The enemy of my enemy is my friend
Abraham George Macro View
The major indices have been meandering for the most part of last week. Markets in general are bullish metals, stocks and bonds. The only area there is a consensus of bearishness is against the US dollar. We will examine the risks associated with this thinking.
It is very unlikely any progress will be made on the expired COVID aid package as Republicans and Democrats are on a government mandated two week summer holiday for two weeks. The Republicans are offering a one trillion aid offer but the Democrats want to double that. So it is not going to be an easy settlement when ever that happens.
Epic Games who owns the most addictive and popular video game Fortnite has sued Apple and Google in the US District Court in San Francisco asking the court to end the unreasonable and unlawful practices by the tech giants.
This is a David taking on two Goliaths. This should attract a lot of attention for Epic Games.
The way this case will play out could have much bigger consequences for Big Tech who are under increasing scrutiny from antitrust regulators over many of their practices and their totalitarian regime. Remember everything starts small. It will be interesting to see how this story plays out.
On the political front UAE became the third Arab country but the first gulf state to establish diplomatic and commercial relationships with Israel.
The other two countries were Egypt in 1979 and Jordan in 1994. President Trump brokered the deal with the help of his son- in- law and senior adviser to Middle East affairs Jared Kushner. The previous deals were brokered by president Jimmy Carter and president Bill Clinton.
It will be interesting to see how Iran will react to these developments. Both Israel and UAE are wary of Iran and its nuclear ambitions. So as the saying goes, “the enemy of my enemy is my friend”.
Equities
Markets have been overall listless. Total market volume dropped to the lowest level since the S&P 500 made its high on Feb 19. The NYSE advance/decline ratios closed flat and the up/ down volume ratios were similar as well at 1.55: 1.
The near term moves are not impulsive meaning the markets may move more higher. The most interesting thing is that S&P 500 is just below the Feb 19 for many days unwilling to challenge it. So price action this week is very important.
Bonds
As expected the bonds are subdividing down. The decline from the top at 183^06 from Aug 06 looks impulsive. Any retracement should be contained under 180.
Euro
Prices in Euro has closed higher for 8 consecutive weeks . This is the longest period the Euro has gone up without much of a pull back in 16 years. Many of our observations are pointing for a reversal in trend. Currently we believe the 1.1916 high should hold but we are looking for better follow through on the downside.
Gold
The main argument for gold going up was the COVID situation and inflationary fears. We don’t see any significant inflation anywhere. If it is why are junk bonds priced at such low yields?. Think gold is ripe for a serious move down . Resistance at 2000 should contain it.
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.