployed in Spain.
22.30 Weekly crude oil reserves in 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.

29.05.2020 – Special Report. The short news service Twitter has let itself be hitched to the Democrats’ wagon. And tweeted two tweets from US President Donald Trump with the shameful title of an alleged fact-check. Now Twitter is losing immunity privileges and has to be treated like a publisher. We explain what that could mean for the stock market.

Social media versus the president

Epochal culture war in the USA: an elected president takes a stand against self-appointed leftist guardians of virtue. For the first time, the short news service Twitter subjected tweets of the president to an alleged fact check. The result: negative, of course.

Executive Order from Trump

And now the receipt followed: yesterday evening Trump signed an executive order to remove the so-called “liability shield” that social media platforms enjoy. Known as “Section 230” of the Communications Decency Act of 1996, the order states that online services will not be held liable for content published by users, such as comments and videos. Trump complained that the social media companies have created a virtual monopoly and unlimited power to influence national conversation. This censorship is a threat to freedom.

One million phantom voters in California

Twitter, of all people, had asked the Democratic home and court media – CNN and the “Washington Post” – to do a fact check. It was clear that they were not interested in objective news. The only thing that is vulnerable, however, is the Twitter statement from Trump, the governor of California, Gavin Newsom, sending ballots to everyone. But this is a circumstantial supposition. Because the Election Integrity Project, California has warned that 13 counties in California have more registered voters than residents – in total there are about 1 million phantom voters. So California really does seem to be a paradise for voter fraud
In essence, Trump is right when he says that postal voting promotes electoral fraud. This is particularly well documented by the story of a woman who had a ballot paper sent to her on a trial basis under the name of the long-dead German philosopher Hannah Arendt.

Postal voting encourages electoral fraud

In addition, a non-partisan commission under former President Jimmy Carter (Democrat) and former Secretary of State James Baker III. (Republican) has found that “Mail in Voting” does indeed increase the risk of fraud. Even the left-wing “New York Times” (NYT) stated in 2012 that mail-in voting would lead to electoral fraud.

The NYT also stated in April 2020 that the postal vote had indeed tipped the scales in favour of the Democrats in the election for a seat on the Supreme Court in the state of Wisconsin.

Impending target price zero for Twitter

Classification for the stock exchange: As a private company, Twitter has every right to censor opinions on its platform or to have them commented on by one-sided editors. But then the company must submit to the rules of publishers. Ultimately, the Twitter service is now responsible for hate and racism on its channels. This could result in immense personnel costs, a flood of lawsuits and, in the worst case, closure by the US authorities. We are curious whether Twitter will survive the opening of the Pandora’s box.

Bullish factor for Wall Street

With its label, Twitter has also confirmed the Republicans’ mantra that Silicon Valley and the media are pathologically anti-conservative. After this whole affair, many investors ask themselves why the Dems want as much mail voting as possible – is this a scam? The opinion moguls have thus further lost credibility. What Trump strengthens. The stock market is pleased about this, because the office-holder stands for low taxes and protects the American economy from Chinese dumping – and wants corona loosening as quickly as possible. Even though opinion polls across the country are currently pro Joe Biden, battle-hardened political observers know what to make of it – Hillary Clinton was 12 percentage points ahead of Trump two weeks before the election.

Fight against the oligarchs from Silicon Valley

Another stock market factor: corporations that have so far closely aligned themselves with the Democrats – Microsoft and Amazon, for example, are threatened with disintegration due to monopoly power. The top stocks of the past weeks were exactly these crisis winners FAANG – Facebook, Amazon, Apple, Netflix, Google (= alphabet). They were the pillars on which the S&P 500 rests.
And now the big restriction: If the whole case disappears into thin air, if Twitter and co. behave well in the future or if Trump’s executive order degenerates into an endless lawsuit, then nothing will happen on the stock exchange.
The Bernstein Bank wishes successful trades and good 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.

After the markets got all macroeconomic data on Thursday, a calm trading started. While Trump is thinking about measures to be taken against China, markets are optimistic and continue to grow moderately.

EUR/USD

In Europe, as in the United States, there are moments that indicate the beginning of economic recovery. The U.S. dollar, which, though strong, always plays against risky assets, tends to fall following the growth of markets. In general, the day ended on a positive moment for the markets, as life after quarantine is getting better and the economy is starting to work. On Thursday, the S&P 500 traded at 3060, which is already above 3000, which was very difficult. The DAX added more than 1% on Thursday and closed at 11781. The economy is recovering.

Euro

The Euro has finally passed the level of 1.10 and it is a very significant event. On the weakening dollar, investors believed in the Euro, as very soon the EU government will have to implement a project of recovery measures worth 500 billion euros. All this was very positive for the pair, especially when it was detailed how much and which country will receive help. Of course, it is very important for the Euro to consolidate itself above the level of 1.10 now, so that it can try to climb new heights.

Bitcoin

Today comes the moment of futures expiration on the CME exchange, which usually brings turmoil and considerable volatility. Bitcoin was able to hold out during a pandemic, although in many ways investors were simply not comfortable with cryptos at such a difficult time. So far, the $10000 mark for Bitcoin has been one of the most powerful levels. Many crypto enthusiasts are really looking forward to it. But experience shows that Bitcoin is very bad with powerful levels. So far, we are watching how the situation develops and how the coin will behave when it comes to this serious level of resistance.

Gold

Gold does not give up its position in the market, although the stock market shows that the assets are gradually turning into risky ones. Perhaps this is part of the money that the U.S. Federal Reserve and the ECB were going to pump into the financial economy. The gold was correcting as we had anticipated before, and continued to rise to its highs. The end of the week may not bring a conquest of the highs, but it should close at the current levels.

What’s waiting for us today?

11.00 Consumer price index in Europe.
14.30 GDP Canada.
14.30 Number of initial claims for unemployment benefit in the USA
17.00 Speech by Fed Governor Powell

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.

28.05.2020 – Special Report. Wall Street is working its way forward, the DAX is keeping pace. So everything is fine on the stock market. If it wasn’t the issue of China. Specifically, Hong Kong. Even more concrete: The recent slide in the offshore yuan. In fact, a new trade conflict between China and the USA is looming. And Chinese stocks could get caught between the two fronts. And the stock markets in the West could be caught in the middle. Investors should keep a close eye on this issue.

The offshore yuan dives

Obviously, a lot is going on behind the scenes. The offshore yuan has just plunged to unpleasant depths – we are at a twelve-year low. Who has sold here and why? In fact, the crash may be the result of a capital flight from China. For Beijing is likely to incorporate Hong Kong quite openly in the near future and end the special status of the former British crown colony. In any case, the announcement to extend national security laws to Hong Kong also has consequences for the financial market.

Hong Kong’s status as a financial centre under threat

President Donald Trump announced measures against China, but did not give details. White House spokeswoman Kayleigh McEnany said the president was “angry” with China’s actions. The question was how Hong Kong could remain a financial centre if Beijing put its controversial Hong Kong plans into practice.
Specifically, a counter-reaction of the administration could look like this: Firstly, Trump could impose punitive tariffs on Chinese products under the U.S. Hong Kong Policy Act of 1992 and restrict access to sensitive technologies. Other means would be export controls and investment restrictions plus entry bans on communist officials. The nuclear option would be to block Chinese banks’ access to the dollar clearing system.

Impending delisting in the USA

Last week, the US Senate passed a bill to limit or even stop the listing of Chinese companies on the Nasdaq. The bill has just been introduced in the House of Representatives. It could cause Chinese shares to disappear from the US stock exchange – unless their annual reports are audited by US regulators.

From the rain into the eaves

Nervousness is now growing among Chinese companies. Two of China’s most valuable megacaps listed on the US stock exchange now want to secure access to capital with a second IPO in Hong Kong. The company in question is NetEase, an online games provider. And JD.com, which operates an e-commerce website. According to the “Wall Street Journal”, the examination for listing on the Hong Kong Stock Exchange has just begun. The success of the two secondary listings should therefore point the way for Chinese shares. It is possible that Chinese companies banned from the US stock exchange could escape the wrath of the Americans – but they could also run straight into the clutches of the Chinese supervisory authorities.

Trade War Revisited

Not a nice choice, then – so better get out of the Chinese market and out of Chinese assets. Which would explain the crash of the offshore yuan. And with that we would have the next problem: Such a cheap renminbi should soon bring the hawks in Washington back on the scene. Because a weak yuan makes Chinese exports cheaper, for America the 7.00 was always the red line. By the way, 7.20 was the low point in the trade dispute.

A clear line in the USA

To all this is added the anger in America over Corona. China has most likely lied to the world about Covid-19 and covered up the origins of the virus. Trump never tires of branding China as responsible for Corona during the election campaign – and the Americans think the same.

And that would be the consequences for traders and investors: In a new trade war with Hong Kong variant, first the Hang Seng might get into turbulences. Finally the CSI-300. And then Wall Street. The Yuan should find itself on the short side anyway. That is, if Beijing strikes back and the situation escalates. The Bernstein-Bank keeps an eye on the topic 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.

Thursday will be the most significant day of the current trading week, because today is the release of the main U.S. macroeconomic statistics, which will show whether the markets moved correctly this week.

DAX

Wednesday has shown that investors are not sleeping and can close their profits at any moment, which they gained on certain positive news. It was clear that investors tried to speculate on those services and companies that were in demand during the pandemic. For example, Moderna, which was the first company to report positive vaccine tests, lost more than 10% of the price, while Zoom, a videoconferencing platform, lost 4%. S&P500 index – still above 3000 and is trying to grow further. DAX on the background of optimism grew by 1.3% to the level of 11657.

Euro

The Euro on Wednesday makes a good retest at 1.0990, but still goes slightly below it during trading. All this is happening against the background of the weakening US dollar and aggravation of problems between the USA and China. It would be great to see the Euro already above 1.10, but it is not working very well yet. Maybe, the end of the month and the profit taking on some instruments will move the Euro up even higher.

Gold

The active growth of stock markets has measured the passion of investors for the assets of the safe haven, but this does not mean that the growth is over. There are still many decisions ahead of the Fed, ECB and other central banks that are willing to add money to their economies and help their countries. Excess liquidity will certainly strengthen gold as one of the most important assets.

Oil

On Wednesday, oil did move away from its monthly highs and entered a correction. The end of the month is still in question. What happens next depends on the OPEC countries and the actual growth of the world economy. So far WTI oil price of $32 per barrel is quite satisfactory for investors. Most likely, in May we will not see a sharp development of the energy market and will return to it in June, when new trends are defined.

What’s waiting for us today?

14.30 Base orders for durable goods in the USA.
14.30 US GDP
14.30 Number of initial applications for unemployment benefits in the USA
17.00 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.

The coronavirus vaccine is planned to be developed by the end of the year. Such great news from American pharmaceutical companies give impulse to all sectors of the markets.

AUD/USD

In the USA, the S&P500 index finally rose above 3000. This is the best value in the last two months. The USA is very optimistic about improving the economy in the near future and restoring business activity. The market in Europe has also grown well, although there are doubts about further developments with the Euro and the litigation between the ECB and the German bank. The DAX closes at a two-month high of 11504.

Euro

The weakness of the US dollar makes it possible for the Euro to retest the level of 1.0990, which is unable to do so for the second month. Analysts believe that the bottom of the crisis in Europe was passed in April, and now it is time for a long recovery. Meanwhile, the ECB is preparing a plan to buy bonds without Bundesbank participation. If the conflict between the banks continues, it will make some adjustment in the euro rate. It is likely that the movement of the euro will go down until the ECB brings clarity to its new program.

AUSTRALIAN DOLLAR

On Tuesday the Australian dollar rushed after the stock market. The resistance of 0.66 has passed, and then begins the hike to 0.6720 and then to 0.68. However, the tension between the USA and China may prevent the Australian dollar from rising. Trump will perfectly inflate the situation during its election campaign, and it will hit all risky assets, including the Australian dollar.

Gold

During the American session, gold fell in price. Due to the rapid growth of stock markets, capital inevitably flows from the safe haven assets to risky assets. Probably, profit fixation has already started by the end of the month. Gold traded at the level of $1713 per ounce and came to the next support line.

What’s waiting for us today?

09.30 Speech by ECB Chairman Christine Lagarde
20.00 Fed minutes
22.30 Weekly crude oil reserves 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.

The U.S. markets were closed on Monday, so no strong movements were observed on other exchanges. However, there were several events that took place on Monday which may affect further development of the economy.

DAX

Strikes have again begun in Hong Kong against the security law, which infringes on the fundamental freedoms of citizens. The U.S. has blacklisted 33 other Chinese companies that are not allowed to do business with. China has expressed discontent and is already prophesizing a new Cold War between the countries. Europe, and Germany in particular, is beginning to show signs of life. The business climate is growing. Although analysts expect Germany’s GDP to fall by as much as 10%, there are hopes that the economy will gain momentum by autumn. DAX is rising and reaches a new monthly high of 11370.

Euro

Most likely, the trade war between China and the US will support the US dollar, which is not at all in favor of the Euro. Due to the holiday in the U.S., the currency practically does not show any dynamics. The direction of movement is undefined and the sideways between 1.0740 and 1.0990 remain.

Oil

Judging by the quotes, OPEC+ promises are being fulfilled in full, while the WTI oil price is at the next maximum. We have noticed that the oil price contains more promises than actions, so such price formation may collapse at any moment. As long as everything goes according to plan, the oil will grow. There are already shale extractors in the U.S. who will be happy to restart their platforms.

Gold

There’s not much change in gold. Precious metal is still at its highs and wants to try to climb higher. It is now clear that there are practically no hikes down in gold. We’re waiting for good data to break out higher. So far, the price has frozen at $1727 an ounce.

What’s waiting for us today?

08.00 Consumer climate index in Germany.
16.00 New home sales 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.