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2020 One step back and ten step forward

By: Chintan Karnani, Insignia Consultants

 -- Published: Thursday, 2 January 2020 | Print  | Disqus 

2019 was marked by a big rise in gold, silver and palladium rise among the metals. Natural gas was the biggest looser. UK Pound or cable as we call it was nosedived on brexit but also recovered lost ground after thumping mandate to Boris Johnson in UK elections. Japanese Yen and Euro traded mostly in a range and a trend.

Indian rupee had weakened against the US dollar in 2019. There is massive disappointment among the voters after giving a second term to Modiji. Lack of jobs and bad Indian economy has cost the Bharatiya Janata Party (BJP) heavily as they have lost every state elections after the central vote. Every Indian economic number of 2019 suggested continued slowdown. Real cost of living for the masses at the end of 2019 is much higher than at the beginning of 2019. Indian economy is more dependent on local factors and less on exports so we cannot outright blame global factors as the reason for the slowdown.

Interest rate theme for 2019 was a rise in the first half of 2019 to interest rate cuts in the second half of 2019. Interest rate cut song will continue in 2020 also. I do not think inflation will be a big factor in deciding interest rate policy (except for Asian central banks).

Key Global theme for 2019 were.

1.     Trade war with China,

2.     Central banks diversifying their reserves away from the US dollar into gold and others.

3.     Increase in bilateral trade as way to get over so called US/NATO induced trade sanction/alienation.

4.     Brexit.

5.     Last but let’s not forget the mass unrest everywhere be it Hongkong or France yellow vest or India’s anti CAA movement among others.

6.     Trump and his impeachment.

7.     Last but not the least US president Donald and his market shaking Tweets.

2020 is a USA or American election year. In January Trump and his impeachment related news will be the key. Signing of US-China trade pact and further advancement (after the signing) of the same will be closely watched. Brexit and its related news will be the key for cable. US Presidential elections will be hard fought. From nomination to actual result anything can happen. US dollar Index can fall to 86 and below in 2020. I am hyper bearish on the US dollar Index in 2020. More and traders, nations and others will try and move away from the US dollar.

Over the past few years, geopolitics had zero impact on global financial markets, In 2020, geopolitics should impact financial markets. Take developments in geopolitics with a pinch of salt.

Bond yields have crashed globally in 2019, Bond yields should rise. Stable interest rates in the first quarter of 2020 should result in rise in the global bond yield. Keep a close watch on bonds.

The pace of increase in central bank buying of gold can reduce in 2020. But over 2020 will see an increase in central banks gold reserves. Gold and silver are bullish in 2020. Silver should outpace gold in 2020.

On the industrial metals front, copper prices were relatively stable in 2019. Nickel rose and should be the best performer in 2020 among all industrial metals. Global economic growth will be the key to industrial metals demand (except Nickel). Copper can be the dark horse of 2020.

INDIA: AntiCAA and antiNRC mass movement progress can be a game changer to attract foreign inflows in India. Tourism sector has been badly hit in December due to the mass stir. Global investors are investing in India as we still one the best performing economy in the world. Modiji government is on a selling spree and deep state privatization spree. Large highly profit making PSU or Navratnas as we call them will be sold in 2020. Key highly profit profitable railway route are being given to private operators. These are just examples. Foreign inflows will be very high in India this year, irrespective of the Indian economy performs.

Indian rupee is fundamentally bearish against the US dollar. RBI will be closely watching the rupee for overvaluation or undervaluation in REER and NEER terms. I expect rupee to gain only in the second half of 2020 against the US dollar. Risk will be drought in India or a bad monsoon rains.

Your stock value is down, even though the Sensex and Nifty have risen and near a historical high. Mid caps and small caps should see a reversal in bearish fortune to bullish trend. However so called January curse for Indian stock markets can be there.

Opps, I forgot to write about crude oil and natural gas. Natural gas is short term bearish and long term bullish. I will prefer to buy far dated NG call options. The pace of rise of crude oil will be the key. A sustained rise and quick rise in crude oil can take global economy to ransom. Energy price trend will be the key to Asian currencies and global economy.

Conclusion: Every tom, dick and harry is bullish on global economy and global stock markets for 2020 or this year. There is hope that lower interest rate cuts for last year will start to have a trickledown effect. People are also hoping that sense will prevail among global politicians and end to trade war will be there this year. If the global economy disappoints and/or trade war escalates further, then stocks will plunge. The state owned plunge protection team (PPT) in every nation will be ineffective. Jobs and reduced cost of living can only prevent global mass unrest. Gold and silver will rise irrespective of all the factors. De-dollarization theme will continue in 2020 and further years.

I have not mentioned anything about crypto currencies. Crypto currencies should get more and more mass reach. More and more nations will be forced to legalize crypto currencies. Right now the momentum is very bearish for all crypto currencies.

Remember that the factors which moved financial markets in 2019 may or may be effective in 2020. It is your money.

Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees  have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared by Chintan Karnani

Disclosure: Insignia consultants or it employees do not have any trading positions on the trading strategies mentioned above. Our clients do have positions on the trading strategies mentioned in the above report.

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