Continued speculation that the pandemic is nearing the peak has
continued to fuel optimism into US financial market.Thanks to prospects
that United States will soon lift lockdown measures and produce drugs to
effectively control the coronavirus pandemic, Nasdaq was up by 6%
throughout the week, registering the largest double-week gain since
2001. On the other hand, extreme pessimism continues to loom the forex
and oil markets, while a crisis similar to the Asian financial turmoil
of 1997-98 is quietly brewing and threatens to hit emerging market
currencies.To get more news about
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While Trump said last week that the United States would lift
restrictions in phases, Japan expanded state of emergency to the whole
country, and the United Kingdom also announced an extension of the
blockade measures for three weeks, reflecting that the global pandemic
has yet to be controlled. There is also news that Remdesivir, the drug
produced and tested by pharmaceutical company Gilead, has a positive
effect in treating coronavirus patients, boosting the company's stock
price by 10%.
The Dow component Boeings share also soared 15% after the company
announced plans to restart aircraft production in Washington State. But
the foreign exchange market and the oil market have been sluggish amid
the good news, with some emerging market countries seeing devastating
crash of oil price and their national currencies.
Emerging market currencies in sell-off and ZAR has fallen 26% this year.
Some emerging market currencies have continued to record new lows,
such as the Indian rupee, the Argentine peso, the Mexican peso, the
Brazilian real and the South African rand, while the Turkish lira is
approaching historical lows. The South African rand has fallen by 26%
year to date, seeing the largest decline among all currencies. The
Brazilian real has fallen by 23%, the Mexican peso has fallen by 21%,
and the Russian ruble has fallen by 16.5%. The above data reflects that
the currencies of emerging market countries and oil-producing countries
are in a sell-off wave, facing the crisis of sharp depreciation.
When Soros targeted the Thai central bank and attacked the Thai
baht in early 1997, Hong Kong people, indulged in the enthusiasm of the
reunification with Mainland, continued to speculate in stock and
property markets and ignored signs of the fierce currency battle between
Soros and Thailand. Later the baht‘s crash triggered an unprecedented
tsunami in Asian financial market. So the sell-off in currencies of
emerging markets and oil-producing countries may be a signal that a
financial storm is looming large in these emerging markets. This
explains why the US dollar index remains strong despite US stocks’ rally
last week.
Therefore, if the emerging markets are unfortunately hit by the
financial crisis domino effect in the future, there will be another
round of dollar shortage and liquidity shortage, which will boost the
exchange rate of the US dollar and keep non-US currencies under
pressure.
A financial crisis is brewing in emerging markets and non-dollar currencies remains under pressure
In addition to the forex market, the oil market has also suffered a
heavy blow as the worst among most affected sectors. From the beginning
of the year to last Friday, closing price of WTI futures at New York
Mercantile Exchange have plummeted by 70.19%, which is definitely a
disaster. A barrel of oil is approximately 159 liters. Taking WTI
crude‘s lowest price of US$17.31/barrel last Friday, that’s 0.84 Hong
Kong dollars per liter of oil, suggesting that the price of oil fell to a
much cheaper level than water.
Therefore, at this stage, there are extremely extreme
contradictions in the financial market. The US stock market rebounded
amid optimism that the global pandemic has peaked, but at the same time,
WTI crude has suffered pressures from the economic fallout and
possibility of a recession. Some foreign banks observe that WTI will
bottom out at around US$10, I personally think that there is very little
room for oil price to plunge further.
While opinions still vary as to whether oil prices have hit the
bottom, one thing sure is that whether oil prices bottom out now or
continue to drop to the forecast US$10 level, prices wont return to
US$30 in the short term even after bottoming out, which will definitely
be a big problem for oil companies. Most oil companies, probably except
for those in Russia and the Middle East, will be losing money if the
prices remain below US$30. Oil companies in North and South America,
Europe and Asia may fall into financial difficulties and then face the
crisis of bankruptcy. I estimate that in the future, the collapse of oil
companies will repeat the collapse of investment banks in the 2008
financial crisis, and eventually off a financial tsunami.
I also cited the above example during one of the shows-the
subprime mortgage crisis broke out in the first quarter of 2007,
butLehman Brothers didnt go bankrupt immediately in the second quarter
of 2007, they collapsed in September of the following year. So I believe
that the Great Depression 2.0 derived from the coronavirus pandemic
will eventually trigger emerging market crisis, sovereign debt crisis
and the collapse of large companies in different sectors, especially
energy companies, starting from the second half of 2020. For bottom
buyers counting on a rally of oil prices, Unlevered ETF will be a good
choice.if you want know more,
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