The alert over the novel coronavirus eased at a WHO press conference. The pound rose on the completion of the ratification of the withdrawal agreement and the Bank of England's decision to keep interest rates unchanged.
Investment Salon"Emori Tetsu's Real Trading Strategy"Here you can review at a glance the information analyzing many markets including stocks, bonds, and currencies that is distributed via the newsletter. This enables you to effectively utilize Emori Tetsu's recommendedGlobal Macro Strategywhich you can apply effectively.
◇About Global Macro Strategy
The investment strategies introduced in this newsletter belong to the "Global Macro Strategy" category in the hedge fund industry. This is the method hedge funds around the world are most proficient at, the so-called gold standard of hedge fund management.
In this strategy,you monitor all markets and seek investment opportunities to earn profits. Regardless of whether market prices rise or fall, if price fluctuations are anticipated, you bet on them (take a position).The higher the volatility, the more profits can be expected, so when opportunities arise we attack boldly.
In a world where conditions are uncertain, price swings in major markets such as currencies, equities, interest rates, and commodities have become even larger. As a result, predicting each market has become extremely difficult. In such market environments, a macro perspective that deploys across a broader range of markets—i.e., a "Global Macro Strategy"—is advantageous.
(Emori Tetsu's Real Trading StrategyQuoted from)
This time we will excerpt from the newsletter distributed on January 31, 2020 at 8:15.
〔EQUITY & BOND MARKET〕
[U.S. & Europe Stocks & Bonds Market: Market Commentary & Analysis]U.S. stocks finished higher as concerns about the novel coronavirus eased toward the close and buying resumed, with the Dow Jones Industrial Average rising for the third straight day to close at 28,859.44, up 124.99. The S&P 500 rose 10.26 to 3,283.66, and the Nasdaq Composite gained 23.77 to 9,298.93. The VIX fell 0.90 to 15.49, and the SOX declined 2.90 to 1,855.80. Worries about the pneumonia outbreak from the new coronavirus kept selling pressure into the close. In China, late on the 30th, cases surpassed 8,000, and in the U.S. there was the first confirmed case of human-to-human transmission that day. Nevertheless, the U.S. Centers for Disease Control and Prevention (CDC) stated that "the immediate risk to the general American public remains low." After the WHO declared a global health emergency in the afternoon, Tedros Adhanom Ghebreyesus explained that there would be no travel or trade restrictions advised for the affected areas. With concerns about the economy easing, there was a late rally and the market closed in positive territory.
Britain will leave the EU on the 31st. This marks the first case of a member state's departure from the EU. On the 29th, the European Parliament approved the Brexit Withdrawal Agreement, which the U.K. and EU had agreed in October last year to avoid a no-deal Brexit. The U.K. side saw the law enabling the implementation of the agreement enacted on the 23rd. The agreement was ratified on the 30th.
【U.S. Stock Trading Strategy】
U.S. stocks rebounded on the WHO press conference. Still, it is clear that there is not yet a situation to be optimistic about. However, being overly pessimistic would just cause you to miss investment opportunities. Maintain a steady stance of buying on dips. The market will make decisions based on various factors, but as repeatedly noted, the U.S. is acting based on its own economic conditions. Global investors also know that the U.S. is the safest investment destination. Capital flows toward the U.S. will likely keep U.S. stock performance well ahead of major indices in other countries for the time being. If global stocks fall, while other countries’ indices may be shorted, continuing to buy dips in U.S. stocks will, over the long term, grow assets.
There are concerns about the virus expanding in the U.S., but the impact is not yet clear, so avoid excessive worry. It is certain that the virus is not a factor that will lift the economy. Investors tend to panic-sell when faced with such news, but that is exactly when investment opportunities arise. If there is a heavy sell-off, valuations will fall and overhyped prices will be corrected. Then U.S. stocks will become even easier to buy. U.S. stocks are not cheap now, but when prices move toward being overvalued, that is when prices tend to rise the most. Considering the global manufacturing PMI cycle and the OECD leading economic indicators, an economic expansion through at least mid-year seems likely. In such times, panicking and selling would be highly wasteful.
【Japan Stocks & Bonds Market: Market Commentary & Analysis】
The Nikkei Stock Average fell 401.65 points to 22,977.75, and the TOPIX dropped 25.18 points to 1,674.77, with both marks sliding sharply. The ongoing advance of the novel pneumonia outbreak in China lifted concerns about worsening economic conditions, dampening risk appetite and spreading selling to export-related stocks. 84% of issues fell, 14% rose. Trading volume was 1.36771 billion shares, with turnover of 2.5135 trillion yen. Sector-wise, declines were notable in electrical machinery, glass and stone products, and machinery; gains were seen only in securities and commodities futures. SCREEN Holdings and shares like Tokyo Electron, Advantest, Sony, Canon saw notable declines. The Nikkei ended the session below the key 23,000 level. There are voices in the market that a downtrend has entered. Death toll from the novel pneumonia in China reached 170, with confirmed cases exceeding 7,700. While expectations of a bottom had risen, the 2019 4Q–12Q results now being released do not appear to be strong. Moreover, declines appear to have triggered intermittent selling by overseas investors, suggesting a risk-off attitude toward Japan's virus sensitivity.
〔CURRENCY MARKET〕
Dollar/yen continued to fall into the upper 108s as investors bought the yen for safety amid ongoing concern about the spread of the novel coronavirus. Reports showed that the number of pneumonia infections in mainland China surpassed 8,000, and the U.S. confirmed the first human-to-human transmission that day. The pace of new infections remained rapid, fueling demand for safe assets, and USD/JPY briefly fell to 108.58. However, the CDC reiterated that the risk to the general American public remains low, and after the WHO declared an international emergency, there were indications of renewed interest in the yen being sold as concerns about the economic impact faded somewhat. EUR/USD traded around 1.1026–1.1036. The safe-haven Swiss franc rose. The yuan briefly fell below 7 yuan per USD, the weakest in about a month.
The Bank of England’s Monetary Policy Committee met on the 30th and decided to hold the policy rate at 0.75% by a 7–2 vote. The vote reflected expectations that, since the December 2019 general election, Britain’s economy had shown signs of improvement and global growth had stabilized, reducing the need for immediate stimulus measures. Market sources suggested there had been more than 100 million pounds of buying in pound futures just before the announcement. One minute before the release the pound traded at 1.3024 per dollar, and one second before the release it surged to 1.3075.
Britain's economy had been a concern, but a rate cut was avoided just before Brexit on the 31st. MPC external members Haskel and Saunders had urged a 0.25% rate cut. They had also pushed for a similar cut in November–December last year. The QE gilt purchase program was kept at 435 billion pounds.
In the statement, BoE said that with Prime Minister Johnson's Conservative Party winning a landslide in December and reduced uncertainty about Brexit, surveys of business activity had improved and investment appetite had recovered. With the government's planned stimulus measures in March, a rate cut at this time was deemed unnecessary. It did note, however, that if domestic and global economies stagnate, supportive policies would be needed, leaving room for future rate cuts.
【Currency Trading Strategy】
We will maintain a short position on USD/JPY. A rebound seems likely, but we will wait for confirmation. The market remains wary of the virus' impact. We will monitor how the market responds to the WHO briefing over the next day. If stock prices recover, USD/JPY may be bought. What concerns us is that infections have been confirmed in people who have returned to Japan. We hope infections do not spread domestically. USD/JPY is barely supported around 108.80. If it can recover to the 109 level, it may move higher again.
GBP/USD rose again. The day of Brexit has finally arrived. Future trade talks look likely to be difficult, but since Britain has left, we must proceed calmly. The MPC kept rates unchanged, which supported the pound. The downside is likely to be firm. The long-term trend reversal point is 1.2805. The theoretical value of GBP/USD at end-December last year was around 1.5470; it has been lifted considerably. The current level is certainly undervalued. We maintain the view that it will approach 1.50 in due course. A double bottom has already formed, making a long strategy reasonable as a baseline.
〔COMMODITY MARKET〕
【Precious Metals Market: Market Commentary & Analysis】Gold prices rose. Concerns about the global slowdown driven by the outbreak centered in China dragged on investor risk appetite, though prices have pulled back from their highs after the WHO briefing. The rapid expansion of the coronavirus raises worries about China’s economic growth, prompting a strong shift of funds into safe-haven assets such as gold, the yen, and the Swiss franc. Market expectations suggest that U.S. Treasuries and gold will remain favored trading targets for the time being. Fed Chair Powell, at the press conference following the January 29 FOMC, as anticipated, announced that rates would be kept unchanged, but he also mentioned risks to both China’s economy and the U.S. economy’s near-term slowdown. For now, a low-rate environment is likely to persist, supporting gold’s appeal as an asset that does not yield interest and thus helping to underpin gold prices.
【Precious Metals Trading Strategy】
Maintain long positions in gold. Concerns about the novel virus remain strong. The stock market is expected to remain unstable in the near term. In such circumstances, gold often serves as a sink for investor funds. With interest rates also low, non-yielding gold tends to be bought. Either way, gold is climbing off its lows. Prioritize holding gold. Furthermore, declines are likely to be met with buying from governments and central banks of major nations, so downside should be limited. If U.S. rates stay unlikely to rise, gold prices are unlikely to fall significantly. The current long-term trend reversal point is $1,480 per ounce, so there is still substantial room.
"Emori Tetsu's Real Trading Strategy" (Emori Tetsu)Quoted from.
Reference Chart: GBPUSD 1-hour
