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Markets Poised For A Rebound?

Published 10/11/2022, 09:02 AM
Updated 05/27/2024, 01:10 PM

EU and US Futures are in negative territory for the 4th consecutive session. The trade war between the US and China seems to have reemerged.

Updates released Friday evening by the Department of Commerce's Bureau of Industry and Security (BIS) include new restrictions on 'the ability of the People's Republic of China (PRC) to purchase and manufacture certain high-end chips used in military applications.'

The measures aim to reduce the ability of the PRC to obtain advanced computer chips, develop and maintain supercomputers and produce advanced semiconductors. The update stated, 

"The PRC uses these elements and capabilities to produce advanced military systems, including weapons of mass destruction; improve the speed and accuracy of its military decision-making, planning and logistics, as well as its autonomous military systems; and commit human rights violations."

Meanwhile, the Federal Reserve can lower inflation 'quickly' without plunging the US economy into recession, Chicago Fed Chairman Charles Evans said Monday at the National Association for Business Economics annual meeting in Chicago, Illinois.

According to a slew of his colleagues, Evans believes the Fed needs to 'raise rates further and hold that stance for a while in its quest to bring inflation to its 2% target.

The Fed was clear it would continue with tight monetary policy.

Nasdaq 100, S&P 500, DAX, FTSE MIB, And Ibex 35 Outlook

Despite the negative news, I expect a rebound in the indices, with the recession already priced into current prices. Markets always price worst-case scenarios four months earlier.

For a rebound, I like the FTSE 100, which could benefit from the boost the Bank of England provided. The central bank has announced further measures to ensure financial stability in the UK, strengthening its intervention in the long-term bond market.

Oil: Prices are held back by the expectation of a weakening demand due to the monetary tightening in place in the United States.

But there is also news coming from the health front. In the mining center of Shanxi, in northern China, restrictions on travel have been introduced after the outbreak of Covid-19.

With last week's big production cut, we will see a price of $100 by the end of the year.

Enel (BIT:ENEI): The stock is in free fall, with prices at the lows of 2017.

In my previous articles, I advised against investing in this sector due to the policy of taxation of extra-profits, an approach proposed by the EU as early as August and followed by the Draghi government.

This fiscal policy is bad for companies in the sector, as it constitutes a big question mark about profitability. This is combined with Enel's main problem, which is high debt.

Goldman Sachs agrees, cutting the target price. According to my model, the stock is worth € 3.85, values ​​that we will see shortly.

IAG (International Airlines Group (LON:ICAG): The aviation sector is at historic lows, the sector is penalized by the price of oil, which has a huge impact on the balance of the company, which already has a high level of debt.

Analyzing the sector, the companies placed better than the others where a purchase could be made are Jet2 Plc and Norwegian Air Shuttle Asa.

Bitcoin: The European Central Bank is studying ways to settle transactions between banks on a blockchain to maintain control of the money even as lenders switch to distributed digital ledgers.

In reality, this is not good news for Bitcoin, as they are working on setting up a digital ledger based on using cryptographic tokens linked to a conventional currency. Bitcoin has not been named.

Moreover, the response project - the so-called digital Euro - positions itself precisely against Bitcoin. With these conditions, it makes sense to invest in Bitcoin only from a speculative point of view.

The direct correlation with the NASDAQ is strong, so I expect some increases in the following months, as Bitcoin will follow the index.

Gold: Outflows from the quintessential safe-haven asset, gold, are at record levels, with investors fleeing to government bonds, as they offer much larger returns.

Furthermore, with the Fed's restrictive policy in full swing, gold is an instrument not to invest in, its value being $1,650.

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