News

25.05.2020 – Special Report. The world is opening up again after the Corona crisis. Stock prices are slowly working their way up. Perhaps this illustrates the hope for the recovery of the global economy. But perhaps a look at the major indices is also a fallacy: after all, Wall Street is mainly supported by five stocks. There can be no talk – yet – of a broad-based recovery. Moreover, there is a considerable potential for setbacks via politics. We shed light on the background.

The winner gets everything

The stock market is currently only on a thin base. JP Morgan recently warned that the corona shock reinforces a “winner-take-all” phenomenon. Whereby the winners in the favour of the investors are the US mega-caps such as Facebook, Amazon, Apple, Netflix or Microsoft as well as the Google mother alphabet. So the FAANGs or FAAMGs. The winners are all profiteers from an extended shutdown and social distancing. It is therefore no wonder that the big tech stocks are at their all-time high. The losers are the defensive, cyclical small caps.

S&P 500 overvalued according to JPMorgan

Some 40 percent of the firms in the S&P 500 have withdrawn their 2020 guidance, JPMorgan continued. In total, only 310 firms gave an outlook after the first quarter figures – meaning that a large part of the US economy is sailing through the fog without a plan or clear course. JPMorgan warned that despite this bleak outlook, the S&P 500 is currently trading at 20 times expected earnings for 2021 – a historic high.

What do the financial elite wants?

The performance of the top 5 also gives the – perhaps false – impression that there could be a conflict of interest. Namely, that the big high-tech companies are influencing politics against a rapid re-opening of the political arena and therefore recommend new forms of education, vaccinations or contact tracing, warned JPMorgan analyst Marko Kolanovic. So far, so diplomatically. Let’s be clear and illuminate the political aspect.

Billionaires and the Democrats side by side

The billionaires behind the FAANGs, or FAAMGs, could be persuaded by politicians to keep the shutdown going as long as possible so that their own profits bubble up. If that were the case, the top five would have common interests with the Democrats.
It is the Democrats who want to maintain US curfews as long as possible. Their calculus is, of course, that a collapsed economy will hurt incumbent Donald Trump. It is interesting to note that the mouthpiece of the left wing of the Democrats is the Washington Post – owned by Amazon owner Jeff Bezos. Also striking is the fact that Microsoft billionaire Bill Gates favours a long shutdown and recommends opening the economy only after a mass vaccination. From a medical point of view, this would perhaps be the most sensible thing to do – but no economy in the world should survive unscathed. By the way, the Bill & Melinda Gates Foundation in Germany cooperates with “Der Spiegel” and “Die Zeit”.

One-fifth market cap for the Big 5

Goldman Sachs had already pointed out a month ago that the five largest stocks in the S&P 500 now account for more than a fifth of the market capitalization in the index. So the market rested only on the shoulders of Facebook, Amazon, Apple, Netflix and Google’s mother alphabet. As a result, the stock market offered the smallest market breadth since the tech bubble in the early 2000s. The Gold Men’s warning from mid-April: “narrow market breadth is always resolved the same way” – it always ends the same way when the market is narrow. Namely: “narrow rallies lead to large drawdowns as the handful of market leaders ultimately fail to generate enough fundamental earnings strength to justify elevated valuations and investor crowding. In these cases, the market leaders ‘catch down’ – few stocks could not sustain an upswing for long on their own.
The pillars still stand: As of April 30th, the Big Five FAAMGs – now Netflix has been replaced by Microsoft – had gained around 10 percent. According to Goldman, the remaining 495 shares in the S&P 500 had collectively fallen by 13 percent.

Hedge funds have entered

Recently, Bloomberg confirmed this trend with a look at the purchases of large hedge funds in the first quarter. Not surprisingly, investors are looking for stocks that can get through a quarantine well or even benefit from it. Accordingly, funds used the crash of the FAANGs in March to buy – which explains the steady rally. Some examples: D1 Capital increased its position on Facebook by 70% in the first quarter, Soroban and the Baupost Group built up new positions. Maverick Capital and Melvin Capital Management bought the shares of Amazon and Microsoft.

The White House against the oligopoly

Our conclusion: As long as there is no market breadth, there is always the danger of a setback on Wall Street. After all, the top 5 could disappoint with flopped product launches or get caught up in a flop due to internal company problems – fraud, theft, etc.
Moreover, the White House should not stand idly by if the billionaires behind the Big 5 lean too closely on the Democrats. Breaking up monopolies is always possible. The Republicans will not allow the financial elite to drive the rest of the country to the wall: While the top 5 have easy access to investor money, the situation is different for small and medium sized companies – but they employ around 60 million people in the US.
Incidentally, former Trump consultant Gary Cohn – former Chief Operating Officer of Goldman Sachs – recently warned against this development: “The top online groups are penetrating further and further into the territory of small businesses in the course of the lockdown, which must therefore close down – politics should not allow this. So much for the bearish view of the matter.
Bullishly expressed, however, this also means that the rest of the market offers some profit potential – if investors buy the stragglers, the stock market could bounce up. It all depends on investor optimism about the economic recovery – and whether Covid-19 has been deemed too dangerous – or whether there will be drugs or vaccines soon.

The Bernstein-Bank wishes successful 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 last week of May is full of news and macroeconomic statistics. This week the US Federal Reserve should discuss the current state of the economy and present a beige book on Wednesday. European Commission should release its plan to fight pandemic and economic crisis.

WTI

The market is now watching the coronavirus vaccine company race. The vaccine is a priority, because without it, no economic growth can be expected. Problems between China and the United States are already on the horizon. In an economic crisis, such tensions will only exacerbate the situation. The main news this week will be the report on applications for unemployment benefits in the U.S., from which investors will be repelled. Friday was for markets in sideways movement. S&P500 closed at 2955, DAX at 11093.

Euro

The Euro failed to break through the resistance at 1.0990. The sideways continue. In the nearest future Euro will continue to decline to support level 1.0770. As long as there is no cohesion in Europe and no concrete plan to fight the crisis, the Euro has no chance to grow.

Oil

The oil market is covered with optimism, which makes the price go up. But the interesting thing is that there is no news at all for such optimism, except for reduction of quarantine measures in countries. Probably, oil price quotes are growing on expectations of OPEC+ agreement prolongation as well as on free money supply growth. But all these expectations are very fragile. The OPEC+ agreement has not been agreed yet, and the revival of demand for goods and services is in great doubt. If all expectations are not met, the oil price will rush down from current levels of $33.6 per barrel.

Gold

Gold is stuck near its highs and can’t go above $1800 an ounce. Of course, the Coronavirus had a very strong impact on the haven assets, and the gold got the most out of this situation. By the end of the week, the dollar was losing its position and helping the gold to move up. Perhaps the last week of May will allow gold to try to take this irresistible level once again.

What’s waiting for us today?

08.00 German GDP
10.00 IFO Business Climate Index in Germany for May

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.

By the end of the trading week, market volatility is falling. News on coronavirus has fallen into the background, but very alarming situation comes from Brazil and poor countries, where it is impossible to restrain the coronavirus epidemic.

BITCOIN

Of course, it is important for world leaders to restore the economy as soon as possible. This topic has flooded the news so far. However, it is not that simple, unemployment in the USA has not reached its peak, and the numbers will be even higher. Markets are slipping, S&P 500 is still hovering near the 3000 level. Only serious news on further stimulation of the economy, as well as good reporting of large companies, can push it above this level.

Euro

The crisis of the pandemic has shaken the Eurozone and strengthened the Fed’s position. The Euro will probably never be the number one currency in the world. Recent months have shown that the dollar has a dominant position in world trade, central bank loans and reserves. At the moment, the Euro is in trouble. The leaders of the European Union want to create a recovery fund, but at the next meeting of the European Commission, due to eternal disputes among members, this proposal may never come true. The euro can’t take the level of 1.10 yet, and in the nearest future it will remain in the channel between 1.10 and 1.0750.

Bitcoin

In the current situation, Bitcoin risks falling to $8,000. The pressure of the miners due to halving on the market will decrease, especially they need the price increase to support profitability. Some may exit the market by selling all the inventories, which may lead to a fall. There is now a strong split between the Bitcoin and the stock market, and it is worth waiting for governments to invest in the economy so that the market can understand where to go. Traders have already started to exit the bitcoin, which indicates a sharp drop in the price of $9000. The road to downside movement is open.

Gold

As expected, on Thursday, gold corrected after reaching seven-year highs. In principle, nothing terrible happened, the decline was not more than 2%, which is quite normal for the current situation. The growth forecast is not cancelled. On Thursday gold traded at $1720 per ounce, the lower border of the upward channel.

What’s waiting for us today?

08.00 UK retail sales volume for April.
13.30 Publication of minutes of ECB Monetary Policy meeting
14.30 Canada Basic Retail Sales Index for March

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.

20.05.2020 – Special Report. Gold’s little brother wants to know: Silver has shown an impressive catch-up in the past weeks. The journey is possibly far from over. Some believe that silver is cheaper than gold as it has not been for 3,000 years – and therefore still has some upside potential. We shed some light on the background.

Corona shock recessed silver

In the wake of the Corona crisis silver had dropped to an eleven year low in mid-March at $ 11.62 an ounce. Quite unlike the yellow precious metal, which had proved to be enormously robust as a hedge during the crisis. Ergo, according to the “Financial Times” (FT), in March the ratio of gold to silver in high rose to 125 times. A rather unusual decoupling. The gap is still enormously large, although silver recently made a small rally to $ 17.50 an ounce. A glance at the chart of SchiffGold.com illustrates the catch-up: gold now costs “only” 100 times as much as silver.

Cheap compared to gold

But historically, silver is still cheaper than gold at its lowest price in about 300 years – the FT referred to data from gold trader veteran Ross Norman dating back to 1697 for this review. And the blog SovereignMan looked even further back: writing tablets from Babylonia at the time of Nebuchadnezzar – around 1,200 B.C. – showed a ratio of 10 to 1, meaning that five shekels of silver cost half a shekel of gold.
But let’s stay in the modern age. SovereignMan argued that the typical exchange rate is 50 to 80 to 1, but silver has also been far more expensive in the recent past – in the 1920s and 1950s with a ratio below 20.

Way clear for a race to catch up

Now it should only be a matter of time before investors start to catch up. Analysts from Bank of America put the price target for silver for the next 12 months at $20. The FT quoted fund manager Grant Beasley of Highbury Capital in Toronto: According to the FT, over time more and more investors would jump on the rolling silver train, including, in the end, retail investors. They have already smelled a rat anyway: According to the lobby report World Silver Survey, silver coin sales rose by 13 percent to 97.9 million ounces by the end of 2019.

In the slipstream of gold

And if silver really does follow gold, then a buying frenzy could definitely be imminent: According to the World Gold Council, gold reserves in index funds rose seven times in the first quarter to a record 3,185 tons in March. Indeed, according to the website SchiffGold, silver has outperformed the yellow metal in a bull market. Investor Peter Schiff said literally: “If we’re going to go to a new high in gold, if gold is going to take out $1,900, which I believe it is, silver should outperform.

Rotating printing press

The general arguments of SchiffGold for silver are understandable: The Federal Reserve is printing trillions of dollars to support the economy with air money. Last week, the Fed’s balance sheet swollen by a further 212.8 billion dollars to an incredible 6.93 trillion dollars. The money supply had increased by 198.6 billion dollars. Ian Williams, Chairman of the Charteris Treasury Portfolio Managers Fund, also spoke to the FT, saying that silver is an inflation hedge just like gold. In fact, according to the paper, in a 440 per cent rally during the financial crisis in 2008, silver rose to $48.44 an ounce in 2011.

Buy investment funds

Moreover, according to SchiffGold, investment demand had already risen before Corona. Last year the silver holdings of professional investors jumped by 12 per cent to 186.1 million ounces – the largest increase since 2015. According to the FT, Exchange Traded Funds recently held the record level of 675 million ounces. At the same time, the output of the silver mines has continuously decreased in recent years, SchiffGold continued to judge. Last year production was down for the fourth time in a row, specifically minus 1.3 per cent to 836.5 million ounces.

Bulls factor Industry

According to SchiffGold, silver has historically been more volatile than gold, as half of the demand comes from industry. The white metal is used in the electrical industry because of its good conductivity, but also in photovoltaics and as a bacteria killer in the pharmaceutical industry. Important areas of application are specifically solar panels, infrastructure for 5G mobile networks or radar equipment for autonomous cars. In March, Samsung announced the development of a new lithium-ion battery, which had a thin layer of silver-carbon instead of graphite applied to the anode. With all these applications, we would have a bullish factor in the long term: if the industry picks up again after Corona, demand should also pick up.

Our conclusion: If you follow the arguments of the experts, you should go long with silver. And see the white metal as an alternative to gold. The Bernstein Bank wishes successful 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.

Tuesday was quiet enough compared to the rally on Monday. Markets were evaluating the statements of the key leaders and once again observed dramatic monologues of the US and Chinese leaders.

DAX

John Powell addressed the Senate Commission and explained what actions the Fed could take to restore the economy. He assured that the system has many different mechanisms for influence and is ready to apply them. However, there are still disagreements between the Fed and Trump that are slowing down the pace of action. The S&P500 traded mixed, and came close to the SMA200, which, not surprisingly, is at 3000. It’s a very difficult level to take. DAX grew by 0.15% and closed at 11075.

Euro

It’s another good day for the Euro. The ZEW index on economic expectations came out much better than last month. Investors believe in the rebound of the German economy as well as of the entire Eurozone economy. On hopes that the lockdown in Europe will end, the Euro is trying to reach the level of 1.0960, but it is not working well. Next milestone for Euro 1.10. Psychological level and SMA200 level. Of course, it will be very difficult to pass from the first attempt, so it is possible to predict the correction from this level.

Oil

In oil, the bulls prevailed and confidently moved the price of WTI above $30 per barrel. But everybody knows that American shale oil producers can very quickly restart their production, and the price of $30 per barrel can already push them to start producing again. Now investors are closely watching the production level, as the market cannot be called balanced. Probably, we will see enough volatility in oil in the nearest future.

Gold

Gold on Tuesday consolidated near its highs and traded at $1743 per ounce. Joint efforts of the Federal Reserve, the Ministry of Finance and major world leaders, which allocate hundreds of billions of euros and trillions of dollars, may help gold hike even higher to $1800 per ounce.

What’s waiting for us today?

08.00 UK consumer price index for April.
16.30 Crude Oil Stocks Change in the USA
20.00 FOMC Minutes

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.

19.05.2020 – Special Report. Follow the money: Anyone who wants to know where the journey on the stock market will take them in the future should follow Smart Money. In other words, the big, professional investors. Many of them are expecting a second sell-off wave. Both in the financial market and at Corona. We shed light on the background.

The Revenant

Bears always attack twice. The western “The Revenant” – meaning: the undead or revenant – has impressively illustrated this. In the bloodthirsty strip, a grizzly mom returns to her cubs after the first attack to check that everything is all right. And then she sets off in a second attack – but the hero kills her and survives badly injured. Maybe this is the scenario for Wall Street in the coming months.

Bearish on a three-month horizon

A bearish sentiment was just published by Deusche Bank. The verdict: The majority on Wall Street expects lower share prices in the next three months and sees a second corona wave. Between 13 and 15 May, the institute surveyed 450 professionals worldwide. In total, 55 percent of those surveyed expect a second wave of the epidemic. And 42 percent expect slightly lower stock prices in the S&P 500 – in addition to 17 percent who see the index as much lower. After all, the picture is turning on a twelve-month horizon: Accordingly, 36 percent expect the S&P 500 to be “slightly higher” and 48 percent “much higher”.

Overvaluation in the S&P 500

The analysts of RealInvestmentAdvice.com even stuck a price tag on the current stock market: according to this, the fair value of the S&P 500 is 2,510 points. A brief summary of the methodology behind this statement: The experts took the average profit growth of 4.85 percent from 2012 to 2019 as a basis. And as best case profits that are no longer hit by Corona. So much for the assumption in the “better than best” scenario. But if the setbacks for corporate profits from the 2001 crisis are taken as a basis, the fair value for the S&P 500 would be 1,980 points. And if the recession following the financial crisis in 2008 is the norm, then the S&P 500 would have to slide down to 1,926 points.

Hedge fund warns of banks

David Tepper, founder, head of the hedge fund Appaloosa Management, recently played the same tune. Although he said in an interview with CNBC that the market had probably bottomed out. However, there are too many market segments that are valued optimistically – and that the stock market is facing volatile times. In fact, there are overvaluations that are higher than they have been since the dotcom bubble in 1999. For example, there are crisis winners like Amazon that are “fully valued”. But investors would be better advised to stay away from other sectors such as banks – after all, how are financial institutions supposed to make profits when the Federal Reserve is likely to keep the key interest rate at zero for years? Tepper also pointed to the risk that Donald Trump might not be re-elected – or even take up arms against China.

Amazon began the work

Investors observing bearish signals should also keep a closer eye on the commercial real estate market. Especially the shopping malls: they have been exposed to an increased danger since the strengthening of the delivery service giant Amazon. And the corona crisis has only accelerated the death of shopping malls with home office and mail delivery.
If several major players topple over here, this will also affect some banks – which brings us back to the warning we have just heard from Tepper. The keyword to watch out for when screening the news would be Commercial Mortgage-Backed Securities (CMBS) – these are securities backed by mortgages from the commercial real estate market.

Corona kills the shopping malls

The Bloomberg news agency recently reported that 167 CMBS bonds were reported as defaulting in May so far. Morgan Stanley had previously reported 68 loans in this asset class for April that had not been serviced. America’s largest shopping centres are included in the CMBX 6 index – and of these, the Crystal Mall in Waterford, Connecticut, had not paid rent in April and May 2020; there are also outstanding loans at the Louis Joliet Mall in Joliet, Illinois. The list of wavering malls can be continued. Needless to say, retail is only the forerunner of a faltering economy.

New Depression

At the end remains a gloomy vision of the blog “The Daily Reckoning”. According to this, the USA is heading for a “New Depression”. The stock market has not yet grasped the extent of the economic damage. People would save the state solidarity cheques and not spend them. Unemployment would probably not return to a tolerable level of 5 percent until 2026 or later. Companies are likely to topple over in rows. Be it because of Corona or because people are afraid of it – there is a self-fulfilling prophecy in consumer behaviour threatening. The Federal Reserve is out of ammunition – the deficit spending will lead to unexpected dimensions. Ultimately, it will lead to higher taxes and inflation. Only in 2022 will the US gross domestic product return to the 2019 level. The S&P 500 could thus easily slide to 1,870 points.

Our conclusion: If you assume that the stock market is overvalued, then you should stock up on shorts.
The Bernstein Bank wishes successful trades!

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 new trading week of May started with a positive attitude. Several good news made investors to buy. First, the coronavirus cure is almost ready. The American company Moderna confirmed that the tests were successful. Secondly, investors were encouraged by the fact that the U.S. government has taken a package of measures by 3 trillion dollars to save the economy.

EUR/USD

The third good news was Merkel and Macron’s agreement to create a 500 billion euro fund to stimulate the European economy. Such positive news hasn’t happened in a long time. On Monday, growth was going on in all directions. DAX added 5.6%, S&P500 added more than 3% and came close to 3000. The upward trend is likely to continue, but it is worth considering that this is a very fragile market which now depends only on good news.

Euro

The Euro reacted perfectly to the news about the agreement between France and Germany on the establishment of a 500 billion recovery fund. In addition, due to the weakening of the dollar, the European currency showed an excellent growth of almost 150 points. Although the growth is large, the price still remains inside the channel, which has been in place since late March. The border at 1.0960 will be another milestone to go up. If it doesn’t succeed, the sideways trend will continue.

Oil

The price of oil continues to rise steadily. Such demand emerged after analytical companies said that exporters, Saudi Arabia in particular, had cut production dramatically since early May. June futures on WTI oil expire today, and it will not repeat the story of its predecessor, which went down to minus $37 per barrel. WTI oil broke through the level of $30 on Monday and grew steadily further.

Gold

Monday turned out to be omnidirectional for gold. On the one hand, gold updated its seven-year high of $1775.40 per ounce, but on the other hand, the price went down to $1730 on investors’ appetite for risk. Excellent news on the COVID-19 drug testing made investors withdraw from the assets. In the near future gold will probably lose some of its positions, but the test of $1800 level is inevitable. Still, a lot of money is being filled into the markets and nobody has cancelled the second wave of the epidemic yet.

What’s waiting for us today?

08.00 Change in the number of jobless claims in the UK.
11.00 ZEW Economic Sentiment Index in Germany
14.30 Number of construction permits issued 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.

Several weeks of May showed that markets are starting to live in a new way. News of the coronavirus is falling into the background, and it has no impact on the current situation. Most investors are now focusing on the news on the economic recovery of the leading countries.

WTI

On Friday the markets tried to take profit. But from the middle of the trading session, the market started growing. It was reported that the U.S. government could vote for a 3 trillion dollar aid package. It is a huge amount of money and if it is released, of course, the same S&P 500 index will not be dropped. So on Friday, we saw a recovery. The S&P500 is still there at 2800, the DAX has risen slightly to 10490.

British Pound

Friday was what we were expecting. The pound overcame technical support level 1.22 and rushed down. Due to the lack of progress on Brexit, as well as the strengthening of the dollar, the pound showed weakness. Probably, further movements on the decline of the pound will continue. There is no positive news and data from the UK to stop the decline.

Oil

WTI oil on Friday tried to go down to $30 per barrel. Positive news about production cuts, as well as forecasts of oil demand make investors buy. So far, the situation for oil has stabilized and investors’ interest to this instrument has increased. If we pass the level of $30 per barrel, we can safely say that the fall is over.

Gold

Gold updated its annual high at $1750 an ounce on Friday. By the end of the trading session, the price had fallen, but it is obvious that it is very difficult to take such strong levels from the first time. As we wrote, the gold is waiting for an impulse and negative news to go higher. The situation in the economy has a positive impact on the price of gold. In the near future, gold will try to break through these highs and come up to $1800 per ounce.

What’s waiting for us today?

01.50 Japanese GDP
17.30 NAHB Housing Market Index

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 third trading week of May is not impressive at all. Currencies have frozen almost in place, markets have gone into a sideways trend. It’s not at all clear when the markets will revive.

Gold

On Thursday, we saw that the number of initial US unemployment claims was lower than last week’s data, but higher than expected, which of course affected the markets. A drastic interview with Donald Trump, in which he said that he could completely break off all relations with China, which would save the U.S. $500 billion a year, struck traders. Disagreements during the difficult situation in the world are not at all in time. The DAX index has fallen by almost 2%, the S&P500 has fallen heavily at the beginning of trading, but by the end it has almost recovered to the opening level of 2830.

Euro

The Euro has absolutely no support left from investors to grow. Even the report on the consumer price index in Germany did not show up in any way. European economy is in stagnation and uncertainty, the US dollar is growing as tension between the US and China resumes. The Euro continues its downward trend on Thursday as well and the price approached a strong support at 1.0780. Next, the quotes are likely to try this level to go lower as there is no positive for the Euro.

Oil

On Thursday, oil traders were still optimistic as countries began to reduce production and even demand began to rise slightly. But there was little joy. Now WTI oil is unlikely to be able to overcome the $30 per barrel level in any way. So far, the goal for black gold is to at least consolidate its current positions and deal with supply and demand.

Gold

Finally, gold has shown that it can move in impulses. As soon as important news from the USA appeared in the market, as well as macroeconomic data, investors immediately used this moment and started buying the precious metal. The level of $1730 per ounce has almost passed and it is close to the highs. End of the week, and it is very interesting. Because either we will get a profit taking on Friday for some instruments and the price will fall, or we can storm new highs.

What’s waiting for us today?

04.00 Volume of industrial production in China since the beginning of the year
10.00 German GDP
14.30 US retail sales volume

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.

14.05.2020 – Special Report. Surprise: The Federal Reserve is likely to pump even more money into the market soon. Because the economy is paralyzed, a new stock market storm is quite likely. The Corona crisis is far from over. All this speaks in favour of investing in gold. And even the block chain technology is a bullish factor for the yellow metal. We will shed some light on the background.

Even more air money from the Fed

So now it is official: the Federal Reserve does not want to introduce a negative interest rate. Immediately the doubters reported: “For all the measures taken by the Fed and fiscal authorities to counter the COVID19 shock, policy remains too tight.” In other words, even the Fed’s expansionary monetary policy is not enough to counter the Corona shock, according to credit strategist Stuart Sparks of Deutsche Bank. The real interest rate is already at -1 percent. But if the Fed shrinks from negative key rates, all that remains is more quantitative easing.
Listen and be amazed: The Fed has already expanded its balance sheet by $2.6 trillion in the past two months. Deutsche Bank estimates that the Fed has to expand its balance sheet by 3.3 trillion dollars. Even more air money, therefore, which devalues the dollar. The other central banks should follow suit. And so we have the most important argument for gold at the moment.

Marathon of money printing

Recently, Fred Hickey, publisher of the investment newsletter “The High-Tech Strategist” had already expressed similar views. Despite the name of his stock market letter, he is currently keeping his distance from overheated tech stocks. Instead, he is investing in gold miners. Hickey also argued with monetary policy: “At this point, it’s an all-out printathon: In 2008, the Fed printed up a trillion dollars in eight months. Now, they have printed up two trillion dollars in six weeks. In an interview with the “Neue Züricher Zeitung” he said that the Fed had created a gigantic bubble – as it had only done before in 2000 and 2007. His conclusion: “Gold does well in chaos and uncertainty”.

Possible gold cover of the E-Yuan

It could now be argued that the expansion of the money supply also speaks in favour of Bitcoin. That could well be the case. If an uncontrolled currency were not a thorn in the side of all governments which pursue economic policy via the intrinsic value of money. In other words, all governments. In fact, even the way into the blockchain probably leads ultimately to gold.
Because the blockchain should lead to a universe of cyber-foreign currencies with a gold standard. The Strategic Culture Foundation thought that the new e-yuan could be covered by gold. If this is officially announced by Beijing, it could strike the greenback like lightning.

China advances at Blockchain

Let us recall: a few weeks ago, the Chinese central bank announced the start of a field trial with the e-yuan in four different regions. The People’s Bank of China (PBOC) will now at some point roll out the blockchain-based currency nationwide, the Digital Currency Electronic Payment (DCEP). The driving force behind the plan is PBOC Governor Yi Gang – according to Pepe Escobar of The Strategic Culture Foundation, other cities after Suzhou, Xiong’an, Chengdu and Shenzhen will be available by the start of the Winter Olympics in 2022. Yi Gang is in no hurry, however – he wants to incorporate anti-money laundering mechanisms and customer registration requirements into the new e-finance. “Know your customer” is the keyword.
Part of the pilot test is also a mobile app on WeChat, which was developed by the Agricultural Bank of China. The test includes 19 shops, including restaurants like Starbucks, McDonald’s and Subway. The Blockchain Service Network (BSN) is to be deployed worldwide at some point, it is run by the central bank, Baidu and Tencent, according to the Chinese Ministry of Industry and Information Technology.

Good reasons for the e-currency

So back to the gold standard. The potential pioneers of gold-based e-currency – Russia and China – have good reasons for introducing such a new currency. For one thing, the US could not devalue its currency reserves via its interest rate policy. In addition, Washington would no longer be able to simply declare default on its government bonds in the event of political crises – this option is still being considered as a weapon against China because of the cover-up on the Corona issue.
Furthermore, corruption can be eliminated via a cyber currency: If the government pays with a blockchain based currency, it is always clear who got how much money and when. And it is precisely in Russia, China and India that bribery is rampant.

Away from the dollar

The whole process to circumvent the dollar towards gold has been going on for years, especially between Russia and China. Three years ago, the two countries had already agreed on bilateral trade in their respective currencies. Both have been building up gold reserves for a long time. The post-Corona world now offers a good opportunity for the new currency, the Strategic Culture Foundation added.
Further advantages: Trading partners could also assume that a gold-backed e-foreign currency is not gutted by quantitative easing. And in addition, the banks as intermediaries and thus the fees for foreign exchange are eliminated. We add: The disadvantage of such an e-currency would be that any government with access to the blockchain technology could simply empty the electronic wallet of a disgraced holder.
Nevertheless, we should keep an eye on the issue of gold backing of cybercurrencies. The head of the Shanghai Gold Exchange (SGE), Wang Zhenying, already called for an international super currency a few weeks ago, according to Reuters, in order to get rid of the dollar. The Federal Reserve will sooner or later sink the dollar in its reaction to Covid-19, he said.
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.