Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Hang Seng's Collapse And Commodities

Published 05/24/2019, 12:17 PM
Updated 07/09/2023, 06:31 AM

The Chinese Hang Seng Index collapsed early this week to new recent lows. This breakdown in China's major stock index highlights the anticipated fallout from the continued U.S./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 continued U.S./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 U.S./China while elections cause the general populations to “pause” traditional spending habits, it would suggest that we could see a continued breakdown in general commodity levels over the next 6-12+ months.

First, the Hang Seng index collapsed lower this week, prompting the U.S. and UK markets to breakdown as well. The continued rhetoric between the U.S. and China regarding the trade war is not helping the global economy. At this point, it's like watching an old-school game of "chicken” – who flinches first.

Hang Seng

Tthe 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 traders is, “do you believe the EU will be able to pick up the slack of the U.S. 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 think the EU is capable of taking on another half-trillion USD in trade debt annually right now, or ever, for that matter.

German DAX

The U.S. Dow Jones, 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 U.S. economy over the past 4+ years, is continuing to provide pricing support for the U.S. stock market and economy. As long as this continues, we’ll see strength in the U,S. stock market and US assets (such as the USD, Real Estate and debt).

Dow Jones Industrial Average

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 elections and global trade issues continue to exert pricing pressures on global commodities and trade. We think that 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 that U.S. elections, the trade war 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.

U.S. Commodities

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.

Lots of great price action to take advantage of.

Latest comments

Mr Chris give me a suggestion for silver and gold
very interesting ... you failed to mention that in the US the debt ceiling is going to need to be raised before next years budget can be agreed to. this kerfuffle will begin in october and may have a dramatic effect on USD if there is prolonged bickering in congress. when this last happened in 2011 it caused USD/CHF to plunge down to 70 ... if there is a repeat of the government shutdown to the extent that debts are not being paid it is possible to see a similar breakdown in USD/CHF near the end of this year. it could be a great buying opportunity so keep your eyes open.
The common chewing gum is: forget about debt....Everything else is "awesome"...
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.