7:20 AM (10 hours ago)
Mati Greenspan, Senior Market Analyst at eToro, the world’s leading social trading platform, provides commentary on today’s traditional and crypto markets. Highlights from Mati include:
EU Reconsiders Dollar Usage: Jean-Claude Juncker, president of the European commission, questioned why they use the USD as a medium of exchange – a firm stance against the Dollar’s status as the global reserve currency.
Italy Faces Budget Crisis: In addition to yesterday’s US stock market sell off, bond yields in Italy crept towards 4% as the country faces a budget crisis that could threaten the entire EU project.
Chinese Stocks Rise on Dismal GDP Data: Stocks in China jumped as traders speculated that the Peoples Bank of China may inject more liquidity into the market. This comes on the heels of the release of economic data that indicates near-crisis-level slow growth.
Financial Institutions Eye Crypto for Hedge: Bitcoin’s low correlation with stock markets could be a sign that institutions are hedging a potential bear market. Crypto could also serve as a hedge against the Dollar, should the global community choose to turn away from it as the default global reserve currency.
Please feel free to pull directly from the commentary included in this email, or let me know if you’d like to speak with an eToro analyst for additional commentary.
Please note: All data, figures & graphs are valid as of October 19th. All trading carries risk. Only risk capital you can afford to lose.
Global Economies Question USD As Standard Reserve Currency: Can Crypto Take Its Place? — eToro Daily Market Commentary
October 19, 2018
“It is absurd that Europe pays for 80% of its energy import bill – worth €300 billion a year – in US dollars when only roughly 2% of our energy imports come from the United States,”
– JCJ President of the European Commission
It’s not just Europe either. Some of the continent’s largest trade partners are posing the question too. Why pay in Dollars for goods that aren’t related to the United States?
In this graph, we can see that a big part of European imports are actually coming from Russia, which of course would be only too happy to buck the Buck.
This is a direct shove against the US Dollar’s status as the global reserve currency. As with most ideas, the genie doesn’t go back into the bottle. Now that world leaders are becoming more vocal with such questions the Federal Reserve will need to start treading lightly with their policies.
eToro, Senior Market Analyst
After yesterday’s volatility in the US stocks and bonds something funny happened this morning in China.
Wait… back up. Yes, volatility is back up and the major US indexes are back at the Red October lows. In addition, bond yields in Italy are getting a bit out of hand this morning. As expected, the European Union wasn’t too pleased with the Italian government’s spending agenda.
According to analysts, a yield of 4% on the Italian 10-year would be dismal indeed.
Back to China…
Growth figures have come out at their worst levels since the financial crisis as year on year GDP growth was announced at just 6.5%…
That’s not funny though. It’s really the bare minimum that China can afford to report given the circumstances. The funny thing is that Chinese stocks have been flying since the data came out (purple circle) this morning.
It does seem that the prospect of a weaker economy has some traders thinking that the People’s Bank of China is more likely to inject further liquidity into this market.
Though it’s backed off a bit this morning, we continue to watch the critical level of 7 USDCNH.
The dilemma presented in our opening letter today is something that the crypto community is already quite familiar with and the title of our update today may be a bit telling.
The main advantage that many economists and portfolio managers are now seeing is the use of cryptoassets as a powerful tool for money management.
Consider this graph from Blockforce Capital that indicates just how segregated bitcoin is from the stock market…
As shocking as this may be, we do need to consider that Bitcoin has only been traded by the general public in the last five years. During this time we’ve seen a record-breaking bull market in stocks. So we really have no indication of how what might happen if bears ever end up visiting Wall Street.
Even with that in mind though, the possibilities for professional hedge fund managers to integrate these new assets in creative and exciting ways are virtually endless.
This is why many of the world’s largest financial institutions have spent most of the last year building bridges to the crypto market.
The thought I’d like to leave you with and the point of this letter is simple…
For those seeking to hedge away from the Dollar as Putin and Junker are now discussing, the crypto community already has a strong-looking answer which could very well soon be discussed.
Wishing you a very pleasant weekend!!
This content is provided for information and educational purposes only and should not be considered to be investment advice or recommendation.
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.
Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.