An Investor Perspective On New Crown Prince
One Crown Prince shipped out and the other shipped in. Mohammad bin Salman has become the crown prince of Saudi Arabia. He is by far the most famous prince, mainly due to his efforts to diversify the Saudi economy with his new vision.
However, his strategic policies as defense minister did not yield any peaceful outcome. In fact, it would not be far-fetched to say that Saudi Arabia has become a more unstable country under his command, and with him being in a new position, the situation would only become worse. The conflict between Saudi Arabia and Iran would further escalate due to his inexperience and outspoken habits.
From an economic perspective, the first element that investors seek is stability in the country. Unfortunately, we do not see Saudi Arabia becoming more stable if the crown prince carries on with his policies and strategies. The outcome would create more pressure on the Saudi currency and stock market in the coming time.
Increasing military power is not the answer that will bring the peace in the region, but working on the emerging issues and addressing the existing ones through more peaceful and strategic ways is the answer. Traders would continue to keep a closer eye on Saudi Arabia going forward and if the country gets further wrapped up in more wars, it would irritate investment community.
Carney And May Slams Sterling
Back in the UK, Queen Elizabeth II delives her speech today and investors will pay attention to the legislative program that she will outline. As for Theresa May forming a majority government with Northern Ireland, the best you could say is there is hope of some sort of silver lining. The process of sharing power with DUP has been dragging on and is creating more uncertainty.
In terms of economic data, one thing that is crystal clear is the weakness in consumer spending and retail sales data and if the upcoming public finance for May shows feeble growth in VAT receipts, it will rubber stamp the fact that things are going downhill.
Mark Carney has slammed the rate-hike expectations to the bottom and this has taken the toll on sterling. It is clear that he does not feel there is any immediate need to hike the interest rate and he feels more than content with the current level of inflation. Yes, higher inflation is having an influence on consumer spending but at the same time, the bank has no indication how Brexit will weigh on the economy. The UK has a weak position in the opening EU negation round and Theresa has lost her majority. There is still no meaningful evidence that she would be able to strike a deal with Northern Ireland's DUP party and if she forms that, her position is already a lot feebler as compared to before the election. Investors are meticulously paying attention to these details and trading the currency accordingly. Sterling mostly traded towards the low of the day and we do think that the trend is skewed to the downside and it could touch the level of 1.24 soon.
Oil In Bear Territory
The API inventory data hasn’t brought any good news for oil traders either. The price may not even stop after breaking the November lows (42.20). Investors are becoming a little anxious toward the rising production out of Libya, however, OPEC has stated it before that the production level out of Libya is already taken into account as part of their production cut strategy. Saudi Arabia also reported higher export data on Tuesday. It is important that not only production cuts are under control but also the export numbers as well.
The price has entered bear territory as it is down nearly 21% from its February highs. The death cross under which the 50-day moving average crosses the 200-day moving average from the top is very much in play and this continues to show a sign of strength for the bearish trend. Crude oil inventory data remains the major denominator for the oil price and we do see that the supply has gone even higher, which would serve as a catalyst to push the price towards the 42 mark.
China A Share Gets Green Light
China stock market is gigantic and the country is making all the right steps. Investors welcome the news that MSCI has finally decided to add China A share to its emerging-market index.This is going to bring fresh capital inflows and opens the room for further integration. The Chinese economy has by far improved and this comforts investors. But the liquidity tightening by the central banks could jeopardise a number of small firm’s balance sheet due to high leverage. If that happens that would have an adverse impact on the index. But for now, we do see this as a catalyst to attract new capital.
Tax Reforms Could Be The Only Answer For Equity Markets
Trump's tax reforms and infrastructure plans can provide fresh oxygen for the equity market, however, there is still no signs of adequate information from his administration which can make traders more comfortable. Delay would only cause more turmoil and words only are not going to do the job. It is time to show some action.