Beginning in 2015, every December, I will use different market data and indicators to integrate macroeconomics, interest rates, stock markets, and property markets, etc
to speculate on possible trends or conditions in the coming year. As always, this column will discuss and look forward to the “Top Ten Forecasts” for the coming year with readers in the next 3 weeks.
Similarly, before explaining the “Top Ten Forecasts”, the author hopes that readers will understand the characteristics of the macro environment and the financial market, which are interactive, tightly interlocking, and rapidly changing. To predict what will happen to the financial market and the macro environment in the next year It’s really easy to talk about, not to mention that people don’t have the ability to accurately predict.
Taking the current situation as an example, can China-US trade negotiations reach an agreement in the short term, or should it be postponed after the US election (ie, the end of next year)? No one can be right at this moment, but this factor may have a dominant impact on the macro environment and the stock market in the coming year.
In any case, the 10 predictions outlined here are the prospects and views derived from the current market developments and known objective data, and educated guesses, so that readers can have a general understanding of the megatrends and investment deployment in the coming year And mastery. Readers should pay attention to the assumptions and rationale behind each “forecast”. If the situation reverses or changes, then they must adjust their views on the forecast in accordance with the situation. The following are the top ten predictions that may emerge in financial markets in 2020.
I. brewing the financial crisis
From the perspective of “copper-gold ratio” (annual change), it shows that the current financial market is very fragile.
First of all, because copper is widely used in construction and industry, only construction, electrical appliances and industrial machinery have taken up nearly 80% of the total copper demand. The change in copper price can be used as a leading indicator of economic prosperity. Has always been known as “Dr. Copper” (Dr. Copper). As for gold is a safe-haven asset, when the financial market is unstable or the risk-aversion mentality is strong, the price of gold will generally benefit and have a relatively good performance. Therefore, the copper-gold ratio can effectively reflect the economic environment and the state of investors’ risk-awareness.
Interestingly, this ratio also seems to have some criterion for predicting the financial crisis. Over the years, whenever the copper-gold ratio (annual change) drops by 20% or more, it often indicates that some kind of crisis will occur in the financial market [Figure 1], such as the turmoil in emerging markets in 2015, the European debt crisis from 2011 to 2012, and 2008 The financial tsunami of the year, and the dot-com stock bubble from 2000 to 2001, were temporarily hit.
As of the end of November, the copper-gold ratio fell by 20.4% year-on-year, and has been below the threshold of 20% for four consecutive months. Does this reflect that the market is brewing a financial crisis? So, where is the eye of the financial turmoil? Because the copper-gold ratio can only reflect whether there are “problems” or hidden concerns in the state of the financial market, as for what factors trigger the turbulence, the indicator cannot be predicted (this is like the relationship between the symptoms and the source of the disease).
However, so far, financial markets do have concerns and uncertainties, and the sudden tightening of liquidity in the US dollar in September this year is of particular concern. Although the Fed then actively eased liquidity tensions through open market operations (OMO) and the purchase of short-term debt.
However, the Fed has maintained a rapid “water release” so far, and the balance sheet size has surged by nearly 300 billion US dollars in just three months [Figure 2], which is very unusual. If, after the end of the “water tight” cycle at the end of the year, the market’s tight demand for the dollar has not improved, you need to pay more attention.
In addition, risks such as downward pressure on the global economy (see below), the haze of trade war (or protectionism), and the bursting of the credit bubble may all be the source of the next wave of financial turmoil.
Second, the downward pressure on the global economy has eased but the growth has been weak
There is no doubt that some economic indicators in individual countries or regions have indeed stabilized recently, such as the manufacturing purchasing manager index (PMI) and leading index. However, South Korea ’s exports, known as “a canary in the coal mine”, have a leading role in predicting global economic performance, and the latest figure at the end of November fell 14.3% year-on-year, which is the 12th consecutive month There has been negative growth, and the decline has so far shown no signs of hesitation. Together with the Li Keqiang Index (a 10-month moving change) as of the end of October, it has also kept the momentum of bottoming out, reflecting that the global and Chinese economic downward trends have not yet completely reversed [Figure 3].
Of course, a major threat to the global economy is the Sino-US trade talks. Due to the outbreak of trade war between China and the United States last year, the growth of global trade volume started to fall in the second half of the year, and it has recently recorded negative growth for 4 consecutive months, deepening investors’ uncertainty about the economic outlook, which indirectly inhibits investment confidence and capital expenditures, which in turn has a negative impact on the global economy. Therefore, if China-US trade negotiations have not yet reached an agreement in the short term, it is expected that the uncertainties will continue to plague the market and will weaken the economic recovery.
Having said that, the uncertainties caused by the Sino-US trade war have been disturbed for a long time, and the global economic uncertainty index has also fallen to a level similar to the 2008 financial tsunami; in other words, unless the trade war worsens, the impact on the economy will be greater. It has been digested by the market (the above-mentioned index is expected to hover at a low level in the short term until the signing of a trade agreement).
On the other side, multi-national central mothers have launched water drainage operations. The central government believes early next year that it will also launch a series of economic and fiscal policies to ease the downward pressure on the global economy. If the Sino-US trade agreement is signed in the first half of next year, I believe that the global economy will not come back until the middle of next year. However, due to the low interest rates, Yang Ma’s ability to revitalize the economy has been very limited, and the endless game between China and the US is expected. Even if the global economy bottoms out, the rebound momentum will be relatively weak.
Third, the central mothers of all countries cannot stop
As mentioned earlier, the shortfall of the US dollar in mid-September triggered a surge in repo rates, which triggered the Fed to initiate aggressive water release actions, including the release of “mass” market liquidity through OMO, and even a $ 60 billion monthly purchase of short-term debt. The situation is like a lightweight version of QE Lite. Along with the restart of the QE by the European Central Bank in November, and a series of interest rate cuts by multiple countries, it highlights that the financial market is gradually showing a “flooding flood” situation. In fact, the growth of global M2 money supply has repeatedly increased since it bottomed out in the first quarter of this year, and as of the end of November, the growth has rebounded to a relatively mid-stream position of 5%.
Because the global economy is still weak, especially the recent signs of economic growth in the United States showing signs of decline, coupled with the liquidity shortage of the US dollar can not be eased in the short term, the Fed will continue to buy short debt It is believed that Yangma will continue to actively “water release” in the coming year, and the growth rate of global M2 money supply will further increase.
However, as previously analyzed, as interest rates have been low for a long time, European and Japanese debt rates have become more severe; the central bank ’s interest rate cuts (water releases) have doubts about the substantial help to the economy, but this may be a booster for asset prices .