Dear Readers,
First and foremost, I would like to wish everybody "Merry Christmas & Happy New Year" and I hope Year 2023 is a blessed year for all Traders & Investors, which will bring abundance in new opportunities, wealth and prosperity for everybody.
I am sorry that i have not been writing as frequently as i could due to my busy schedule. Nevertheless I would like to take this opportunity to update everybody on what are the dangers and opportunities in Year 2023 that you can take and ride your way throughout with ease.
The DANGER which i am referring to is there are too much market certainty surrounding how Federal Reserve will tackle the inflation issue where most asset prices, prices of products, services, raw materials and commodities rise across the board, the frequency of imminent interest rate hike, the severity of the increment in interest rate will cause the Financial Markets to collapse.
Recession bells are ringing in year 2023 caused by the Federal Reserve excessive interest rate hike in year 2022 where interest rate begins with 0% to 0.25% to latest round of interest rate increase in December 2022 where Federal Reserve hike 0.5 basis point to 4.25% to 4.5%. Central Bank Federal Reserve are looking to hike interest rates pass 5% to 5.25% in year 2023.
Currently, my observations for Year 2023 where many Traders and Investors are calling for Federal Reserve to pivot and to lower interest rate to mitigate the slowdown in economy growth and fears of recession due to excessive interest rate hike, causing Big Tech firms like Meta, Amazon and Google have cut jobs and freeze hiring headcounts.
https://www.wired.com/story/big-tech-layoffs-hiring/
Should Federal Reserve proceed with a gradual, pause and slower pace of frequency and severity of the increment in interest rate hike, the Bull market will last longer than unexpected.
My opinion is there will be no recession in year 2023, contrary to Financial Markets will experience an upside rally breaking highs and create new highs despite interest rates reaching 5%.
The Federal Reserve will not lower interest rate that risks of excessive money supplies that translates into higher inflation, to pivot or lower interest rates in year 2023 meeting may signal to the public that America economy is contracting and experience a recessionary environment that require monetary stimulus to stimulate and boost the economy that will affect approval rating of President Biden Administration, inability to achieve economy growth to secure electoral votes in Presidential Election in year 2024.
A shift to PetroYuan replacing PetroDollar may cause the USD to weaken, depreciate, losing world reserve currency crown, through losing PetroDollar benefit of consistent trade deficits and source of liquidity, inflow of foreign capital through PetroDollar recycling, US would be stuck with lots of extra dollars that would be no longer in demand, these dollars would return and flow back to US then translate to massive inflation.
Higher possibility of the Federal Reserve may maintain pause in between monthly meetings on interest rate hike or slower rate of increment at 25 basis points with Federal Reserve target interest rate increase to 5% in year 2023.
The OPPORTUNITY which i am referring to is the THEME
1) Price of Commodities will break all time high or set new high which have inverse relationship with USD, increased demand for raw materials and minerals for specific industry. (Electric Vehicles, Smart Apple Car, Renewable Energy industry, Defence).
Commodities producers will channel more resources into investment to boost supplies when commodities price is price higher whereas vice versa commodities producers will limit any resources into investment causing shortage in supplies when commodities price is price lower.
Crude Oil Futures last close at 79.35 USD on 23 December 2022, price is currently supported at 70 USD floor with upside target of 115 USD to 125 USD in year 2023. In order to secure more electoral votes during US mid terms elections in November 2022, a total of 180 million barrels of crude oil was released from strategic reserves to mitigate price of energy inflationary pressure felt by US residents in the midst of Russia Ukraine war where US and allies enforce economic sanction crude oil and natual gas supplies embargo. Due to climate change, Russia Ukraine war, US favour renewable energy to fossils where infrastruture of renewables has not keep up with the demand, has caused disruptions and shortage of energy supplies. Oil released from the strategic reserves has result in dangerous low inventory level that require to re-stocking to pre-released inventory levels, so crude oil current trading at 79.35 USD, downside is limited supported at 70 USD level with attractive upside of risk reward ratios 2: 1. Although G7 economies join EU placed 60 USD price cap on Russian Oil will have limited downside at current levels, because this is a war between price taker and price setter, price taker G7 and EU will lose to price setter (Russia + OPEC) because an Oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies, dominated by a small number of large sellers or producers enough to give each firm some market power. Oligopolies often result from the desire to maximize profits which can lead to collusion between firms. Reason for current crude oil revision lower was probably due to global economies enter into a recession in year 2023, deflationary pressure.
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| Crude Oil Technical Analysis |
https://www.aljazeera.com/news/2022/10/19/biden-releasing-15-million-barrels-of-oil-from-strategic-reserve
https://www.barchart.com/story/news/12179723/g-7-joins-eu-on-60-per-barrel-price-cap-on-russian-oil?custom_url=news
Crude oil will have major catalyst move will be China growth resumes, a shift away from zero covid 19 policy and PetroDollar to PetroYuan, a shift away from international trade settlement payment like SWIFT to alternate CIPS, both will be used for international trade settlement and countries adopting CIPS international trade settlement payment will avoid international sanctions. Yuan will benefit from consistent trade deficits and source of liquidity, inflow of foreign capital through PetroYuan recycling, lead to Yuan strengthening.
https://www.globaltimes.cn/page/202212/1281416.shtml
https://www.cips.org/
I forecast Gold price target for year 2023 is 2300 USD. China buying gold gradually diversifying from reduction in its US foreign reserves holdings.
https://www.bloomberg.com/news/articles/2022-12-07/china-announces-jump-in-gold-reserves-after-more-than-3-years
https://asia.nikkei.com/Business/Markets/Commodities/China-thought-to-be-stockpiling-gold-to-cut-greenback-dependence
https://www.reuters.com/markets/commodities/chinas-reported-gold-reserves-rise-first-time-since-2019-2022-12-07/
https://www.scmp.com/economy/economic-indicators/article/3202672/china-stockpiling-gold-1-million-ounces-added-november-amid-beijings-asset-diversification-efforts
https://www.kitco.com/news/2022-12-07/China-buys-32-tonnes-of-gold-in-November-first-increase-in-reserves-since-2019.html
https://www.bullionstar.com/gold-university/chinese-central-bank-gold-buying
https://moneyweek.com/investments/commodities/gold/603131/how-much-gold-does-china-own
2) USD devaluation will hasten inflation to worsen in US which will be a key test for Federal Reserve to take action on their monetary policy and its direction.
USD was trading at its peak at 114.75 on 28 September 2022, technically suggest downside bias to support level at 100, 90 and 80 respectively.
3) Industrials sectors comprising Aerospace & Defence, Electrical Equipment & Machinery, Buliding Construction and Transport & Logistics (Airfreight and Seafreight)
Smart money will rotate into Industrial Sector, post covid 19 recovery taking shape where economies reopen without restrictions, increased demand for commodities, raw materials and minerals.
Microprocessor Chip wars between USA & her allies like Japan, Taiwan, Holland and South Korea jointly limiting sales of high end microprocessor chips to China. Tech war contribute to lesser production of microchip growth to satisfy higher demand. Long Term Microprocessor chip manufacturing companies revenue growth may be affected by China R&D of high end microprocessor chips that proves to be self reliant and export to the other parts of the world.
RCEP effective since early 2022 will be a key driver to Asia growth with China leading the pack.
Price of toll at Suez Canal increase by 6% starting in February 2022. My friend who is in the import and export business updating me that Year 2022 container rates once reached 8000 USD and currently price of container rates was seen revising lower, but i believe container was not reflecting the potential geopolitical conflict in Asia Pacific where Shanghai was the world busiest port followed by Singapore PSA. The cost of transporting seafreight cargo container was not priced in with higher insurance result in increasing shipping costs passed to the consumers, operating in geopolitical conflict across South China Seas, Taiwan Straits.
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| The World Busiest Port / Biggest Shipping Hub |
Baltic Dry Index which measures global seafreight activities, the costs of shipping goods worldwide, is another important indicator to look at and assess whether global economies is booming or contracting, currently bottoming at 965 on 31 August 2022 after reaching high 5526 in October 2021.
My Quantitative Finance model direct me to Industrials Sector rotation for these 2 months starting in November 2022.
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| Quant Model - Sector Rotation |
https://gcaptain.com/suez-canal-toll-increase-to-boost-revenue-by-400-million-chairman-says/#:~:text=The%20Suez%20Canal%20Authority%20announced,cruise%20ships%20and%20LNG%20carriers.
https://www.cnbc.com/2022/12/04/manufacturing-orders-from-china-down-40percent-in-demand-collapse.html
Sidetrack i has received dividends from China Cosco (HKSE: 01919) of 25K in HKD estimated 4K in SGD, which is 25% in dividend yield in year 2022 a result of exceptional revenue performance for year 2021/2022.
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| China Cosco Dividend Payout For Year 2022 |
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| China Cosco Dividend Yield |
4) Forex pair USDCNH is forecast strengthening to 6 level. strengthing CNH means inflation level is mitigated in China will spur more consumptions by the chinese. China growth story will save global economies from entering a recession from a shift in zero covid 19 policy and border reopening to international business and social travellers. China economy initially was export driven shift and transform into demand consumption economy. affluent chinese will consume more which will save global sluggish economy contracting or falling into a recession from post covid 19 recovery.
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| USDCNH Historical Chart |
China has been reducing its USD foreign reserves for consecutive months in a bid to limit US financial weapons by sanctioning. Will this measure leads to USD to further depreciate in time to come?
https://www.spglobal.com/marketintelligence/en/mi/research-analysis/china-may-move-to-limit-impact-of-us-financial-weapons.html
There are good news and catalyst released yesterday by bloomberg on China relaxing its Zero Covid-19 measures and reopen its border to international business and social Travellers.
https://www.bloomberg.com/news/articles/2022-12-22/china-to-cut-quarantine-for-overseas-travelers-from-next-month?fbclid=IwAR1wkXX9fxN1b3FgxxfieeaqYCbV5ytH85rgVRs2LgsXKhpXdgx5UXQzEgo&leadSource=uverify%20wall
I wish my readers all the best in their investing journey.
Disclaimer: All news, information and charts shared is purely by my research and personal views only. This is not a trading recommendation or advice but on the basis of sharing information and educating the investment community. Different traders and investors adopt different trading strategies and risk management approach hence if in doubt please approach or seek clarifications with your Financial Adviser, Broker and Banker.
