2022/10/16 (089) Column

„Invest in the strength
of the US, EU & China
– but still excluding Chinese stocks, at least in my case“


Together, the US, the EU, and/or China, generate more than half of global GDP.
Similar to most of my colleagues, also in their columns, but rather also analyses, like most other financial market participants, I have been trying in vain for several weeks to formulate a basicly clear expectation for the future. In other words, recognizing a clear trend. But it should definitely, in any case, be realistic. And not optimistic just for the sake of optimism. That`s why I am fundamentally skeptical about so-called positive thinking. And this despite the fact that I still have numerous books about it on my bookshelf; and have read all heartily tasty. Because unfounded, i.e. unrealistic optimism that is not resting calmly on an honest basis of facts, in the truest sense of the word, always leads to disaster sooner or later, more or less. Also in a green disaster. What many feel. But don’t want to admit; because you don’t take the time to think through green future expectations in advance. To calculate truly in advance. Because you may feel that every socialist policy, including green ones, ultimately only leads to tax increases and/or inflation! What you don’t believe me again? Then study all the left-wing societies that have disappeared, such as the former Soviet Union, GDR, and or even the former Yugoslavia. And then always in the context of taxes and inflation. That’s left? Yes, it is!

The bottom line is that the fear of a recession is growing in the 3rd and 4th quarters of 2022.
In other words, the fear of negative growth in economic growth compared to the previous year.
Personally, I’ve been assuming that since the end of summer. But I wonder what the US stock market, on US WallStreet, makes of it. Is the market anticipating this recession due to eased inflation worries? Just like in the summer, when we luckily happened to be part of the short-term rally with our long 4XSetUp Trading Capability in the DOW JONES Future. Although I read again and again from colleagues that a recession is not yet certain, despite the slowdown in growth. Many acknowledge that the risk of a recession has increased: economic indicators have weakened in the US and Europe due to the tightening financial environment, such as in the interest-rate-sensitive US housing market. Rising energy and food prices are reducing real disposable income in the USA, which is still the world’s largest economy, and are thus depressing consumer sentiment worldwide. Nevertheless – and although the growth forecasts for the USA and Europe have been lowered – a recession in the next twelve months remains a risk. However, this does not correspond to the majority of my colleagues’ expectations. Rather, many hope, like me secretly, that the stimulus from the Chinese will stimulate the domestic economy due to a lower interest rate, which is still higher than the inflation rate. And so, putting the Chinese economy back on a growth path, including a positive real interest rate, which continues to guarantee the Chinese people stronger nominal purchasing power. Should this scenario come true in 2023, the Chinese will have shown it to all of us in our so-called West; how to understand central bank policy and/or how to focus an economy on an economic growth path. And without high inflation. And historic trade surplus.
Which is associated with a low unemployment rate. But I prefer to stop writing about China. Otherwise, I still fall in love, like on a LSD heaven trip, and never come down again, because of the fascination, the observation, of China…

Irrespective of my personal opinion on China, most colleagues (who deal more closely with the interaction between the USA, the EU and China) therefore recommend a “moderate overweight in equities” in the portfolios. And this is implemented by overweighting US equities in Chinese equities. An imminent recovery in China should support gains and hence a sustained market recovery. The US market has a high proportion of technology stocks, from which investors should consider fundamentally sound stocks that are attractively valued after the indiscriminate selling during the decline. What I too, as you can see in our previous D2D editions, had realized so far in the course of the year 2022…
DEVISE 2 DAY 48h
– My Last Thoughts About Market Price Actions

In the US, the week will be dominated by earnings reports, speeches by several Fed officials, and housing data. Investors will be also monitoring financial markets in the UK following the government U-turn on tax cuts. In China, the 20th National Congress of the Chinese Communist Party will take place and Q3 GDP growth, alongside industrial production and retail sales will be released. Also, inflation rate data is due for the UK, Japan, Canada, and New Zealand.

Nothing is to be expected from the major central banks this week – no regular meetings are scheduled for this week. Nevertheless, the focus should definitely remain on the 10-year yield on a case-by-case basis; from currency to currency. Because they high/low should more or less also determine the rhythm of the stock markets.

Also keep an eye on London! Let’s see if the Conservatives get a grip on their government this week? And then the market calms down…DEVISE 2 DAY 48h
– Some Market Price Action News

US Equities Fall After Gloomy Inflation Forecast
US stocks extended losses on Friday, with the Dow losing nearly 400 points, and the S&P 500 and Nasdaq falling 2.1% and 3.1%, respectively. In the epicenter of the selloff was a report from the University of Michigan showing that US year-ahead inflation expectations increased for the first time in seven months. Such a reading put further pressure on the Federal Reserve to stick to its aggressive stance against runaway price growth and raised concern over a possible recession. Interest-rate sensitive tech shares declined over 2.5% on the news. Energy shares also declined over 3% as crude oil and other energy commodities declined. On the corporate side, JPMorgan, the biggest US bank by assets, rose more than 2% after reporting third-quarter results for profit and revenue that surprised investors on the upside. Wells Fargo also enjoyed some robust gains after revenue top estimates. The Dow was still up 1.2% this week, while the S&P 500 fell 1.3% and the Nasdaq 3.1%.

Wall Street Selloff Resumes
US stocks extended losses in afternoon trading Friday, with the Dow losing almost 300 points, and the S&P 500 and Nasdaq falling 1.9% and 2.4%, respectively. In the epicenter of the selloff was a report from the University of Michigan showing that US year-ahead inflation expectations increased for the first time in seven months. Such a reading put further pressure on the Federal Reserve to stick to its aggressive stance against runaway price growth and raised concern over a possible recession. On the corporate side, JPMorgan, the biggest US bank by assets, rose more than 2% after reporting third-quarter results for profit and revenue that surprised investors on the upside. Wells Fargo also enjoyed some robust gains after revenue top estimates. On the flip side, Morgan Stanley’s and Citigroup’s shares came under pressure, with both banks reporting quarterly profits that came below forecasts.

Russian Stocks Remain Close To 5-Year Low
The ruble-based MOEX Russia index closed 0.3% lower at 1,949 on Friday, halting three consecutive sessions of gains and remaining relatively close to the five-year low hit this week as worsening geopolitical developments compounded the deteriorating macroeconomic backdrop. This week, data from the Ministry of Finance showed that Russia’s budget surplus was nearly erased in September while the current account surplus fell in Q3, providing further evidence that lower energy exports to Europe and the retreat in energy prices continue to reduce Moscow’s revenues. Heavyweight commodity shares continued to bear pressure from plans of higher export taxes by Moscow to finance the looming budget deficit, aiming to raise over RUB 3 trillion by 2025. On top of that, Russian Deputy Prime Minister Novak said that Russian gas production could contract by 10% in 2022, adding to blows for Gazprom as their shares tanked nearly 20% this week.

European Shares End Week On Positive Note
European equity markets closed higher on Friday, with the German DAX and the benchmark Stoxx 600 rising more than 0.5% as Prime Minister Liz Truss announced a U-turn on the government’s plan to scrap the planned rise in corporation tax from 19% to 25% next April. On the corporate front, Swiss banking software group Temenos tumbled after slashing its 2022 guidance, while UPM-Kymmene added 5% after the Finnish forestry firm posted higher Q3 results. For the week, the German DAX gained more than 1% while the pan-European Stoxx 600 was little changed.

Gold Drops To 2-Week Low
Gold prices decreased by more than 1% to under $1,650 per ounce on Friday, the lowest in over two weeks and approaching the 19-month low of $1,621 hit on September 26 as new macroeconomic releases supported bets that the Federal Reserve will continue to tighten monetary policy aggressively, strengthening the dollar. Data compiled by the University of Michigan showed that year-ahead inflation expectations rose for the first time since March, exacerbating concerns of unsustainable price growth after September’s CPI print was hotter than expected.
DEVISE 2 DAY
– Where I Was Wrong, Were I Was Right

In the last few weeks, I have clearly focused on the Dow Jones Future. Having briefly completed a successful long 4XSetUps Trading Capability in the somemr; I’m also a bit confident that we will be able to recover a bit in the US stock market!? How wet?! We’ll have to show that – of course I don’t know that either. Which is why I formulated a long/short Trading Switch 4XSetUps Trading capability. More about that as usual in the Technical Analysis 4XSetUps.

In USD, we got to the 9/11, 2001 level quicker than I ever imagined. It’s probably like that for most people, so I wouldn’t be surprised if we might get a short, sharp devaluation. And then again in the medium term, even in the long term, to start again at a low level. But maybe that’s just my personal, subjective, individual paranoia, due to the incredibly good development in the last few weeks and months. Therefore also place the stop price at 110 USD index points. And wait until it levels off again underneath; so that we can then go long again cheaper. Should there unexpectedly be a fight for the 110 price zone, then we remain long above the USD 110 index point.

Just like us, we remain short UKOIL below USD 100.

Regardless of our 4XSetUps, let`s focus this week also on London!
Because the problems in the British capital market could spread to other countries. One possible fire accelerator is lending — and a special class of structured securities. Last week, the chaos days in Britain continue. Prime Minister Liz Truss surprisingly fired her Chancellor of the Exchequer, Kwasi Kwarteng, on Friday, replacing him with former Secretary of State Jeremy Hunt. At the end of September, Kwarteng’s tax cut plans triggered violent upheavals on the British bond market and sent the pound plummeting. After he had already withdrawn a cut in the top tax rate, Truss announced on Friday that he would raise the corporate tax as planned. This did not reassure investors: the yields on British government bonds rose again. The Bank of England (BoE), meanwhile, seems to actually want to end its emergency purchase program for British bonds. That`s why focus on the GBP vs. The other major currencies. I wouldn`t wonder, if he creates a trend-reversal, at these crazy times. But be careful. I don’t have to be the first, let alone the last – in any trend. And above all not in the GBPUSD cross-rate, which is currently being traded around historic lows…