Proxy weapons and proxy trade wars: The Second Horseman

The trade war between the United States and China enters the phase where proxies are activated. We might not know yet whether the coronavirus is lethal for the humankind, but what we know is that China on strike is lethal for the global economy. Who is the real loser in this situation?  Most analysts would say China, due to its foreseeable massive growth shrinkage. However, in reality, China does not have a lot to lose from stopping its production, but the end-customers of Chinese goods feel much more the impact of the negative supply.  Since January, we learnt that China supplies most of the goods consumed worldwide, while the Western world hangs around fancy offices suppling the world with policymakers, influencers, and motivational speakers.

The current supply crisis could develop in a scenario similar to the “Big Depression”. Let’s not forget that the 1929 crisis occurred after a big rally of the stock markets during the roaring 20s, similar to what we experienced in the 2010s.

The US Treasury and the European Central Bank can continue printing money, but for sure, they cannot print goods. It may be helpful to have monies, but if there is nothing to buy with than the perspective of an inflationary scenario is real. Coronavirus and supply crisis amid eternal quantitative easing may not be a pure coincidence. It looks more like a part from a well-orchestrated script, where China aims to gain the upper-hand in the trade war with the US via proxy strategies.

The Second Horseman rides with the flag of economic war, and the symbols on his flag war are in Mandarin.

When He broke the second seal, I heard the second living creature saying, "Come." And another, a red horse, went out; and to him who sat on it, it was granted to take peace from the earth, and that men would slay one another; and a great sword was given to him.(Revelation 6:3–4)

Market overview

Gold price found momentum amid the supply crisis. More than ever, gold is a safe harbour investment. When prices of stocks, Brent and even cryptocurrencies continue to go south, the gold ounce found support at 1,600 USD. Moreover, the ounce bolstered above 1,670 USD, regaining the peak touched in late February. The Brent oil contract lost more than 20% since early February and struggled to find a support level at 50 USD with no signs of recovery in the short term. Bitcoin, regained some of the losses from its previous weeks and tested the 9,000 USD resistance level, but fell during the weekend below 8,300 USD. Volatilities exploded across all markets, indicating that we are witnessing a regime switch towards instability.

Week focus:

European Financial stocks

The European banking sector seems more fragile than ever. Most European banks stocks plunged over the past two weeks erasing all the 2019 gains amid global market turmoil. The US banks seem more resilient and absorbed the shock better than their European peers. HSBC’s share lost 25% of its value since early 2019, thereby being one of the most damaged by the coronavirus crisis.

Meanwhile in the crypto-world, AML becomes a hot topic

Chainalysis

Chainalysis is a US start-up providing blockchain analysis company for compliance and investigation. Chainalysis traces cryptocurrency transactions, similar to what Palantir does in the fiat currency world. The company got since 2015 more than 10 million USD in contracts with US governmental agencies. (Source: Coindesk.com)

CipherTrace

CipherTrace is a company based in California providing cryptocurrencies intelligence, including the capacity to trace more than 800 virtual assets. CipherTrace can assess the risk of Bitcoin transactions based on various factors, including the jurisdictions through which the funds had moved.

Elliptic

Elliptic is a London-based blockchain analysis provider founded in 2013. The company aims at preventing and detecting crime in crypto-currencies’ universe.

Market outlook

The Brent Crude Oil contract should continue its steep descent due to a deceleration of the demand.  The stock markets need desperately to find support levels but may remain in the short term into negative territory. European stocks may have a slower recovery compared to their American peers. Gold continues to follow its positive trend and to advance toward 1,680 USD per ounce. We expect Bitcoin to re-test the 8,500 USD level, but it is possible to see a further dip below 8,000 USD.