Stock market this week
Latest update: 13-10-2019 17:04
The earnings season
This week the earnings season will really begin. Last week was dominated by trade negotiations between the US and China. All sorts of rumors and hectic around that trade consultation.
The end result is a first-phase deal that needs to be negotiated further in the coming 3 weeks. Behind the scenes, the FED had to make every effort last week to keep the American financial system up and running.
Investors were happy with the trade heap and therefore stock markets had a good week. However, I have my doubts. Reason enough to take a look under the carpet.
The trade deal
According to Trump, there is a first phase trade deal that needs to be negotiated further in the coming 3 weeks. It is a very opportunistic description. You only have a deal when everything is ready. If you still need 3 weeks to negotiate, there is no deal yet. That makes it very vague.
The principles for that deal make it incredible. Agreements about intellectual property are said to be in the deal. This is an important point for the Chinese they don't like to sign for.
Agreements would also have been made financially. It would be good news for US banks, according to Trump. In addition, the Chinese are going to buy 40 to 50 billion worth of American agricultural products.
What do the Chinese get back in return for all that? The Americans are not going to raise an import rate from 25% to 30% on Tuesday. However, all import tariffs that have already been imposed will continue to exist. And on December 15, the Americans will simply levy even more import tariffs.
All sanctions against Chinese companies will also be enforced. It would be a very bad deal for the Chinese. So bad that they will never agree.
The Chinese know very well that they have 2 cards. Trump needs the support of American farmers to be re-elected. However, the fate of those farmers is in Chinese hands. In addition, the US national debt.
The Chinese were always the biggest buyers of US government bonds. If the Chinese no longer want US government bonds, other buyers have to fill the gap. That will put pressure on the American financial system.
An American financial system that has been running on emergency aid from the FED for 3 weeks. I think the chance of such a first-phase deal is very small. We will know more in 3 weeks. The advantage for now is that investors no longer see the trade war as a problem.
It started with some emergency aid for the repo market and for a short period. That period has since been extended 2 times, certainly till the end of January. In addition, this week the FED will immediately start a new QE of 60 billion a month.
However, it is now not a QE but a technical program. The name doesn't matter it's just printing money. Last week, the FED also watered down a number of rules for banks. They may now be a bit weaker and may take a little more risk.
So many measures in such a short time and also in between meetings. That is unprecedented. There must be a lot going on. Chinese buying or selling fewer US government bonds may be a reason. Problems with American banks is also a possibility.
This week the major American banks are coming with figures. Maybe we will learn a little more then. Many investors see those FED interventions as positive for the stock market. I think, however, that most money will be needed to close the gap. Then little of it will end up on the stock exchanges.
There are 2 major risks. Further escalation and the reason why there is suddenly such a big financial gap. I am not afraid of the collapse of the American financial system.
The FED will continue to print all the required money. Given the financial crisis of more than 10 years ago, fear among consumers and investors can play a role.
The gold and silver price
That first phase trade deal was not good news for the gold and silver price. If there are doubts about that deal, the gold and silver prices can rise again. More important are the actions of central banks.
The ECB already came with an interest rate cut and a new QE. The FED has already lowered interest rates twice this year. In addition, all kinds of emergency handles and this week the start of a new QE.
Reducing interest rates and printing money is all excellent news for the gold and silver price. Once started, campaigns by central banks usually last for several years.
There are still many interest rate cuts (FED) and money printing programs (FED and ECB) to come. And the gold and silver prices will continue to rise.
The stock market forecast for this week
The brexit can provide a surprise. A brexit deal seems possible. Then it must happen this week. A delay also makes a chance. A hard brexit certainly does not seem to be coming.
If there is a brexit deal this week, then stock markets can go up considerably. This week will also be dominated by the company figures. Given the problems with the American financial system, I am particularly curious about the figures and explanations of American banks.
Just like last week, it can again be a hectic week. With daily updates I will keep you informed.
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Brexit, company figures and economic figures will determine the direction of the AEX this week. The AEX has been in bandwidth 530 - 585 since March this year. As long as the AEX has not left that bandwidth, the movement remains sideways.
Even if the AEX rises or falls strongly within that bandwidth, it does not say anything. A neat brexit deal or (I have little hope) a trade deal between the US and China can make the AEX rise above 585. A successful earnings season (will be difficult) is also possible.
Anyway. If we succeed in getting the AEX above 585, we will get a very powerful end-of-year rally. The AEX will then rise above 600.