Stock market this week

Latest update: 13-06-2021 20:31

The week of the Fed

Most stock markets had a very good week last week. Quite remarkable considering all the setbacks. US inflation appeared to be rising sharply. Yet investors suddenly had no interest rate hike fear at all.

In China, there are again a number of corona outbreaks that significantly disrupt exports and international shipping traffic. No effect on the stock markets here either.

The plan to make companies pay at least 15% tax everywhere was taken for granted. While this will hit the profitability particularly hard at the large tech companies.

Above are three things that are each capable of giving stock markets a significant knock down. That didn't happen. A number of stock exchanges even set new records last week. Not that there was much power behind those increases.

In fact, most markets have been moving sideways since March. The fact that, despite the setbacks, stock markets have not started to fall is a sign that investors no longer see any risk. The feeling that there is only one direction and upwards dominates everything. Experience shows that this often ends less well.

Asian tigers and a black swan

A black swan is an unexpected negative event. Asian tigers was the name given to a large group of Asian countries that experienced tremendous economic growth in the 1990s. This ended in 1997 in the Asian crisis.

The reason was then; too high debts and often in foreign currency, too much spent on infrastructure and it is no longer possible to keep the local currency at a certain level against the dollar. About the same is happening again.

This mainly concerns Asian countries that depend on exports and especially tourism. Until corona, these countries did pretty well.

Economic growth, a lot of investment in infrastructure, but with the downside already rising debts too high in 2019. And then came corona. The tourism industry was hit hard and exports were hit.

In general things are going reasonably well with exports, that's not the big problem. Tourism is still 0. That ensures that those countries have gone or may go from a current account surplus to a deficit. What causes that?

Tourists buy the local currency to spend there. Export has the same effect. Those tourists have disappeared, which means that the sum of tourist expenditure and exports is considerably lower. So foreigners buy less of the local currency.

That will weaken the local currency. They will want to prevent that. Until the moment that it no longer works and the local currency suddenly collapses, just like in 1997. That in turn is reason for the local central bank to raise interest rates.

That while debts are already sky-high and are almost unbearable because of a bad economy. Debts entered into in a foreign currency are no longer manageable at all.

Since there is no prospect of mass tourism there due to backlogs in vaccination, this risk is increasing.

My expectation is that this will become a major problem in the second half of this year. Asian holiday countries in trouble and local Asian banks that could go bankrupt.

What will the Fed do?

I don't expect anything. In the sense that the rising inflation is not going to be tackled. But what Jerome Powell has to say is going to be very important. Every word about whether or not an interest rate increase in the future will be weighed on a gold scale.

It will not be an action but a communication meeting. Will Powell succeed in properly informing investors, that is the big question. A miscommunication and markets can go either way.

The gold and silver price

Fully dependent on the FED for this week. The clearer the FED is about no rate hike, the better it will be for gold and silver.

The weekly forecast for the stock markets

The FED will play an important role. The big picture for me is still that the market will turn from investing to consuming.

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The weekly forecast for the AEX

An all-time high last week. That sounds good. In practice, however, we have only made a few dozen points since the end of March. Stock markets and the AEX are simply due for a correction. That's nothing negative.

Corrections are necessary to allow markets to rise further with extra strength. A strong rise always starts after a sharp correction. And never really from hanging around a top for months. When will that correction come? It could be this week but it could also take a little longer.