KINGSTON, NY, 27 JUNE 2018—Despite the business media clamor over recent declines in equity markets, we forecast a market downdraft cycle is emerging, not a trade war crash.
We are confident in making this forecast since The Trends Journal was the first magazine to call the Trump Rally in November of 2016; the first, in December 2017, to forecast a market correction would occur in 2018; and the first to declare the end of the Trump Rally in February 2018.
The media and political interests that are blaming market downturns on tariffs and looming trade wars, belie the trend-lines that will fundamentally affect market performance in the long term.
Further, if tariff and trade fears were going to crash equity markets, gold, the ultimate safe-haven asset, would be soaring rather than declining to six-month lows... and equities would not be bouncing back.
Among the key factors that have and will drive markets lower is what is driving gold prices down: Aggressively rising U.S. interest rates.
The nine-year bull market was built and sustained by historically negative/zero/low interest rate policies and unprecedented Quantitative Easing monetary measures.
Ignored by a media that sensationalizes one-reason causes for market volatility, is the fact that the Trump Rally ended in February with the realization that the U.S. Federal Reserve would raise interest rates faster than anticipated, thus ending the cheap-money party that juiced equities.
Moreover, as U.S. rates rise and the dollar strengthens, the cost burden to Emerging Markets to service their $7 trillion debt significantly increases. Thus, not only have EM currencies dropped 8.8 per cent against the dollar in the second quarter, the MSCI’s 24-country EM index, down 17 percent from it year’s high, is approaching bear territory.
Also compounding economic trend lines that are threatening market stability are sharply rising oil prices, which hit $70 a barrel for the first time since 2014, and have risen 60 percent this year.
And while President Trump called on OPEC to add more supply to keep prices from rising, his actions this week requiring companies to cut all oil imports from Iran to zero by November, have instead pushed prices higher.
Now, with oil prices, which are dollar based, rising, their economies and markets, as well as major oil-dependent nations such as China and India will suffer downturns.
Even in the U.S., with gas prices at $3 a gallon, some $30 billion that would have gone into retail and restaurant sectors, will instead be pumped into consumers' gas tanks.
Trend Forecast: An oil-price shock and global economic slowdown will drive markets lower. Watch gold prices. If they sharply rise, markets will sharply fall.