FXTM Chief Market Strategist Hussein Sayed comments on the S&P 500 breaching the $20 trillion market cap: Is 20 your lucky number?
After the Dow Jones Industrial Average spent almost two months making headlines before triggering the 20K benchmark, a new headline hit the wires yesterday with S&P 500 breaching the $20 trillion market cap. In numerology, the number 20 points to constant changes and rising ambitions. For German theologian and mystic, Jacob Boehme, described the number 20 as “belonging to the Devil”, however, for an investor, this number represented more than 9% in returns on U.S. equities since the U.S. elections.
Same factors that pushed U.S. stocks since November 9 are again providing momentum after President Trump promised last week a phenomenal tax plan to be announced soon, but the greenback ignored the equities rally as all market participants will keep an eye on Yellen’s speech later today when she testifies before congress.
The sideway price action in the U.S. dollar for the past three trading days suggests two things, either markets believe that Yellen won’t reveal any new hints, or they’re waiting for a sign to react upon. If she does indicate that the U.K. is ready to act as soon as March, we may see a decent rally in U.S. yields that’s going to support the U.S. dollar and probably limit any potential gains in equities.
Micheal Flynn Resigns
Michael Flynn, the U.S. national security adviser sudden resignation late yesterday also seems to be impacting financial markets.
The dollar declined slightly after the news broke out and Asian equities gave up on earlier gains. Market’s don’t want another source of uncertainty and the big question now is whether Trump’s Russian scandal ends here or it’s just the first domino to fall.
Inflation on the rise
On the data front, China’s producer prices rose more than expected by 6.9% in January to hit its highest levels since August 2011, meanwhile consumer prices also grew at the fastest pace in about 3 years hitting 2.5%.
The rise in food prices, energy, and raw materials is spreading across the world, and this will raise many concerns on how longer will major central banks deny the fact that inflation is back.
Germany which also saw inflation on the rise hitting 1.9% in January, reported its second GDP reading which confirmed that the economy grew at its fastest pace since 2011 at a rate of 1.9%, however, the unadjusted data came 0.5% below markets’ forecast at 1.2%.
Banks Fingered in $2trn Dirty Money Scam
Some of the world’s top banks have been found to be complicit in aiding criminals move $2 trillion in dirty money around the world, according to leaked government files.
The exposition was done by Buzzfeed News and shared with the International Consortium of Investigative Journalists (ICIJ), a group that brings together investigative journalists from around the world, which distributed them to 108 news organisations in 88 countries.
In the revealing documents, they said: “global banks including JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank, Bank of New York Mellon, among others defied money laundering crackdowns by moving staggering sums of illicit cash for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world.”
It was also revealed that they kept profiting from these powerful and dangerous players even after the United States authorities fined these financial institutions for earlier failures to stem flows of dirty money.
FinCEN is the US Financial Crimes Enforcement Network. These are the people at the US Treasury who combat financial crime. Concerns about transactions made in US dollars need to be sent to FinCEN, even if they took place outside the US.
Known as the FinCEN files, these are more than 2,600 documents which banks sent to the US authorities between 2000 and 2017 which help show that these banks raise concerns about what their clients might be doing.
They have also been regarded as some of the international banking system’s most closely guarded secrets.
Some of what has been found so far showed that JPMorgan, the largest bank based in the United States, moved money for people and companies tied to the massive looting of public funds in Malaysia, Venezuela and Ukraine, the leaked documents reveal.
The bank moved more than $1 billion for the fugitive financier behind Malaysia’s 1MDB scandal, the records show, and more than $2 million for a young energy mogul’s company that has been accused of cheating Venezuela’s government and helping cause electrical blackouts that crippled large parts of the country.
JPMorgan also processed more than $50 million in payments over a decade, the records show, for Paul Manafort, the former campaign manager for President Donald Trump. The bank shuttled at least $6.9 million in Manafort transactions in the 14 months after he resigned from the campaign amid a swirl of money laundering and corruption allegations spawning from his work with a pro-Russian political party in Ukraine.
It was also revealed that one of Russian President Vladimir Putin’s closest associates used Barclays bank in London to avoid sanctions which were meant to stop him from using financial services in the West. Some of the cash was used to buy works of art.
HSBC allowed fraudsters to transfer millions of dollars around the world even after it had learned of their scam, leaked secret files show.
Britain’s biggest bank moved the money through its US business to HSBC accounts in Hong Kong in 2013 and 2014.
The United Arab Emirates’ central bank failed to act on warnings about a local firm which was helping Iran evade sanctions.
Deutsche Bank moved money launderers’ dirty money for organised crime, terrorists and drug traffickers.
Standard Chartered moved cash for Arab Bank for more than a decade after clients’ accounts at the Jordanian bank had been used in funding terrorism.
The FinCEN Files represent less than 0.02 per cent of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017.
Mr Fergus Shiel from ICIJ said the leaked files were an “insight into what banks know about the vast flows of dirty money across the globe”. He said the documents also highlighted the extraordinarily large amounts of money involved.
SEC Boosts Investor Protection with Digital Assets
The Securities and Exchange Commission (SEC) has explained that its Digital Assets and their Classification and Treatment is aimed at boosting investors’ protection in the capital market.
Emomotimi Agama, Head, Registration, Exchanges, Market Infrastructure and Innovation of the SEC speaking on the guidelines in an interview said: “The first thing the SEC bothers about is investor protection.
“This is no different from what we have been doing. We are looking at investor protection, integrity, transparency and of course we want to make sure that the market is safe and everyone is comfortable with what is going on in the investment climate”.
Agama noted that last year the Commission launched the Fintech Road map and after that was done, it went ahead to set up the block chain virtual financial assets committee.
“These committees are both market wide and principally done to engage the market, to be able to have discussions with the market and get their buy-in into what we are doing.
“What we found out today is that a lot of persons, youths are all involved in this space and it is important that even as far as that is the case, the SEC lives up to the expectations and making sure that those people that are getting into the business are protected
“Clearly, that is our aim and the market is part of this and indeed the feedback has been wonderful. People are happy with what we are doing, being able to provide some clarity as to where we stand in terms of digital assets regulation.
“Digital assets is the next thing, our idea is not to stifle innovation, but to promote innovation within a reasonable space and that is exactly what we are doing. Section 13 of the ISA empowers us to do this and so we are doing what we have been empowered to do by law,” he said.
On what internal capacities the SEC is developing to meet the challenges of this fast changing digital financial world, Agama said “the SEC is a knowledge based institution and before we come out of this kind of initiatives, we would have done so much research.
“I need to tell you that the Cambridge Centre for Alternative Finance has been partnering with the SEC and up to this point, we have been engaging with them and several of our staff have been part of their programmes.
“The World Bank and other institutions are also working with us on Fintech to see that the Nigerian landscape is not left barren but guided with basic principles, we will not leave any stone unturned, but ensure that everyone within the SEC that has the responsibility to guiding investors and the populace in making sure we have an investment environment that people will be proud of is provided.
“Capacity building is a continuous exercise, we will continue to upgrade ourselves, we will continue to learn because knowledge is for life”.
Rising Covid-19 Cases Keep Risk Assets Under Pressure
By Hussein Sayed, Chief Market Strategist at FXTM
Equity markets kicked off Monday on the back foot following three weeks of consecutive declines in US stocks, which marked the longest weekly losing streak since 2019. Investors are becoming increasingly worried about the momentum in the economic recovery given the resurgent numbers of global Covid-19 cases and lack of progress on a new US stimulus package.
Although President Trump signaled his readiness to back a bigger stimulus bill last week, the Supreme Court’s empty seat left by the passing of Ruth Bader Ginsburg is likely to complicate the matter. The fight between the President and Congressional Democrats on whether to fill the vacant seat now or wait until after the election is expected to lead to more delays in reaching a middle ground on a new fiscal package. Hence, we would expect that the much-needed stimulus will be pushed back until after the US elections.
Given that the list of uncertainties is growing, especially on the pandemic front, risk is now skewed to the downside. We have US elections just around the corner, hefty valuations in growth sectors despite the recent correction and the high stakes of possible national lockdowns in the UK and elsewhere all pointing to waning momentum in the economic recovery. All these factors indicate more volatile times for the next several weeks.
Datawise, investors need to keep a close eye on September’s flash PMIs coming out of Germany, France and the UK this week for further indications on how the big European economies are faring following the strong rebound in early Q3. Signs of weakness here will be a strong signal that the economic recovery is indeed losing its way and further action is needed from fiscal and monetary policymakers.
Currency markets are not yet reflecting the risk aversion seen in equities. The Dollar is trading slightly lower against its major peers, with the DXY -0.15% at the time of writing. The Fed is clearly the winner among other central banks in providing the most accommodative monetary policy, which means the long-term projections for the Dollar remain to the downside. However, if the selloff in US equities accelerates this week, expect the greenback to regain some support.
In commodity markets, Brent fell by 1% after trading slightly higher in early Asian trade. The battle between the bulls and bears is keeping prices rangebound between $40 and $45. At this stage, the demand outlook is far more important than the supply side. That’s why oil traders need to keep a close eye on the trajectory of the virus, especially if it’s going to lead to renewed lockdowns. Gold is also another commodity stuck in a narrow range as traders await new clues on the Fed’s policy approach towards inflation. This could happen later this week as Chairman Jerome Powell may provide new hints when he appears before the Congress on Tuesday.
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