Is Hong Kong's hub status in jeopardy?

Will the HK Dollar peg hold?

May 28, 2020

Top US diplomat Mike Pompeo told Congress yesterday that Hong Kong’s autonomy is over which means that the city will no longer receive special treatment under US laws. This could result into many unexpected and unforeseen consequences. The two glaring points are as we mentioned before:

1) The HKD/USD could come under tremendous pressure. It is already trading at the bottom of its permitted tunnel range supported by the HKMA. If there is a big exodus of Chinese and global money from HK, it will be something that the central bank will be tested upon. The HKD peg is the last free lunch that is available in the liquid markets. Will the HKMA have the resolve and ammunition to fight off market forces? Something to be watched.

2) Many Chinese companies that were destined for listing on the NYSE might have second thoughts. Take TikTok for example. The company is valued almost $ 200 billion. Probably the biggest “start up” to ever get listed. With all the restrictions and demands US is making on Chinese companies, they should be thinking of a HK listing. Especially after the success Alibaba had with a HK listing.

So, US has a lot to lose too. I am sure China will keep HK’s independence and freedom to do business with the rest of the world. As it is their main gateway to the global community, but it will be done the Chinese way.

The domino effects are not truly clear now, but we will develop up on this in the coming days. Will we experience another Asian crisis?

Yesterday, the markets roared up but was repeatedly sold only to go higher again. So, there were opposing forces. The smart guys must have taken good profits on their longs. The strength was attributed to additional government spending from Europe and Japan to the tune of almost $2 trillion. The world is swimming in a sea of liquidity. What is the end result of all this? We will cover that through a special report. Let’s turn to the markets.

EQUITIES

It is quite rare that you see the Dow leading the other two major indexes. That’s what happened yesterday. The financial stocks who were laggards in this rally caught a strong bid with good volume. American Express, JPM and Goldman Sachs were main beneficiaries.

With the market now clearly above the 200-day moving average, a shot at our next possible target of 3140 for the S&P 500 is a clear possibility. Only a move below the upside break out point at 2965 to 2955 will strengthen the bearish outlook.

The support at 178 is proving to be strong as it tested 178^05 yesterday and bounced off. But the tops are getting lower and the high made on May 15 at 182^15 looks secure. The current price action should resolve soon, and we still believe a move below the May 19 low should open the doors for much lower levels.

EURO

The Euro is trading with an upward bias. A move up to 1.1200-1.1240 should not be surprising. However, a move below 1.0727 the low of Apr 24 will change this outlook.

GOLD

Gold made a high on May 18, but it was not confirmed by the futures market. The futures high was made on Apr 14 and Silver made its high almost nine months back failing to stay on course with gold. We believe the recent price actions are all noise and gold should start to work its way lower soon.

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