The Great Walls of Mexico and China
US government shutdown
The US
Government shutdown resulted from the non-passage of the bill to fund the
building of the wall along the Mexican border to fulfil pre-election promise by
president Trump. While the demand for the funds for building the wall was US$
5.7 billion, the estimated cost of the US shutdown has been $11 billion so far.
Readers
interested in further details may read the article through the link given below:
https://en.wikipedia.org/wiki/2018%E2%80%9319_United_States_federal_government_shutdown
According
to some official estimates, a government shutdown shaves off 0.1% from the GDP
every two weeks.
Tariff war between USA and China
The trade
tariffs imposed by the US on China have invited a similar counter action from
the Chinese authorities. The impact of tariffs on an exporting country can theoretically
be neutralised by devaluation of the currency of the exporting country, however,
imposing tariffs on the imports of goods from the US by China is a more
effective retaliatory counter measure.
A
slowdown in China is evident, as seen from the released Chinese trade data.
Whether this slowdown has resulted from the slower exports to the US due to
imposition of tariffs or a slowdown in the US consumption is something that
cannot be conclusively inferred, despite whatever may get reported by the
media.
US Fed interest rates
In the
recently concluded Federal Reserve policy meet, the chairperson Jerome Powell
announced Fed’s patience in hiking interest rates, considering the general slowdown
in USA. The interest rates remain untouched in the 2.25% to 2.50% range.
ECB Monetary Policy
In the meeting
of the European Central Bankers held on January 24, 2019, president Draghi
announced no hike of interest rates until mid-2020, thereby inviting concerns
about the growth of the Eurozone. He however skilfully set to rest the concerns
by justifying the policy decision by citing events such as trade war between
USA and China, Brexit and certain pockets of Eurozone experiencing slowdown
rather than being influenced by any other major internal economic event of
significant consequence.
Union Budget 2019-20
On the
home turf, pre-budget debates amongst the economic pundits and media personnel predominantly
revolved around two key concerns, viz., budget deficit exceeding the target of
3.3% as well as failure to stick to disinvestment targets of the PSUs.
However,
post budget, the budget was unanimously hailed by global pundits and Indian
industry veterans as growth and consumption oriented with inclusion of farm,
animal husbandry, rural and real estate sectors as well as the burgeoning
middle class and entry level salaried workforce to be the anticipated engines
and drivers of growth in the future.
RBI’s upcoming monetary announcement on
February 7
Considering
stable interest rate policies of Fed and ECB, it is unlikely that RBI will
tamper with the interest rates, despite benign food and fuel inflation.
Other Updates
World Indices
Despite
intermediate upswings, the global stock indices as mentioned in my previous
post dated October 18, 2018, continue to remain in primary downtrend.
The world
stock indices (US and Indian) have an extremely low probability of a bounce back
above the previously attained levels.
Crude Oil (WTI) and USDINR
After
touching sub $50 per barrel levels, WTI crude oil may rise and find resistance at
two levels, viz., $59-60 and subsequently in the $69-70 zone in the near term
(3-4 months) and may subsequently drift sideways to downwards from there. Consequently,
USDINR is likely to retest the levels of Rs.74.00-74.50/USD within next few months
and the INR will get stronger subsequently.
Apple and Amazon
Apple and
Amazon are two legendry stocks to have touched the USD 1 trillion mark, for a
very brief duration and intra-day, respectively and which then subsequently
fell flat.
A rock
solid stock/ institution like Apple, renowned for its marquee flagship product iPhone
(a dream product of the masses), which saw some of the most respectable
companies, their divisions or a few of their products in global leadership
positions, go belly up, almost a decade back (since its launch in 2007), itself
got challenged by a clutch of small Chinese rivals on accounts of pricing, features
and aesthetics, proving the versatility and superiority of open source
(android) over iOS, leading to a drop in the number of shipments of Apple
products across the world and a consequent drop in its share price, eroding
almost 30% of its shareholders' wealth from the peak achieved.
Apple’s
recent public statement, “There is life beyond iPhone,” needs to be proven by
the company in the near term.
Given
below is the three monthly candlestick chart of Apple indicating the dent that the
stock has received in its market price.
Amazon and Bitcoin
Given
below are three candlestick charts:
1.
The
first two charts show comparison between Amazon’s quarterly candlestick chart and Bitcoin’s weekly candlestick chart.
2.
The
third chart is the weekly candlestick chart of Bitcoin, till date, post-crash.
While it
will not be prudent to infer any conclusions because there is no sure shot
pattern as to how a stock may behave, such a comparison as above can perhaps give
some reference as to how momentum stocks and some speculative charts behave (Bitcoin
has no underlying assets).
A recent quarter
page news in a local business newspaper gives reference of non-triggering of
anti-trust provisions against Amazon based on accumulated losses and because of
a dominant complex structure which leads to co-opting of rivals rather than driving
them away.
This
serves as food for thought for the Indian authorities as well so as to consider
redefining a dominant enterprise not just on the basis of share of profits or
market share in the industry but by introduction of newer criteria, a few of
which amongst many could possibly be, the size of assets, enterprise value,
ability to raise Super Uber capital or a few others which can stifle
competition under the garb of long term view/ investment, value/ beneficial for
customers etc.
The next
wave of fall in the US indices may be led by Apple and Amazon duo, which have a
very high weightage in the index – Nasdaq 100.
Best
wishes for the New Year, albeit a bit delayed.
For more charts
the author can be contacted at: riskadvisory@outlook.com.
DISCLAIMER:
These extracts from my trading worksheets/books
are for the purpose of education only. Any advice contained therein is provided
for the general information of readers and does not have regard to any
particular person's investment objectives, financial situation or needs and
must not be construed as an advice to buy, hold and sell or otherwise deal/
trade in commodities, currencies, indices, securities or other forms of
investments. Accordingly, no reader should act on the basis of any information
contained therein without consulting a suitably qualified financial advisor in
the first place.
