Don’t panicBy Peter Rosenstreich
The current ‘risk off’ environment has the market in a false tizzy. Yes, the USA is in a late business cycle, but Europe, Japan and China are in an early to mid-stage cycle. Weakness in America will be offset by strength elsewhere. Worries of premature interest hikes are unfounded. It took years for the US Federal Reserve Bank to evolve its tightening: other central banks will emulate this approach. Relatively speaking, loose monetary policy will continue in 2018. And this supports further risk taking.
$550 billion up in smoke: cryptos plungeBy Arnaud Masset
The cryptocurrency market sank deeper on Tuesday, on fears that China will ban them and South Korea and the USA will regulate them. Talk is that the Chinese government is on the cusp of blocking domestic access to foreign exchanges and websites that provide initial coin offerings. South Korea’s Finance Minister said there will be no ban, but that his government “will impose strict regulation for negative use cases of cryptocurrencies.” In hearings of the US Congress, officials of the Commodity Futures Trading Commission and the Securities and Exchange Commission called for federal oversight of crypto trading platforms.
Amidst the uncertainty, Bitcoin broke its 200-day moving average of US$6,275 to the downside and even undercut $6,000 during the Asian session. Market capitalization of cryptos fell more than $100 billion in the last 24 hours to $280 billion. Since the all-time high of early January, over $550 billion went up in smoke. Over the last 30 days, this is an average decrease of $18 billion every day.
European economy improvesBy Vincent-Frédéric Mivelaz
As equities lost more than 4% in the US and Asia, the EU barely dropped 1.26%. Part of the relative strength was signalled by the European Central Bank, which confirmed the economy is growing and inflation is expected. Quantitative easing is still scheduled until September 2018, 2017 core inflation ended the year at 1.30% and EU 10-year bond yields are steady at 0.736%.
In the context of a weaker greenback, we see EU inflation as suppressed and bond yields maintained. European markets remain attractive for now.