China has Trump by the Bonds

It’s earnings season on Wall Street and everyone is focused on the big banks.

Wells Fargo, Blackrock, and JP Morgan Chase will all report their fourth-quarter earnings today and the results will not be good.

Trading volumes have been incredibly low in the last half of 2017, both due to reduced fears about the economy and because many high-frequency traders have already moved to the crypto market.

It doesn’t matter though. At this point, the banks could plausibly report the worst losses in the history of capitalism and still see their stock go up.

Investors and analysts will be listening closely, and physically salivating, to the banker’s projections. Tax cuts are coming and investors want to know how much money the banks think they can make from it.

Tell us a sweet fairy tale of wonder and enchantment so we can sleep better at night and forget all about these historically high stock valuations.

@MatiGreenspan
eToro, Senior Market Analyst

Today’s Highlights

German Breakthrough (Euro)

China has Trump by the Bonds

Ripple’s Deal with MoneyGram

Please note: All data, figures & graphs are valid as of January 12th. All trading carries risk. Only risk capital you’re prepared to lose.

It’s a Breakthrough

Angela Merkel just reached a groundbreaking deal with her rivals the SPD party to form a grand coalition in the German Government. Everybody is excited and the Euro is flying. BUT… we’re not out of the woods just yet.

The SPD party will still need to vote on this and many of her members might prefer to see new elections rather than join Merkel’s government. So we’ll see how this plays out.

Enough of that though. Let’s take a look at the Euro-dollar, which is now trading at it’s highest level since 2014…

The DAX on the other hand seems less than excited. It’s been near it’s highest ever levels since November so this little tidbit was not enough to push it through the roof.

Bonds in Geopolitics

As we’ve been discussing earlier this week, the bond markets have been seeing some mild selling action. In a normal market, this wouldn’t be worrying but because the word ‘sell’ has become so rare on Wall Street lately it is making headlines.

What made bigger headlines though was that China was considering to stop buying bonds from the United States. These reports were later refuted by Chinse authorities and have since been tossed in the category labeled ‘fake news’.

It is interesting though. Bonds are how countries lend money to one another so the bond market can be seen through the lens of foreign debt. China is one of the US’s largest creditors at the moment. So if they stop buying, or worse, start to offload some of their bonds the US could be in a heap of trouble.

What’s suspicious here is the timing. Donald Trump has big plans and they won’t be cheap. After decreasing corporate taxes his income has now been stunted. So increased expenses and reduced income means that you need to borrow.

Trump is also ramping up his rhetoric against China. It was an essential part of his political victory in the elections and he’s itching to call them out on several issues already. So this bit of ‘fake news’ does actually come as a reminder or even a warning. Mess with the dragon and you will get burnt.

What’s Ripple’s Deal?

Ripple rejoiced yesterday as those who hodled through the Korean FUD were rewarded with a breakthrough in global payments relations.

Even though it’s only a pilot, just the fact that a major payment system like MoneyGram will be testing Ripple’s network is incredibly big news and even gives investors a taste for more news to come.

The great thing for hodlers is that the pilot will reportedly be using Ripple’s XRP tokens. This has been a soft spot for Ripple skeptics who say that Ripple’s success does not necessarily mean success for XRP since they could potentially form payment networks without these specific tokens.

The price shot up more than 20% within the first hour of the news.

The news comes at an excellent time as far as technical analysis is concerned and could potentially provide a floor for the price movement.

Here, take a look at the rally, and pullback. The level of $1.5 per token was a significant breakout level on the way up and now seems like a valid support level for the massive pullback.

Of course, cryptocurrencies are incredibly risk so it always pays to diversify and use proper money management as I’m sure many of our new clients have learned recently.

Let me know if you have any questions, comments or feedback. Have an amazing weekend ahead!

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The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

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