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The Next Financial Crisis Will Occur in 2020: JPMorgan Chase

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JPMorgan Chase & Co believes the next major financial crisis is just around the corner. In a new model devised by the Wall Street megabank, a recession will strike the U.S. economy by 2020.

Financial Crisis Looming

JPMorgan Chase has devised a new financial model to gauge the timing and impact of the next financial crisis. In a recent note to clients, the firm said the next major reckoning will be caused by diminished liquidity following the 2008 financial crisis.

According to the model, which evaluates outcomes based on economic growth, asset-price valuations and the degree of leverage in the market, the next meltdown could hit the markets as early as 2020 and produce the following results:

  • 20% drop in U.S. stock prices and 48% slide in emerging-market shares
  • A 1.15 percentage-point rise in U.S. corporate bond yields
  • A 35% decline in energy prices
  • Declines of 29% in base metals
  • A 2.79 percentage point increase in spreads on emerging-market government debt

“Across assets, these projections look tame relative to what the [global financial crisis] delivered and probably unalarming relative to the recession/crisis averages” of the past, JPMorgan strategists John Normand and Federico Manicardi wrote, as quoted by Bloomberg. The strategists said “structurally less-liquid markets” were the biggest wildcard facing the financial system.

While devastating, the bank said the next downturn is unlikely to be as severe as the global financial crisis of 2008. However, the shift from active to passive asset management will make it more difficult for the market to recover from a major drawdown.

Bitcoin as a Safe Haven?

Although few in the investment world would classify bitcoin as a safe haven, the digital currency could emerge as an attractive substitute if traditional assets enter a bear market. Bitcoin’s short and volatile history doesn’t diminish the fact that it is a non-correlated asset, which means its price tends to move independent of the broader market. As mainstream asset classes chug through the business cycle bitcoin tends to operate on different metrics altogether.

While some signs of correlation have emerged recently, such as bitcoin trading in the same direction as stocks, the link between “risk appetite” and crypto prices is weak. The author noted the presence of correlation earlier in the year but concluded it was probably a symptom of new traders buying cryptocurrency for the first time (and selling it when stocks plunged in February).

That being said, lack of correlation does not necessarily mean more relief. It simply means bitcoin could become a more suitable asset when stocks, commodities and other traditional assets begin to sell-off.

Bitcoin’s status as a potential safe haven is partially owed to its role as a store of value. The cryptocurrency has become an attractive investment vehicle even as its use as a medium of exchange remains limited. In the context of a global recession, this may warrant a second look from asset managers wanting to steer clear of traditional markets.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 743 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Market Overview

Return of Volatility? U.S. Stocks Plunge on China Growth Woes

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U.S. stocks declined sharply on Tuesday, as fears of a slowing Chinese economy disrupted weeks of steady progress on Wall Street. Meanwhile, crypto markets continued to stabilize after a weekend pump-and-dump.

Stocks Plunge

All of Wall Street’s major indexes booked heavy losses in the first session back from Martin Luther King Jr. Day. The Dow Jones Industrial Average fell 301.87 points, or 1.2%, to 24,404.48. Twenty-eight of 30 index members finished lower, led by Caterpillar Inc. (CAT), DowDuPont Inc. (DD) and Goldman Sachs Group Inc. (GS).

The broad S&P 500 Index (NYSEARCA:SPY) fell 1.4% to 2,632.90, led by steep losses in energy and technology shares. Ten of 11 primary sectors were lower by the close.

The technology-focused Nasdaq Composite Index declined 1.9% to close at 7,020.36.

A measure of implied volatility known as the CBOE VIX surged on Tuesday, signaling rocky trading conditions for stocks. The so-called “fear index” rose reached a session high of 21.15 on a scale of 1-100 where 20 represents the historic average. It later settled at 20.80, having gained 16.9%. VIX has gained in just three of the past 11 sessions.

Chinese Headwinds

Investors returned to work after the holiday only to see that China’s economy had grown at its weakest pace in 28 years. What’s more, the pace of expansion weakened further in the latter half of 2018, with annual fourth-quarter GDP rising 6.4%. That’s below the full-year growth clip of 6.6%.

President Trump commented on the growth numbers in a tweet on Monday, where he urged Beijing to negotiate a balanced trade deal to bolster its economy.

China and the U.S. have made important progress in bilateral trade talks. Last week, Beijing pledged to eliminate its surplus with the U.S. over the next six years by importing an additional $1 trillion in American-made goods. However, negotiations appear to have soured after a source told CNBC that a forthcoming meeting between Trade Representative Robert Lighthizer and Chinese vice ministers of trade has been cancelled. More on this story can be found on CCN.

A slowdown in China and other major economies prompted the International Monetary Fund (IMF) to slash its forecast for global growth this year and in 2020. The Fund now expects the global economy to grow 3.5% in 2019 and 3.6% in 2020, down from prior estimates of 3.7% for both years.

Cryptos Lack Progress

Crypto markets were largely rangebound on Tuesday, as the technical tug-of-war between the bulls and the bears continued. The combined value of cryptocurrencies hovered just below $121 billion, where it was little changed from Monday’s levels. Markets whipsawed between gains and losses over the weekend before stabilizing on Monday.

Bitcoin returned above $3,600 in the afternoon session for a gain of 1%. Ethereum rose 1.6% to $119.33. Bitcoin cash, EOS and Tron each rose more than 4.5% on the day.

Related: Can EOS Overcome the Bear Market?

Binance, the world’s largest cryptocurrency exchange by volume, is planning a major expansion into Europe via Jersey, a self-governing entity of the United Kingdom. Binance CEO Changpeng Zhao recently tweeted that the exchange has been “overwhelmed with registrations,” a sign of strong demand in a region hit by political chaos and slowing economic growth.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 743 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Analysis

3 Things You Need to Know About the Market Today

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1, Pound Resumes Rally on Strong Employment Report

GBP/USD, 4-Hour Chart Analysis

The Great British Pound reacted well to the likely delay of the Brexit process in recent weeks, and today the currency defied the risk-off shift and rallied back towards the 1.30 level against the USD. The better than expected British Employment Report, which showed the strongest wage growth in a decade, outpacing inflation despite the long-term weakness of the Pound.

While the currency gained ground, British equities followed the global trends and finished lower, threatening with a resumption of the broader declining trend. All eyes are still on the Brexit saga, but should the extended deadline scenario prevail, the short-term bullish trend could continue in the pair, even as traders should keep the considerable event risk in mind when trading the Pound-related pairs.

2, Oil and Stocks Slide as Risk Assets Suffer amid Renewed Trade Worries

Johnson & Johnson, 4-Hour Chart Analysis

While the losses in risk assets have been limited yesterday, due, in part at least, to the US bank holiday, today, we saw heavy selling across the board. Oil ran into a wall near the resistance zone that we pointed out yesterday, and the crucial commodity fell back to a $52 per barrel handle with regards to the WTI contract.

Stocks got hit hard on reports that this week’s round of meetings between the senior US and Chinese officials has been canceled, with the issues of Intellectual Property and deeper Chinese economic reforms being behind the setback. We argued several times that these ‘soft’, hard to control issues are unlikely to be resolved anytime soon, even in the case of a formal agreement, so while we expect wild swings on trade-related headlines, the structural, credit-related issues will drive Chinese assets.

3, Johnson & Johnson Misses on Guidance Despite Earnings Beat

WTI Crude Oil, 4-Hour Chart Analysis

The pressure on stocks intensified following Johnson & Johnson’s (JNJ) earnings report, with the 2019 guidance disappointing investors. While the previous quarter was a positive surprise from the healthcare giant, as far as the bottom line is concerned, the outlook for the consumer segment cast a shadow on the broader market even as the company’s core Pharmaceutical business continues to shine.

Shares of the company are down by around 2%, and after the closing bell, IBM’s (IBM) report will be in focus, as the struggling tech giant will also report earnings. IBM has seen its share price cut in half as its growth stalled in recent years, and even a small positive surprise could propel the stock higher following the market-wide decline of the recent months, but it’s unlikely that the broader downtrend will be broken anytime soon.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Nasdaq 100 Futures, 4-Hour Chart Analysis

Dow 30 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 445 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Market Overview

Dow Plunges After Opening Bell as Democrats Set to Reject Trump’s Proposal to End Government Shutdown

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U.S. stocks opened sharply lower on Tuesday, as Democrats wasted little time talking down President Trump’s new border-security proposal to end the partial government shutdown. Oil prices also faced a sharp correction as China growth woes rattled investors.

Weak Open

All of Wall Street’s major indexes traded lower after the opening bell, with the Dow Jones Industrial Average falling by as much as 188 points. The Dow 30 index was last down 154 points, or 0.6%, at 24,552.12. The broad S&P 500 Index declined 0.7% to 2,652.82, with ten of 11 primary sectors trading lower. The technology-focused Nasdaq Composite Index declined 0.8% to 7,101.06.

U.S. markets were closed on Monday for Martin Luther King Jr. Day. U.S. futures prices were down across the board in the holiday-shortened session.

The last full trading session on Friday saw gains of 1% to 1.3% for the major indexes.

Oil Slides

The S&P 500’s energy index declined 1.8% at the start of trading Tuesday as oil prices faced a brisk selloff. U.S. and international crude prices were down more than 2% on worries that China’s slowing economy will impact energy demand.

As Hacked reported on Monday, China’s economic growth slowed to 6.6% in 2018, the lowest rate of expansion in 28 years.

The West Texas Intermediate (WTI) benchmark for U.S. crude futures declined $1.33, or 2.5%, to $52.71 a barrel on the New York Mercantile Exchange. Brent crude, the international futures benchmark, declined $1.41, or 2.3%, to $61.32 a barrel.

Senate to Reject Trump’s New Proposal

Senate Democrats this week are expected to reject President Trump’s new proposal to end the partial government shutdown, which has now entered day 31. With another employee pay deadline over the horizon, Republicans and Democrats are under pressure to resolve the impasse, which has shattered the previous record for longest in history.

On Saturday, President Trump laid out a new plan for funding his proposed border wall that included key compromises on DACA and immigrants with Temporary Protected Status. As we reported on CCN, the proposal included a three-year extension for immigrants that fall under either category, as well as additional funds for urgent humanitarian care, additional border agents and drug protection technology.

House Speaker Nancy Pelosi immediately rejected the proposal, and has since gone on to call it a “nonstarter,” according to The Wall Street Journal. As WSJ notes, the proposal is unlikely to receive the 60 votes necessary to pass in the Senate and wouldn’t survive the Democrat-controlled House.

Featured image courtesy of Shutterstock. Charts via TradingView and Barchart. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 743 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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