Yen Rise May Resume as Market Sentiment Sours Anew

Yen Rise May Resume as Market Sentiment Sours Anew

TALKING POINTS – YEN, DAVOS, WORLD ECONOMIC FORUM, AUSTRALIAN DOLLAR

  • Yen drops, commodity dollars rise as risk appetite firms in APAC trade
  • Anxious commentary form Davos forum may trigger risk aversion anew
  • S&P 500 futures erase early-Wed gains, bolstering case for risk-off bias

The anti-risk Japanese Yen traded broadly lower while the sentiment-geared Australian, Canadian and New Zealand Dollars rose in Asia Pacific trade. These moves appear to be corrective in the context of yesterday’s market-wide bloodletting. The Kiwi outperformed, receiving an added boost form better-than-expected inflation data.

The upbeat mood may prove to be short-lived. Anxious commentary emerging from the on-going World Economic Forum in Davos, Switzerland may trigger another rout as leading policymakers and financial market bigwigs opine on the many headwinds facing the global economy. These include the US-China trade war, accelerating quantitative tightening and wobbly politics in much of the G10.



Tellingly, bellwether S&P 500 futures have retreated to trade flat ahead of the opening bell in London having been up nearly 0.4 percent in APAC trade. That seems to reinforce the sense that de-risking remains the dominant trajectory for global markets, with the rosier dynamics recorded early Wednesday representing digestion rather than reversal.

See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!

ASIA PACIFIC TRADING SESSION

Yen Rise May Resume as Market Sentiment Sours Anew

EUROPEAN TRADING SESSION

Europe Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

Crude Oil Weekly Price Outlook: WTI Rally Fizzles Ahead of Resistance

Crude Oil Weekly Price Outlook: WTI Rally Fizzles Ahead of Resistance

In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Crude Oil is on the defensive to start the week with price pulling back from six-week highs after rally of more-than 18.7% from the yearly / monthly open. While the threat of more near-term losses remains, the broader outlook remains constructive – here are the key targets & invalidation levels that matter on the WTI weekly chart.

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Crude Oil Weekly Price Chart (WTI)

Crude Oil Price Chart - WTI - Weekly Timeframe

Notes: In our previous Crude Oil Weekly Technical Outlook we noted that prices had rebounded from a critical support confluence with the advance targeting initial pitchfork resistance around ~50.49. “A breach above the median-line would be needed to suggest a more significant near-term low is in place with such a scenario targeting the 200-week moving average at ~52.12 and the confluence resistance zone at 55.21/53.” Crude broke higher in the following days with the advance surpassing the 200-week moving average last week.



The rally failed just ahead of confluence resistance with prices poised to register an outside-daily reversal today in New York. The immediate threat is for further losses here, but the broader outlook remains constructive while above the 61.8% retracement of the December advance at 46.91. Initial support rests at the median-line at ~48.32. Topside resistance objectives remain unchanged with a breach above 55.21/53 needed to fuel the next leg higher targeting critical confluence resistance at the 50% retracement / 2018 open at 59.61-60.06.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line:The crude oil price advance remains vulnerable near-term while below 55.21/53. From a trading standpoint, looking for a support on a larger pullback towards the median-line to offer more favorable long-entries with our broader focus weighted to the topside while above 46.91.

Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading

Crude Oil Trader Sentiment

Crude Oil Trader Sentiment

  • A summary of IG Client Sentiment shows traders are net-long Crude Oil – the ratio stands at +2.16 (68.4% of traders are long) – bearish reading
  • Traders have remained net-long since October 11th; price has moved 26.7% lower since then
  • Long positions are 7.2% higher than yesterday and 10.5% lower from last week
  • Short positions are 3.7% lower than yesterday and 7.0% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Crude prices may continue to fall. Yet traders are more net-long than yesterday but less net-long from last week and the combination of current positioning and recent changes gives us a further mixed Crude Oil trading bias from a sentiment standpoint.

See how shifts in Crude Oil retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

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— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

Gold Prices Look to Davos Economic Forum for Direction

Gold Prices Look to Davos Economic Forum for Direction

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices rise as US 10yr Treasury yields fall most since January
  • Crude oil prices fall with stocks as risk appetite fizzles market-wide
  • Soundbites from Davos forum, API crude inventories data in focus

Gold prices found fuel for an advance as risk appetite fizzled across financial markets, weighing on bond yields and boosting the relative appeal of non-interest-bearing alternatives. The yellow metal was slow to pick up steam as haven-seeking flows buoyed the US Dollar, but the largest daily drop in the rate on benchmark 10-year Treasury note since the beginning of the year ultimately refused to be denied.

Crude oil prices fell alongside stocks as expected as the broad-based deterioration in sentiment undermined the spectrum of cycle-geared assets. Returning liquidity rather than any singular event seemed to account investors’ dour disposition. The rebuild after a holiday market closure in the US seemed to amplify concerns about slowing global growth, ongoing trade wars and political jitters in much of the G10 space.

SOUNDBITES FROM DAVOS MAY SOUR SENTIMENT, API DATA ON TAP



Looking ahead, the on-going World Economic Forum in Davos remains a potential source of risk aversion if the policymakers and financial market bigwigs in attendance sound the alarm on the multitude of headwinds menacing global growth. A rise in borrowing costs amid accelerating quantitative tightening, ongoing trade wars and shaky politics in much of the G10 might feature prominently.

If soundbites from the gathering sour the markets’ mood, another drop in bond yields may prove to be supportive for gold prices (although again, the move might be tempered haven-bound flows into the US Dollar). Crude oil might suffer further, with any sentiment-derived weakness compounded by API inventory flow data if it reveals a larger build than the 3.13-million-barrel inflow expected by analysts.

See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices managed to hold up at rising trend line support guiding the advance from mid-November lows. Resistance is marked by the January 4 highat 1298.54, with a daily close above that eyeing a minor barrier at 1323.60 next. Alternatively, a push below trend support – now at 1281.17 – exposes the 1260.80-63.76 area.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are still marking time below resistance in the 54.51-55.24 area. Breaking above it on a daily closing basis opens the door for a test of a chart inflection point at 59.05. Alternatively, a move back below support in the 49.41-50.15 zone sets the stage for another challenge of the 42.05-55 region.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DXY Index Continues Push High on Back of EUR/USD Weakness

DXY Index Continues Push High on Back of EUR/USD Weakness

Talking Points

– Weak German ZEW data coupled with more hopes of avoiding a no deal, ‘hard Brexit’ outcome have led the Euro lower and the British Pound higher on Tuesday.

– The US government shutdown has entered day 32, and no end is in sight as neither US President Trump nor Congressional Democrats appear willing to budge from their entrenched demands.



Retail traders are fading the US Dollar rally more aggressively, suggesting that it may still have legs yet.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

The US Dollar (via the DXY Index) continues to nudge higher on the first full trading day of the week, with traders continuing to downplay the impact of the US government shutdown on the economy (“no news is good news”), even as the shutdown drags into day 32. But with the US-China trade negotiations ongoing, geopolitics beginning to rear its head again, Brexit reaching a boiling point, and political instability slowing creeping across Europe, the US Dollar is simply enjoying its place as ‘the least worst option.’

The Shape of Brexit

UK Prime Minister Theresa May has presented her ‘Brexit Plan B’ to parliament and reactions have been tepid at best. It seems that the prime minister’s renewed effort to get her deal through the House of Commons differs little than her first attempt, and by judging from the reaction of parliamentarians, it seems doubtful that ‘Plan B’ will pass muster either if a vote is held by the January 29 deadline. Reports over the weekend indicated that UK PM May might attempt to renegotiate the Good Friday Agreement, a politically fraught endeavor that would undoubtedly add a new matrix of complexity to an already overbearing Brexit problem.

At this point, if a no deal, ‘hard Brexit’ is to be avoided, it would appear that an extension beyond the March 29, 2019 deadline may be necessary. However, with the European parliamentary elections due up in July, it’s doubtful any extension to the Brexit deadline would go beyond there. Late on Monday, cross-party talks produced a bill designed to thwart a no-deal, ‘hard Brexit’ scenario by forcing PM May to postpone Brexit if no deal were reached by February 26.

Eurozone Data Continues to Sour; ECB on Thursday

Among the only important economic data due out on Tuesday, the January German ZEW Survey proved disappointing, with the Current Situation coming in at +27.6 versus +43.3 expected. The weakest reading in four years confirms the deterioration seen in proximal growth trackers like the PMI surveys. While a recession isn’t in the cards yet, evidence is starting to build that Germany, alongside the rest of the Eurozone, is seeing growth prospects cool off.

Speaking of PMIs, tomorrow, Wednesday, the preliminary January Eurozone Composite PMI is due in at 51.4 from 51.1, a modest improvement but nothing that should inspire much confidence. If anything, given the backdrop of consistent data disappointments over the past month (per the Eurozone Citi Economic Surprise Index), the risk is for the PMI readings to disappoint.

At the end of 2018, Eurozone economic data was clearly weakening, a trend that has continued thus far into the New Year: the Citi Economic Surprise Index is still deep in the red at -81.7, slightly improved from -88.6 at the end of last week, but still lower than where it was one month ago at -77.5. This is a dour backdrop for ECB President Mario Draghi and the Governing Council when they announce their January rate decision on Thursday.

DXY Index Price Chart: Daily Timeframe (June 2018 to January 2019) (Chart 1)

DXY Index Continues Push High on Back of EUR/USD Weakness

Following the holiday, the full start of the week see the DXY Index maintaining elevation above the downtrend from the December 14 and January 2 highs.Per the close at the end of last week, price is above the entirety of its daily 8-, 13-, and 21-EMA envelope for the first time since December 26; the close on Friday through the daily 8-EMA came after having failed so after failing on Tuesday, Wednesday, and Thursday. Both daily MACD and Slow Stochastics are pressing high higher (albeit still in bearish territory).

To retake the rising trendline from the April and September 2018 lows, the DXY Index would need to get back above 97.30 by the end of the coming week. To this end, more price development is needed to upgrade the assessment to fully ‘bullish,’ although no doubt the US Dollar’s near-term technical prospects have seemingly brightened.

Read more: Weekly Fundamental Forecast: Trade Wars, Chinese GDP and Rate Decision Bridge Themes and Event Risk

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

How the U.S. Could Lose a Tech Cold War

How the U.S. Could Lose a Tech Cold War

© Reuters.  How the U.S. Could Lose a Tech Cold War

© Reuters. How the U.S. Could Lose a Tech Cold War

(Bloomberg Opinion) — In 1962, at the height of the Cold War, the U.S. sought to rally its allies to block construction of a Soviet oil pipeline that would supply Red Army forces in Eastern Europe. It was an exercise in futility. West Germany grudgingly agreed not to supply high-technology pipes for the project. But Britain, Italy and Japan all rebuffed Washington’s appeals. The Friendship pipeline went ahead with only a short delay, having exposed strains in the Western bloc. Worse, from a U.S. perspective, the episode convinced Moscow to become self-sufficient in steel pipes.

Today, as the U.S. seeks to deny China access to advanced technologies — in the latest move, U.S. legislators introduced a bill last week to ban chip sales to Chinese tech companies that defy U.S. sanctions — many talk glibly of a tech Cold War, as though there are simple parallels with Washington’s efforts in an earlier era to impede the advance of a strategic competitor. That assumption not only misconstrues the Chinese economy, which is nothing like the Soviet one, but gets the Cold War completely wrong.

A key lesson from that confrontation is that it’s extremely difficult to ring-fence technologies and prevent their export to a rival. The challenge is immeasurably more complicated in today’s hyper-connected global economy. Indeed, any attempt to reprise the actual Cold War will almost certainly end up hurting the U.S. economy and those of its friends and allies as much, if not more, than China’s.

Remember that 1962 was the year of the Cuban Missile Crisis, when the U.S. and Soviet Union teetered on the brink of nuclear armageddon. Yet even then, Washington couldn’t convince its closest NATO allies to disrupt the Soviet war machine. The cynical view in European capitals was that Washington’s real goal was to prevent the Soviet Union from dumping oil in Western markets and undercutting the profits of U.S. energy giants.

Suspicions that the U.S. used sanctions against the Soviets to play commercial games dogged relations between Washington and its allies for years. The problem wasn’t military hardware — everybody agreed on the need to deny the Soviet Union munitions, as well as nuclear equipment — but, rather, technologies with both civilian and military applications. In those cases, the principle of free trade conflicted with legitimate security considerations.

To balance these concerns, a secretive group set up by the U.S. to oversee the Soviet sanctions regime — the Coordinating Committee for Multilateral Export Controls, or CoCom — met every week in Paris to adjust the lists of restricted items and haggle over exemptions. Even so, sensitive technologies leaked into the Eastern bloc from non-CoCom countries, including Switzerland and Sweden.

All this is relevant today as the U.S. tightens export controls aimed principally at China. The U.S. Department of Commerce last week closed public hearings on a proposal to clamp restrictions on 14 emerging technologies, including artificial intelligence and robotics. This is on top of a congressional bill that expands the powers of a Treasury-led committee charged with vetting foreign investments for national-security reasons. Senator John Cornyn, the Texas Republican who sponsored the bill, said it would “help put an end to the backdoor transfer of dual-use technology that has gone unchecked for too long.”

The successors of CoCom committees face almost unfathomable complexities, however. Just about every modern technology is dual-use: AI can optimize both factory production and battlefield awareness; drones can deliver bombs and missiles as well as postal packages. It’s difficult enough to define products that consist of millions of lines of software code and reams of customer data — often sitting in the cloud — let alone track their export.

Asian manufacturers worry that the U.S. effort, if broadly applied, could unravel their supply chains; U.S. patents are ubiquitous in electronic products assembled in China. Moreover, Silicon Valley is where global firms from Japan to Germany go to incubate technologies, such as driverless vehicles, which they roll out in the Chinese market. Choking off technology transfers to China risks hobbling this kind of innovation in the U.S. and driving it overseas. Simultaneous moves to restrict U.S. visas for Chinese science and engineering students only exacerbate that danger.

China is not the Soviet Union: In many areas of technology, including AI, it’s already close to parity with the U.S. And misreading the Cold War will inevitably lead to misguided policies. While the U.S.-led technology blockade may have slowed Soviet expansionism, the Soviet system ultimately collapsed under its own weaknesses — lack of innovation, a chronic shortage of consumer goods, inept central planning.

None of these are obvious Chinese failings. It’s one thing to convince China to halt its state-sponsored theft of commercial secrets, stop forcing multinationals to hand over technology in exchange for market access, and scale back its mercantilist ambitions to dominate the technologies of the future. This is only asking China to play by the same rules as everyone else as it pursues its goals.

Security concerns, on the other hand, require a different, more targeted approach that seeks to minimize both the threat and the harm to the U.S. economy. Susan Shirk, a former Deputy Assistant Secretary of State during the Clinton administration, sensibly proposes a “small yard, high fence” approach: Narrowly define technologies such as long-range radars, or advanced turbofan engines, whose loss could endanger U.S. national security, and then aggressively protect them. In a similar vein, it makes more sense to punish individual Chinese companies that benefit from technology theft rather than resort to blanket measures against entire industries.

Above all, the U.S. should focus on its own industrial competitiveness. “For every dollar we spend on containing China, we should be spending on our labs and innovation centers,” says Gary Rieschel, the founder of Qiming Venture Partners and a pioneer U.S. investor in the Chinese tech sector. He adds: “The U.S. does not do defense well.”

U.K. Parliament Moves Closer to Stopping a No-Deal Brexit

U.K. Parliament Moves Closer to Stopping a No-Deal Brexit

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© Bloomberg. A British Union flag, also known as a Union Jack, flies beside a European Union (EU) flag during ongoing pro and anti Brexit protests outside the Houses of Parliament in London, U.K., on Tuesday, Jan. 22, 2019. The U.K.’s main opposition party is backing a plan that could open the door to a second European Union referendum, bringing the possibility of stopping Brexit a step closer. Photographer: Luke MacGregor/Bloomberg

© Bloomberg. A British Union flag, also known as a Union Jack, flies beside a European Union (EU) flag during ongoing pro and anti Brexit protests outside the Houses of Parliament in London, U.K., on Tuesday, Jan. 22, 2019. The U.K.’s main opposition party is backing a plan that could open the door to a second European Union referendum, bringing the possibility of stopping Brexit a step closer. Photographer: Luke MacGregor/Bloomberg

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(Bloomberg) — The U.K. Parliament is edging closer to a plan to delay Brexit in order to stop the country dropping out of the European Union with no deal.

The main opposition Labour Party is now increasingly likely to support a move to extend the March 29 exit day deadline, if Prime Minister Theresa May fails to negotiate a divorce agreement, said John McDonnell, the party’s chief finance spokesman.

McDonnell described the proposal as a “sensible” way to avoid an economically disastrous no-deal Brexit.

If Labour does support the proposal — put forward by lawmakers including Yvette Cooper, a former minister — it is far more likely to win enough backing to be passed. That would force May’s hand and ensure she cannot take Britain out of the EU without a deal in nine weeks’ time.

Disclaimer:
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

BOJ Leaves Stimulus Unchanged as It Cuts Inflation Outlook Again

BOJ Leaves Stimulus Unchanged as It Cuts Inflation Outlook Again

© Reuters.  BOJ Leaves Stimulus Unchanged as It Cuts Inflation Outlook Again

© Reuters. BOJ Leaves Stimulus Unchanged as It Cuts Inflation Outlook Again

(Bloomberg) — The Bank of Japan left its policy unchanged as it cut its inflation outlook once again, underscoring how far away its price target is and how few options the central bank has for drawing closer.

The BOJ maintained its yield curve-control program and asset purchases, the central bank said in a statement Wednesday, a result predicted by all but one of 50 economists surveyed by Bloomberg. The bank lowered its inflation forecast for a fourth consecutive time in its quarterly outlook report.

With the European Central Bank meeting on Thursday and the Federal Reserve next week, the gap between the BOJ and its global peers keeps widening. While the Fed may hit pause soon, both it and ECB are seeking to return to pre-crisis policies, giving them more room to respond in the event of another shock or downturn.

“The BOJ is firmly sticking with its stimulus,” Takeshi Minami, chief Japan economist at Norinchukin Research Institute, said ahead of the meeting. “While the Fed is being cautious, any bullish statement by the BOJ could cause the yen to strengthen.”

In its outlook report, the BOJ cut its inflation forecast for the fiscal year starting in April to 0.9 percent from 1.4 percent.

It raised its projection for economic growth for next fiscal year to 0.9 percent. The International Monetary Fund said this week its sees the Japanese economy growing faster than previously expected, citing additional fiscal support.

Many economists expect Japan’s core inflation figure to fall below zero sometime this year, thanks to a plunge in oil prices, cuts to cell phone fees and a government initiative to provide free childhood education. Yet few expect the BOJ to add to its stimulus. Most of them think the BOJ is looking for a chance to slowly normalize policy.

With inflation sinking and risks rising, BOJ watchers will be eager to hear from Governor Haruhiko Kuroda during a news conference scheduled for 3:30 p.m. Tokyo time.

Kuroda will likely again maintain that underlying momentum toward the BOJ’s 2 percent target remains intact. Japan’s core inflation slipped to 0.7 percent in December.

Kuroda’s views on external risks — slowing growth in China and elsewhere, trade tensions, financial market turmoil — will also be in focus. Manufacturer Nidec Corp. became one of the first major Japanese companies to ring an alarm about the impact of the U.S.-China trade war, slashing its profit outlook last week due to plunging orders from China.

Another concern for the BOJ is the yen, which touched a nine-month high against the dollar this month. Some see it gaining further strength this year, which would work against the BOJ’s efforts to stoke growth and inflation.

Disclaimer:
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Can Canada Slip Into Recession Without the U.S.? BCA Says Yes

Can Canada Slip Into Recession Without the U.S.? BCA Says Yes

© Reuters.  Can Canada Slip Into Recession Without the U.S.? BCA Says Yes

© Reuters. Can Canada Slip Into Recession Without the U.S.? BCA Says Yes

(Bloomberg) — Canada’s economy may soon endure something it hasn’t faced in 68 years: A recession without the U.S. in the same boat.

That’s the view of Jim Mylonas, global macro strategist at BCA Research Inc. in Montreal, a firm that’s been making calls on markets and economies since 1949. Mylonas says the surge in household debt combined with rising interest rates will push the Canadian economy into recession, even while the U.S. economy continues to grow.

“I think we’re just on the precipice of embarking on a serious recession,” Mylonas said in an interview from Bloomberg’s Toronto office. “It’s not a matter of if, but when.”

For Mylonas, the irony is that surprisingly strong growth in the U.S. this year may push Canada over the edge. The expansion will force the Federal Reserve and Bank of Canada Governor Stephen Poloz to raise rates, he said. The debt-laden Canadian consumer is ill-equipped to handle higher borrowing costs, unlike their U.S. counterparts who dialed back borrowing following the housing crash a decade ago.

For Mylonas, the good news in the U.S. may be bad news for Canada.

“If the U.S. economy is doing relatively well and the Fed is raising rates, it’s very hard for the Bank of Canada to just sit on hold and not follow the Fed,” Mylonas said. “We’re now at the point where the Bank of Canada is going to be flirting with triggering the next recession if it hasn’t already.”

If Mylonas is right, it would be the first time since 1951 that Canada slipped into a recession without the U.S. also contracting.

Canada’s economic fortunes have always been tightly linked to its southern neighbor, the destination for about third quarters of its exports. The U.S. economy has reduced its imbalances after sparking the worst credit crisis in almost a century, led by a plunge in real estate. In Canada, which largely avoided the crash, corporations and consumers have been piling on debt ever since, Mylonas said.

The debt to disposable income ratio in Canada rose to 175 percent at the end of September, from 137 percent in 2006, before the start of the financial crisis. By contrast, U.S. household debt to disposable income was below 100 percent as of September, the lowest since 2001, according to data compiled by Bloomberg. Even at its recent peak, the U.S. ratio never topped 140 percent.

“In that 10-year period where the U.S. was on a diet, getting healthy, Canada was binge eating junk food, which is debt,” Mylonas said, adding a medical analogy. “Eventually you go to the doctor and the doctor says, ‘sorry, you gotta cut the junk food.’ That’s painful.”

Canada’s housing market is already showing early signs of fatigue, with home sales declining last year to the lowest since 2012, according to Canadian Real Estate Association. The number of consumers seeking debt relief jumped 5.1 percent in November from a year earlier, the Ottawa-based Office of the Superintendent of Bankruptcy reported on Jan. 4.

“If debt to disposable income is going to go from 180 to 130, then the recovery is going to look a lot more like the U.S. one, so shallow and long,” said Mylonas.

No Recession

To be sure, most economists and the Bank of Canada aren’t calling for a recession any time soon. The chances of a recession over the next 12 months is about 20 percent, according to a Bloomberg survey of 10 analysts released Jan. 11. Earlier this month, the central bank cut its 2019 growth forecast to 1.7 percent, while raising its estimate for 2020 to 2.1 percent. The chances of a U.S. recession is slightly higher, at 25 percent, based on 49 estimates.

Investors certainly aren’t behaving as if a contraction is imminent. The Canadian dollar has gained the most among G-10 currencies this year, while the main equity gauge has jumped 7 percent, the best start to a year since 1980.

Traders aren’t banking on an imminent hike by Poloz, who worked at BCA Research in the 1990s. Chances of an interest rate increase by May sit at about 30 percent, according to trading on futures contracts.

“If the Bank of Canada is not raising in line with the Fed, the reason it’s not raising is probably rooted in bad news,” such as weak economic growth, said Mylonas. “If that’s the case, then my thesis for Canada will play out sooner than most think.”

Ray Dalio Says Alexandria Ocasio-Cortez’s Ideas Are Taking Root

Ray Dalio Says Alexandria Ocasio-Cortez’s Ideas Are Taking Root

© Bloomberg. Alexandria Ocasio-Cortez Photographer: Jeenah Moon/Bloomberg

© Bloomberg. Alexandria Ocasio-Cortez Photographer: Jeenah Moon/Bloomberg

(Bloomberg) — She may not be in Davos, but Alexandria Ocasio-Cortez’s influence is already being felt on the slopes of the Swiss Alps.

Three weeks after the Congresswoman for New York called for an income tax rate of as much as 70 percent on the wealthiest Americans, billionaire investor Ray Dalio suggested that the idea may have legs in the run up to the U.S. presidential election.

Discussing the outlook for a slowing world economy, Dalio said that next year will see “the beginning of thinking about politics and how that might affect economic policy beyond. Something like the talk of the 70 percent income tax, for example, will play a bigger role.” He didn’t mention Ocasio-Cortez by name.

“There’s an element, yeah, where people are going to have to start paying their fair share,” Ocasio-Cortez told Anderson Cooper on 60 Minutes on Jan 6. “Once you get to the tippy tops, on your 10 millionth dollar, sometimes you see tax rates as high as 60 or 70 percent.”

That may be anathema to at least some of the global elite gathered in Davos this week. The fortunes of a dozen attendees at the World Economic Forum in 2009 have soared by a combined $175 billion, a Bloomberg analysis found. The same cannot be said for people on the other end of the social spectrum: A report from Oxfam on Monday revealed that the poorest half of the world saw their wealth fall by 11 percent last year.

Disclaimer:
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Davos Attendees Wonder, “What on Earth Is Donald Trump Up To?”

Davos Attendees Wonder, “What on Earth Is Donald Trump Up To?”

© Bloomberg. Donald Trump in Davos in 2018. Photographer: Jason Alden/Bloomberg

© Bloomberg. Donald Trump in Davos in 2018. Photographer: Jason Alden/Bloomberg

(Bloomberg) — In 2018, Davos was basking in a robust global economy as Donald Trump pledged that “America is open for business.”

One year on, the U.S. government is partially shut and the market ebullience that greeted the president’s corporate tax overhaul is a distant memory.

In the 12 months since he visited the World Economic Forum in the Swiss Alps, Trump has launched a trade war with China, slapped tariffs on Europe, weighed in on Prime Minister Theresa May’s Brexit deal, expressed understanding for France’s “Yellow Vest” protests against President Emmanuel Macron and threatened to “devastate” Turkey’s economy.

That unpredictable stance toward traditional U.S. allies and rivals alike fans geopolitical risk and ensures that Trump’s policy choices will be the talk of the retreat, even as the president skips the forum to focus on the shutdown.

“The number one question in the mind of leaders in Davos now is what on earth is Donald Trump up to?” said Tina Fordham, chief global political analyst at Citigroup Inc (NYSE:). and a WEF regular. “We’ve very clearly moved in terms of investor sentiment from the Trump bump euphoria surrounding tax cuts and deregulation to fears of a Trump slump.”

The president enters the second half of his term accompanied by an end-of-year meltdown in markets and the International Monetary Fund’s warning that “escalating trade tensions” are the biggest risk to global growth. He does so without restraining influences like Defense Secretary James Mattis, whose departure last month over Trump’s abrupt decision to pull U.S. troops from Syria reinforced the sense that his foreign policy is ever more beholden to the pursuit of “America First.”

Three Camps

Faced with that reality, world leaders are increasingly falling into one of three camps in their approach to the president, according to Stephen Walt, a professor of international affairs at Harvard University: following Trump’s lead, resistance — however futile — and trying to make the most of his policy vagaries. Yet lacking any consensus against Trump, Walt sees many leaders as engaged in a waiting game to try and sit him out.

“There is no longer this idea that he’d be reined in by the establishment and that you’d have a fairly normal administration,” said Walt. “People are now fully aware that he’s extremely impulsive and erratic and will continue to challenge the status quo. That means something different depending where you are.”

Leaders from all three camps will be present in Davos: those from traditional U.S. allies such as Canada and Germany who are resisting as far as possible in the hope they can wait Trump out; rivals from China and Russia who thought they could exploit the opportunities but have found him too erratic; and those in countries like Israel, Hungary and Brazil who have benefited from the environment around Trump’s rise.

Among the forum’s headline attractions is German Chancellor Angela Merkel, who can be expected to build on her New Year’s address denouncing nationalism and populism that reinforced her status as a Trump adversary. Yet she and Macron were unable to prevent Trump from quitting the Iran nuclear deal or the Paris climate accord. Germany is in the firing line if he follows through on his threat to impose punitive tariffs on imported cars.

Euro vs Dollar

Trump’s attacks on allies and persistent questioning of the value of the transatlantic alliance have accelerated European efforts to gain greater autonomy, including moves to boost the role of the euro and reduce dependence on the U.S. dollar. Until that happens, however, allies in Europe remain vulnerable, said Erik Brattberg, director of the Europe Program and a fellow at the Carnegie Endowment for International Peace in Washington.

“They talk the talk of becoming more strategically autonomous, more sovereign in their foreign policy,” said Brattberg. “But the answer from Europe will be passive. They will not be able to assert themselves.”

Then there are swathes of the globe whose leaders are emboldened by Trump. Israel’s Prime Minister Benjamin Netanyahu, who benefited from the U.S. decision to move the American embassy from Tel Aviv to Jerusalem, will be in Davos, as will Italy’s prime minister, Giuseppe Conte, whose populist coalition government shares Trump’s hard line on migration.

Also in town will be new Brazilian President Jair Bolsonaro, the leader of Latin America’s largest nation, dubbed by some the Latin Trump. From the right to bear arms to a disdain for multilateralism, the ideological ties run deep. In Davos, Bolsonaro wants to present Brazil as reinvigorated with a more open economy; his team plans to lay out priorities including privatizations and lower taxes.

‘No Illusions’

Still, as the IMF makes clear, increased tariffs are the main drag on the global economic outlook, and an improvement hinges on resolution of the U.S. trade conflict with China, along with “the resulting policy uncertainty.”

China’s delegation to Davos this year is led by Vice President Wang Qishan. Trump’s decision last week to pull the whole U.S. government delegation means Wang won’t get to meet with Treasury Secretary Steve Mnuchin and discuss the trade conflict.

For all his bluster, diplomats point to the fact that Trump has not radically altered the American-led web of alliances. He renegotiated trade deals with Canada, Mexico and South Korea that left much of the substance intact, and his complaints about Europe’s defense spending, China’s trade practices and Iran’s regional role could have been championed by other Republican presidents.

Yet for Russia, Trump’s unpredictability has led to worsening ties. The president’s abrupt cancellation of an expected meeting with Vladimir Putin at the Group of 20 summit in Argentina last year — the third such snub for the Russian leader in 12 months — was the last straw, with Russian government officials lamenting that the president’s aides are playing him as they like.

“Moscow is ready for more disturbing moves in all possible directions,” said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group which advises the Kremlin. “There are no illusions about Trump left.”