Rarely has in the past have you seen so many anomalies in the market, look no further to interest rate rise hypes vs a softening US economy, a still rising HK housing market after new measures to dam the rise by govt vs fast softening of the retail, tourist market and even the export sector as well, Bank of England saying it may raise rates soon vs a fast weakening GBP [which means a weak economy].
Dow
As said earlier in this blog, fluctuations and closings in the range of 300 points difference happens only in a very low and stabling market or when market is topping out, at this index level now or earlier, it must be topping out and would go lower by 5-8% from the top of 18300. Expect further easing or delay of any rate rise.
China A share market
The A-H share market gap has been closing in before the breakout in late 2014, this now widening gap is caused mainly by a highly geared market with people pouring in their savings and gear up for fast gains, but it's not going to last very long.
Imagine not look ago before the breakout, the turnover is less than 100B RMB, now it is 1000B, 10 times higher and a high of 1500B has been reached earlier. Any rough turn can cause market to fall like dominoes. The further easing of qualified participants and the rules in the HK-Shanghai stock connect will pull more fund flows away from A share market esp the fund management industry looking for more stable gains though not by much as the limits set up in the stock connect is way below turnover in the A share market.
HSI
Back in late Feb / early March, I have discussed with friends over lunch and dinner that the market will go up slowly and sure it has, but how far? Now it looks the timing is once 257-26000 is reached, a deeper consolidation of also 5-8% can happen. This level at 26000 coincides with a resistance set up in 2007.
Inflation Precious Metals and Commodities
Gold has always in the past been lower than Platinum, why is Platinum now lower than Gold. Look at it two ways, first there is weak [global] demand for Platinum even at industrial levels while Gold is forecasting that QE will continue significantly because economies are hitting road blocks everywhere, this will boomerang back to US, the US economy is not immune to such attacks, soon it will show up in the profits of SP500 companies. The weak Platinum prices also points to low inflation because of weak global demand across the whole commodity industry not only Platinum alone.
AUD
AUD recently breaks lower than 0.76, as it is a mirror on the Chinese economy, expect further easing in bank lending and credit markets in China.
GBP
BOE may be surprised to know that recent weakness in GBP points to lower investment by Russians in UK and much slower outflow of funds to UK from Russia/ME. Its economy is buoyed in the past by ME countries and Russia, since the fall in oil prices, this hurts funds flowing into UK and its economy could weaken faster than expected. I do not think it can raise rates given much less investments in UK after oil prices drop, just remember UK relies also on oil revenue from North Sea for part of its economy.
Have you heard a recent saying about UK? If UK is added as a state to the US, without London, it is the poorest state, with London it is second poorest. So can you imagine such a poor developed country raising rates while its economy is in such an unstable state!!!
Oil and Iran
Why is US in such great rush to ease sanctions? In the past she is holding up supplies of Iran with sanctions and stirring up unrest in ME so oil prices held up well, this will help shale gas exploration and production. Europe goes along with these measures and unrest hurting her petro industries and economies as the gap was once as wide as USD20 hitting a high at 130+ for Brent while only 110+ for Texas sweet.
Shale gas production needs at least 75 per barrel to break even, but after sunk costs, it needs much less to produce until oil dries up in those wells but the cut in expenditure for exploration is hurting employment, this starts to show up 3-6 months after oil price hit a low of 40+. The US will also soon face blowups in credit markets for shale gas industry as current revenues at recent oil prices can never support repayment and interest.
The easing of oil prices in the past year is a tactic to corner Russia interference in Ukraine, now that oil prices is stabilizing, the further supply of Iran after easing of sanctions will cause oil price to stay low and this will hurt Russia longer.
US is sacrificing the shale gas industry to target its rival - Russia.
HK Economy
The recent rise in USD hurts not only the US but HK as well since many EM countries' currencies fall, their outbound tourists are not visiting HK or they travel less, the slowdown in China and anti-corruption measures also is not helping HK's tourism, the blame on anti-China tourists protest is just a side issue. Look further to the fall in gaming revenues of Macau, off 39% in March. A lot of the money laundering [underground funds outflow] is by UnionPay, this channel has now been under close scrutiny, thus the higher RMB rate recently, without further flows to the offshore Yuan market, the high RMB rate can hurt exports even more. The easing of HK-Shanghai stock connect and maybe the opening of the HK-Shenzhen stock connect could also provide more funds to the offshore Yuan market. Do not forget the largest offshore Yuan market is in HK which shrinks for 2 months in a row already.
For the real estate market, two forces - rising unemployment and QE overseas will counteract each other in the fall and rise of the market.
All these seems to fall in line with the 26000 HSI level that is within reach and correction after when a weaker economy is getting more entrenched.
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