Chinese Armament
Washington has already had its qualms with China over multiple issues this year, and to make the situation more complicated, the Pentagon has published a report stating that China is simulating attacks against US targets during their latest military drill. The Chinese Air Force has been using the airfields on the artificial islands in the South China sea as the launch point for the supposed drill. The US is wary of the Chinese expansion and the planned expansion of the Chinese defense budget by $240 billion, as well as the rapid development of the Chinese space program. The loss of trust between the two largest economies has become the key tension point in international relations.
Cautious Optimism
Turkey received help from Qatar yesterday, while China, Iran and Russia all pledged their support as they are in a similar situation with the US putting economic pressure on their diplomacy. Russia and Turkey are contemplating using only rubel and lira as the account currency in the trade between the two nations to alleviate the effects of the USD on the currencies. Another hopeful development might be the revival of the US-China trade talks, with the first round focusing on the yuan, the low value of which has been criticized by the US government on multiple occasions. It appears that the battles of the trade war will be fought over the foreign exchange markets.
The positive news brought a slight increase in prices in Asia. Nikkei was +0.35% while the Australian and Hong Kong exchanges were +0.1%. Shanghai Composite did not join the optimist camp and closed the day at -1.33%.
Light Sweet Crude Oil
The analyses predicting difficulties maintaining oil supplies are slowly becoming a thing of the past, even though the sanctions against Iran are still in place. The slowing rate of growth of the world economy has been in the spotlight more recently, which affects the oil markets as well.
The current WTI price of $65 is already $10 less than this year’s high. The price index decreased to the current level in multiple stages to reach $64.36 on August 16, the lowest in the past two months. From this low point it bounced back by more than $1, but this seems more like a short covering than an actual trend reversal. $64.36 seems to be a strong support anyway, since as the chart clearly shows, this was the level in June where oil started a $10 rally after trying to break it for two weeks unsuccessfully. Therefore we might expect that this level still has some strength at the end of this summer.
NASDAQ
Facebook, Tesla, Netflix, Take-Two Interactive Software, Electronic Arts, Intel, Activision Blizzard, Western Digital, PayPal. These aces of the 21st century have become incubators of entirely new industries or at the very least have provided examples with their business models. At the end of July, these corporations have been on the leaderboard for stocks sales and thus put pressure on other exchanges as well.
The tech sector still comes out ahead when comparing the big three US indices. This year’s trade war has hit traditional industries harder than the already borderless internet-based companies.
The NASDAQ chart is steadily following the green trendline. When touching the trend, a quick upward move follows, while the low points are higher each time. At around 7527 the momentum of the upswing quickly seemed to exhaust itself, but the chart is showing a narrowing pattern which usually precedes a breakout.
Sincerely,
Laszlo | Market Analyst
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