A Half-century relationship begins to break up

What started off as an epoch-making trade and economic cooperation between two giant countries initiated by President Richard Nixon when he traveled to China in 1972 is now starting to unravel steadily. A tit for tat consulate closure has already begun last week.

Secretary of State Pompeo has been blunt and harsh in his criticism of China. He is drumming up support from all other like-minded countries that US has relationships with. Will this lead to China being put only in an economic penalty box or will there be some military action? The recent up move in gold expresses those concerns.

Tesla is probably waiting for an invitation from S&P 500 index committee since they have met one of the major requirements of showing four consecutive quarters of profit. If they are added into the list of the other 499 companies (as one will be booted out), this will be the first time a company which is more valuable than any of the 95% of companies is added to the list.

All the naysayers will probably have to accept and believe that at least now Tesla might be a legitimate company. The stock is already up 270% for the year.

Many countries in Europe are thinking of imposing cross border travel restrictions with the pandemic increasing while in US the daily death is steadily creeping up.

Google, Apple, and Amazon are still to report their earnings and believe it should come out on Thursday. They constitute nearly 30 % of the NASDAQ 100 futures. So, the markets could be pretty noisy.

Equities

The S&P 500 carried to 3280 on July 23 before it started to lose steam. There is a gap that exists between 3260 to 3338 from the close of 21 Feb to the open of Feb 24. Will the markets want to fill that before turning south? Today’s RTH (regular trading hour) price action should be a key factor.

Bonds

Bonds have retraced higher and it looks increasingly that they may challenge the Apr 21 high at 183^02. If it happens the pattern would look much clearer for the next leg of the down move. However, a move below 177^10 should invalidate any further strength.

Euro

The Euro blasted higher on the back of better economic cooperation and unified economic stimulus plan. Prices could top out at close levels of 1.1670 to 1.1680 but there is the risk of a further move up to 1.1820 to 1.1880. The daily sentiment index is at its highest level (89) since the levels seen in end of Jan 2018.

Gold

The recent standoff between China and US has been very supportive for Gold. Have to admit we have been wrong on gold so far. Prices can top out from current levels but if it goes above 1921.50 it will be a new all-time high. Will try to look for a clearer picture.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.