China Hang Seng Index Collapses and Commodities24th May 2019
The Chinese Hang Seng Index collapsed early this week to new recent lows. This breakdown in the Chinese major stock index highlights the anticipated fallout from the continued US/China trade war. Recent data from the Chinese property market and corporate bond markets suggest a broad slowdown in economic activity which may surprise many foreign investors in the weeks/months to come.
Partner this continued economic weakness with the EU Elections and the continued US/China trade issues and we almost have a perfect storm for commodities such as Oil, Copper and other industrial/transportation related shares. If the trade continues to collapse between the US/China while elections cause the general populations to “pause” in traditional spending habits, it would suggest that we could see a continued breakdown in the general commodity levels over the next 6~12+ months.
First, the Hang Seng Index collapsed much lower this week – prompting the US and UK markets to breakdown as well. The continued rhetoric between the US and China regarding the Trade War is not helping the global economy much. Yet, it must continue to some conclusion before the planet can begin to move forward. At this point, it is almost like watching an old school game of” Chicken” – who flinches first.
Overnight, the German DAX also collapsed. It is obvious that enormous tensions persist within the EU with the elections hitting now and over the next few days. The broader concern for skilled traders is “do you believe the EU will be able to pick up the slack of the US Trade War with China??” If you honestly believe the EU and other foreign nations will be willing to pick up $400B+ USD of trade immediately, we suggest you grab a cup of coffee and watch what happens over the next few weeks with the EU elections, global markets, and economic data. We don’t believe the EU is capable of taking on another half-trillion USD in trade debt annually right now, or ever, for that matter.
The US Dow Jones Index, even though it has shown some weakness recently, has still held up quite well. We believe the Capital Shift, where foreign capital has been rushing into the US economy over the past 4+ years, is continuing to provide pricing support for the US stock market and economy. As long as this continues, we’ll see continued strength in the US stock market and US assets (such as the US Dollar, Real Estate and Debt).
Commodities, on the other hand, appear to be under severe pricing pressure. We recently authored a series of research posts regarding Oil, Gold and other commodities. We believe the global commodity index could continue to fall further, as these elections and global trade issues continue to exert pricing pressures of global commodities and trade. We believe Oil could fall back to levels below $50 ppb and that Gold an Silver are already 20~30% undervalued. One does not need to be hit on the head to understand the US elections, the trade wars and all the other issues currently executing across the planet may create a perfect storm for certain commodities and global stock market sectors driving prices much lower before they get any better.
If the Commodity Index breaks the current support level, we could see a much broader breakdown in the global stock market, Oil, Copper, Trade, and many other global trade-related issues (retail, housing, corporate debt, and others). Pay attention because this is going to get very interesting over the next 4~6+ months.
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Chris Vermeulen – TheTechnicalTraders.com
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