Moving into the first month of 2020, we are prepared to face many challenges in this year. The US stock indexes are trading at historical highs, a continuous rise since 2009.
While many traders are watching the Brexit cautiously at the end of this month, many uncertain knots in market include the struggle of OPEC+ countries to support crude prices, the survival of Saudi Aramco to raise more fund, threats from North Korea on firing new missile test, next impeachment trial of President Donald Trump, the progress of US election at close of year 2020 and others. Unfortunately, we have no clues on what other black swans might erupt in year 2020.
Nevertheless, at the start of the New Year, we could see double happiness that will set to give a boost to many investors. On the first day of January, President Trump announced he would invite the Chinese leaders to visit the White House and sign the ‘phase one’ deal on January 15. After that, he could start to plan a trip to Beijing to work on a ‘phase two’ deal.
In the face of an impeachment trial soon by Senate, Trump has devised a strategy to score points for his political career through this trade deal announcement. The move to seal a ‘phase one’ deal will up his ante for his year-end election and also win multiple supports from agricultural exporters and farmers that are facing bankruptcies now.
Meanwhile, the People’s Bank of China (PBoC) announced that it will decrease five basis points from its onshore banks’ capital reserve ratio. This will take effect on January 6 and release an estimate 800 billion renminbi cash liquidity into the Chinese market. This might ease borrowings by small and medium enterprises as it could be at a lower cost and more incentives will be issued to help the business starters in 2020.
In my opinion, this is the market landscape that we will likely experience in January. First, we reckon the dollar will unwind at a softer pace while crude and gold prices could recover. Observe the dollar index (USDX) that might go down to 95 this month and perk up all the general farm commodities.
In the US market, stock indexes will continue to stay resilient but this trend could slowdown as funds move into commodities.
In the Chinese market, observe the Shanghai Composite Index (SSE) and A50 Index that will go higher in January. Pay attention to commodity stocks in energies, mining and food processing enterprises. The US dollar/Chinese yuan rate will probably head down to 6.85 this month if the 7.00 benchmark can stay intact. The Chinese yuan is set to recover as the dollar falls.
Plan your portfolio strategy and bag profits for the Chinese New Year season that will come early this year. We reckon the bullish trends will last through mid-February before we hear another dispute on the trade war and 5G expansion by Huawei.
DarWong is a veteran in global financial markets based in Singapore. This opinion piece is solely his own. He can be reached at [email protected].