27.12.2019 – Special Report. A toast to the new stock market year: After the brilliant performance in 2019, investors are looking forward to 2020 full of hope. We have identified the most interesting long and short opportunities for you.
3,333 as of 03.03.
The new year will initially continue to run just like the old one: Both the Federal Reserve and the European Central Bank are likely to continue their loose monetary policies in order to stimulate the economy. And that should drive the stock markets further upwards. Michael Hartnett, Chief Investment Strategist at Bank of America, has formulated this in a particularly effective way: The S&P 500 will hit 3,333 points on March 3. And the yield on the ten-year US government bond is expected to climb to 2.2 percent on February 2. For Hartnett, the arguments in favour of this are, in addition to monetary policy, the elimination of Brexit risks and the customs deal between China and the USA.
But there is a growing danger that investors are overly optimistic. Joseph Davis, Head of Investment Strategy at Vanguard, one of the largest asset managers in the world, warned of a setback, especially in a conversation with Bloomberg. The risk of a stock market correction of 10 percent or more is 50 percent, he said. Davis added that most investors are pricing in economic growth in the USA of a full 3 percent.
Impeachment – short shock if Trump goes
One of the most important political events for the financial market is likely to take place in January. It is likely that the Republican-dominated Senate will then reject the removal of US President Donald from office. RBC Capital Markets recently reported that 74% of investors expected the Senate to bury the matter, making it neutral for the Dow Jones, S&P 500 and Nasdaq. The Royal Bank of Canada further wrote: 69 percent of respondents believed that removing Trump from office would be negative for stocks. So an unexpected removal from office will make Wall Street shake. So if you’re trading CFDs or online stocks, be sure to keep an eye on the issue.
US election – problem for the stock market
The election campaign in the USA will be running at full speed from around the summer. In July, the Democrats are expected to select their candidate for president. Tax increase, open borders for all, impunity for drugs, reparations for illegal asylum seekers – these have been some of the topics in the left’s previous TV debates. Pure stock market poison. So watch out for the opinion polls in the regular market updates – if the Dems are about to win, the stock market is likely to plummet.
By how much, the “Epoch Times” tried to predict. The paper collected the statements of some star investors. For example, Ray Dalio, head of the largest hedge fund in the world – Bridgewater Associates; he expects Wall Street to lose 22 percent if Elizabeth Warren wins. Paul Tudor Jones, head of the hedge fund Tudor Investments, predicted a loss of 26 percent if Warren wins, according to the Epoch Times. And Stanley Druckenmiller, founder of Duquesne Capital, even sees a bear market of 30 to 40 percent if the senator wins. Jones added that a triumph by Trump would send the S&P 500 to 3,600 points. For Jones, a victory by Bernie Sanders would send the S&P 500 down 26 percent; Joe Biden and Pete Buttigieg would cause a bear market of 11.5 percent.
Phase 1 and phase 2 – likely versus hardly conceivable
Also at the beginning of January, investors can prepare for the signing of phase 1 in the customs dispute between China and the USA. That is precisely why another delay or even a bursting of the deal would be a short chance for the Dow, S&P 500, the Nasdaq and the DAX. If the deal does happen and the details that will hopefully be published then please investors, it should give the bulls a moderate boost. The futures on pork bellies, wheat, soya and rice will also be interesting – the US is demanding that China buy US farmers’ produce in the order of 40 to 50 billion dollars per year.
Phase 2 will be tough: Washington wants China to give up industrial espionage and stop copying products. We do not believe in such a deal in 2020 – it would endanger the Chinese business model. Especially as Beijing will probably wait for the US election campaign. All in all, we see this as a bearish factor for the US stock market. And also for the Chinese indices. According to Reuters, shortly before Christmas Chinese Prime Minister Li Keqiang warned on state television that the Chinese economy would face enormous downward pressure in the coming year. The government would react to this with monetary and fiscal policy.
Oil – discipline is what counts
If the Chinese American customs deal takes effect, oil prices should rise. Otherwise, much, if not all, of the energy market will depend on whether there is discipline in OPEC+. If so, the decided cut in production could cause the price to rise. Especially since a wave of bankruptcies is threatening the US shale drill. Or else the cartel is so disciplined that the US supporters are jumping into the breach as a laughing third party. Needless to say, a Black Swan event such as a war in the Persian Gulf is likely to send oil prices skyrocketing.
Sterling – it’s up to Boris
With the British pound, you have to keep an eye on the negotiations with the EU. Prime Minister Boris Johnson does not want any delay in lashing the Brexit details beyond 2020. The Helaba judged: If Britain’s exit from the EU is orderly and there are no distortions during the negotiations on the future relationship with the EU, there is potential for the pound to appreciate. However, the danger of a chaotic Brexit lurks. If the EU does not want to go along with London, then the United Kingdom will leave without clarification. With corresponding consequences for GBPEUR and GBPUSD.
Interest rate pressure on the Turkish lira
The Turkish lira is similarly political. President Recep Tayyip Erdogan continues to put pressure on the central bank. The key interest rate currently stands at 12 percent, demonstrating the determination of the central bankers, Erdogan told the NTV channel before Christmas. Erdogan held out the prospect of interest rates falling to single digits next year. In the summer, the key interest rate was still at 24.0 percent.
Commerzbank warned that annual inflation is likely to reach 14 percent. This means that inflation is eating up interest rates. In addition, according to the Coba analysis, Turkey’s foreign debt has risen by 22 percentage points to 62 percent of gross domestic product (GDP) since 2012. The central bank also lacked free foreign currency reserves. This is a toxic cocktail that is likely to lead to the bankruptcy of companies and banks. How is Turkey supposed to attract such foreign capital? Coba analyst Tatha Ghose expects a new inflation shock to push USDTRY above 7.15.
Bitcoin not yet fully acceptable
Europe and America could dry up the market with appropriate regulation. Just before Christmas, Lael Brainard, member of the Board of Governors of the Federal Reserve, sent out a warning to this effect, according to the blog “Cointelegraph”. At the event “Monetary Policy: The Challenges Ahead”, the monetary politician said in Frankfurt that about half of all Bitcoin transactions were related to illegal activities.
Moreover, autocratic countries such as China or Turkey are unlikely to allow an uncontrollable secondary currency to exist for much longer. And Iranian President Hassan Rouhani also called for a separate Muslim crypto currency in Malaysia shortly before Christmas, according to the AP news agency.
According to “Manager Magazin”, Emden Research added that there was a general lack of impetus for the oldest and most important cyber currency. Investors were still waiting for a listed Bitcoin fund (ETF) and clear rules from financial supervisors. What still remains is the reference to the Bitcoin halving, which is likely to occur in the week from May 18. BTC is limited to 21 million units, currently around 18 million BTC are circulating. Usually the price has risen after the halving.
We think there’s one more bullshit fact. If the world’s central banks continue to undermine the intrinsic value of their currencies by cutting interest rates, and if regulation is delayed, cryptos could become a refuge for the troubled global middle class.
Reserve currency Gold
But where else to put the savings in times of negative interest rates? Maybe to gold. The blog “The Daily Reckoning” expects a lot of “dark money” flowing into precious metals and expects a latecomer rally in the gold price. And Goldman Sachs advised investors with a long time horizon to save for retirement to go for gold in early December.
We believe: If there is a global bull market in the equity markets next year, the gold price is likely to move sideways or even down. However, if the stock markets do go down, the reserve currency should be in demand. And gold-based currencies such as the South African rand or the Australian dollar will profit accordingly from a boom in precious metals.
The Bernstein Bank wishes successful trades in the new year – we will keep you informed!
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