China can breathe easy now
Abraham George Macro View
Finally Americans have a new president in office. There were some coded wordings in Joe Biden’s inaugural speech but there was no mention of China. China must be very relieved. At least they are not going to be accused of every thing that is going wrong in the world. Biden has already said that he will normalize relationship with China.
However, his Secretary of State nominee said yesterday that “China poses the most significant challenge of any nation to the United States.” Nonetheless the language is softer and think the actions will be also much lighter.
All this should be music to the Chinese leadership. China will go back ramping up the global supply chain and manipulating the currency to ensure they maintain global dominance in exporting. Finally the trillions of dollars that has created a sea of liquidity in US should flow into consumption, and a lot of that dollars will find its way into China.
Ever since Trump took charge of the presidency, Chinese growth has remained under 7%. Even the IMF now thinks China can grow above 7%. This should be all good for Chinese stocks as they they are almost 30% below their 2015 highs while US stocks have continued to make all time highs and valuations continue to rise.
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Equities
All the three major indexes rallied to new highs yesterday. The NYSE advance/ decline ratio closed at a modest 1.8:1 but the NYSE trading index (TRIN) was at 1.62. The relatively high TRIN in relation to the advance/decline indicates there may be more left in the rally.
There is proportional rhythm in the market which has taken place in the S&P 500 since the March lows. This has happened in three phases in terms of time and price. Yesterday’s high at 3860 is part of the third phase and a rise to 3877 converges with a rise of .618 of the first rally phase.
Bonds
Markets are in a corrective mode which are normally messy and long. This can take prices to 171 or slightly higher. Whenever it turns down the move could be very swift and strong.
Euro
The Euro declined to 1.2054 reaching our advertised. Pull back can take prices to 1.2205 - 1.2235 . The next major area of supports are at 1.1870 to 1.1890.
Gold
Gold’s move down from 1.1960 to 1.1810 was impulsive. If the corrective move since then is not over at 1871 as of yesterday, it may still rise to 1.1890 or to 1.1905. The move down should be soon and strong.
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.