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Based out of Auckland, New Zealand, we bring an institutional trading experience to the retail market.

We are only 20 days into 2022, and several developing events are already looking like they will become year defining. Here are 3 events that may define trading in 2022.

How hawkish will the US Federal Reserve act in response to inflation?

3 rate hikes are tentatively planned by the US Federal Reserve this year. According to Fed board members, such as Christopher Waller and Patrick Harker, 3 rate hikes is the baseline number needed to control the current level of inflation, but 4 or more hikes is definitely on the table and up for discussion if warranted.

The aggressiveness of each hike is likely to play an equally important role in trading in 2022. While 25-basis point hikes are usual for the Fed (and what is anticipated by the market), some commentators, such as Bill Ackerman, suggest that the Fed may have to double this value for its initial rate hike to help restore its institutional credibility.

The first hike is expected as early as March, but a February hike is entirely possible.

Will the Nasdaq 100 have a negative year?

Naturally, as the cost of debt increases (via the aforementioned rate hikes from the US Fed), the growth prospects of the Nasdaq 100 can be squeezed, leading to a flat or negative year for the Nasdaq 100 index.

The last time the Nasdaq 100 had a genuinely negative year was in 2008, dropping in value by 41.9%. The Nasdaq 100 fell 1.04% in 2018, but this is arguably characterised as a flat year rather than a negative year.

With at least 3 rate hikes on the cards for the US Fed, the possibility of a negative year for the index is perhaps higher than a flat year. Bolstering this sentiment is the prediction of Jamie Dimon, CEO of JP Morgan Chase (NYSE: JPM). Dimon has floated the idea that the Fed may have to resort to six or seven rate hikes to tame the 40-year high inflation that the US is currently experiencing. However, Dimon didn’t specify if he believed all these rate hikes should take place in 2022.

Can oil finally hit US $100 per barrel as predicted?

Several big banks, including Goldman Sachs (NYSE: GS), predict that oil could hit $100 per barrel in 2022 or 2023.

Oil is currently in a solid position, trading between US $80 and US$90 a barrel and not far off the US $100 forecast.

Without OPEC committing to any significant increase in oil output, it looks unlikely that the price of oil will fall without a demand reduction. Yet, even with the possibility of new covid variants emerging or tightening monetary policy of some nation’s central banks, OPEC is confident in predicting that oil demand will grow by 4.2 million barrels per day over 2022.

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Week ahead - GDP, CPI & Unemployment

This week ahead, we have a plethora of data coming out across the world dictating the strength of "main street" and its contribution to the Coronavirus Pandemic's global recovery.

With that said, the Coronavirus continues to present itself as a factor pulling back the global economy's growth. With financial markers such as Brent Crude and WTI prices returning to pre-pandemic levels, evidence of life post Coronavirus slowing down is coming into sight. However, as shown, even the countries who handled the Coronavirus well indicate that we still have to grapple with the strengthening strains.

Case in point – I am currently writing this at home, as New Zealand, renowned for their Coronavirus Response, has placed their largest city, Auckland, back into a level 3 lockdown following three community transmission cases from the stronger UK Strain.

However, as we all know, financial markets do not sleep. Here is your week ahead.

Sunday, 14th Feb – Japan's GDP Figures Quarter over Quarter

Japan's GDP Figures

Japan has not had the best success regarding the fight against the Coronavirus. Initially praised for their no lockdown strategy, dependent on the mask-wearing, cleanliness culture Japanese citizens exhibit. Three waves of the Coronavirus later, each larger than the previous, and the Japanese Government depend on the vaccine to help save their citizens from further infections.

However, the Japanese economy is showing its strength, and analysts predict they may come out of the pandemic stronger than expected. Unemployment has stayed at a modest 2.9% due to Bank of Japan's corporate lending scheme, alongside bankruptcies falling by around 20% from a year earlier in recent months. Analysts predict GDP growth of 10.1% in the last quarter of 2020.

Tuesday. 16th Feb – Eurozone's GDP Quarter over Quarter and Year over Year

Last year today, the Coronavirus had started to hit the shores of many countries. A couple of months later, most of the Eurozone would have concluded that their lockdowns were adequate in eliminating most of the virus and that citizens may freely roam around Europe for the summer.

That decision would cost them many more lives and setback the road to recovery.

It is now 2021, and we're approaching the same period in which these decisions were made. However, now, Europe has been slowly rolling out the Coronavirus vaccine to citizens. However, the President of the European Commission, Ursula von der Leyen, has stated that the EU was late to rollout and authorize Coronavirus vaccines and are "still not where we want to be." However, a better than expected GDP print may mean stronger Euro, which may be detrimental to exports.

Wednesday, 17th Feb – United Kingdom's CPI Figures

With the United Kingdom slowly getting a grasp on the Coronavirus with the help of a vaccine, the new strain provides new challenges as British scientists state the U.K Coronavirus strain is "likely" 30% to 70% deadlier than the original. With that said. Boris Johnson is Optimistic that the Coronavirus Lockdown can be eased soon – however, as history shows, lockdown is only effective if there has not been community transmission for weeks. Analysts predict CPI to drop slightly to 0.5% from 0.6% year over year.

Wednesday, 17th Feb – U.S Retail Sales

Like the United Kingdom, the United States has been given a tailwind in the form of a vaccine. However, similar to the United Kingdom and Europe, the vaccine's distribution infrastructure has been criticized. With the U.S having many months to prepare for the eventuality of a vaccine. Cases are down from their all-time highs, although still above 100,000 for their daily average. Analysts predict U.S Retail Sales to rise to 0.7% this week ahead, up from -0.7% a month before.

Thursday, 18th & Friday, 19th Feb – Australia's Unemployment Rate for Jan and Retail Sales Month over Month.

Australia has recovered from a devastating 2nd wave by introducing a drastic lockdown near the middle of 2020. However, there have been many flare-ups around Australia, with one in Sydney and one currently in Melbourne, which has caused the local Government to implement a short lockdown. However, there has been evidence over the past couple of months of Australians using the money they have saved during the past lockdowns and spending it. With that said, analysts predict a slight fall in the unemployment rate to 6.5% from 6.6 in January, with retail sales expected to bounce to 2% from a negative 4.1%.

Busy week ahead. Trade safe, and stay safe.

Lagarde needs to place a lid on the Euro

If there is a time for a currency to be relatively weak, it's during recessionary periods. A stronger currency entails a rougher time for goods and services to be exported out of the country as those exports are more expensive due to the stronger currency.

This is currently the case for the Euro. From August last year to the latter part of 2020, the EUR/USD fluctuated between 1.16 and 1.19 before shooting past 1.20 at the end of November due to vaccine positivity.

It sits comfortably above 1.20, consolidating between 1.205 and 1.233. Christine Lagarde, President of the European Central Bank (ECB), has a dilemma on her hands: how to contain the strength of the Euro due to positive sentiment while fighting deflation concerns?

ECB needs more than interest rates

Theoretically, it could be argued that the ECB has used up all their ammunition when it comes to monetary policy.

With Interest Rates at 0% for the past four years, alongside the Coronavirus pulling on both sides, with lockdowns forcing businesses to close and consumers to save, a liquidity trap may be underway. The strength of the Euro also gives the ECB limited room to move rates lower. This harks back to the Bank of Japan's issue during the financial crisis, with analysts predicting disinflation, therefore boosting the Yen, thus boosting fears of inflation - a never-ending cycle.

Only useful tool is asset purchases – however, it may have a side effect of boosting the Euro further

The ECB has purchased over 1.85 Trillion Euros worth of assets during the wake of the Pandemic. However, we may see a situation unfold similar to that of the Fed and US Equities – where the Fed's unwavering support for the US economy has had the side effect of boosting US equities. Further purchases may see an influx of capital in European Equities, increasing the demand for the Euro.

Since the strength of a currency is relative, some analysts predict the only way for the ECB to escape the cycle of a strengthening currency and deflationary concerns is through outperforming the Fed when it comes to asset purchases. Salman Ahmed, global head of Macro at Fidelity International, stated that "In currencies it's the relative game that matters," and that "You can argue that the ECB has been very aggressive in its policy, but has it been more aggressive than others? If the ECB wants to get the Euro down, they will have to outgun the Fed – there is no other way."

Week ahead - GDP, CPI and BoC Interest Rates

All eyes will be on the UK’s rollout of the Pfizer-BioNtech vaccine this week ahead, as the first western country to approve a Coronavirus vaccine starts to vaccinate front line workers. However, the NHS medical director warned the vaccine distribution would be a “marathon, not a sprint” and that it will take “many months” to vaccine everybody who needs it. Is this the beginning of the end? Here’s your week ahead.

Monday, 7th December – Japan’s GDP Quarter over Quarter

The Covid Cycle

Japan’s Coronavirus graph symbolizes the problem of loosening coronavirus restrictions when community transmission has not thoroughly be wiped out. Japan has, in essence, entered its third wave of the Coronavirus. Japan recorded over 2,497 new Coronavirus cases on Saturday, alongside 13 deaths.

Japan's Third Wave

There are over 161,618 confirmed cases in Japan. Osaka Governor Yoshimura Hirofuki stated, “It’s getting harder to provide treatment to people with serious symptoms. This is the right timing to issue a red alert. It’s a declaration of an emergency in medical care. Our first priority will be protecting life. “This is on a warning to all Osaka residents to refrain from leaving their homes for any non-essential reason until the middle of this month. Note that this is not a strict requirement.  Analysts predict a GDP quarter over quarter figure of 5%, identical to that last quarter.

Tuesday, 8th December and Thursday 10th December – Europe’s GDP Year over Year and ECB’s Interest Rate Decision

Similar to Japan, Europe paid the cost of reopening early when community transmission was not thoroughly squashed. A second wave has come all across Europe, forcing governments to place their citizens back into lockdown. The attempt to balance economic damage and human lives had backfired. Any optimism on a successful summer had disappeared. This GDP report is likely to show the effects of the premature reopening on the European economy.

Furthermore, the ECB has signaled that they are willing to provide more stimulus coming into 2021 for the European Union. Whether this comes through as further cuts or quantitative easing is unsure. However, a cut this week ahead will be less surprising after the effects of a second have on Europe.

Wednesday, 9th December – Bank of Canada’s Interest Rate decision

Unfortunately, it will sound like this article is a record on repeat. However, this is the environment around the world due to the premature lifting of restrictions. Canada did not enforce a strict lockdown; however, the government recommended citizens stay at home during the Coronavirus peak earlier this year. Initially, they were praised for their low Coronavirus cases earlier on, like Japan. However, time affirmed that this method was not effective. They’re currently at the peak of their Coronavirus daily cases, with Canada’s Chief Public Health Officer Dr. Theresa Tam stating that it is “unknown” when Canada will reach heard immunity from the Coronavirus. Bank of Canada is set to hold interest rates at 0.25%.

Wednesday, 9th December – China’s CPI

Unlike the previous countries stated above, China went for a hard and fast tactic, restricting citizens’ movements drastically, under police supervision. This has seemed to work, with community transmission staying put in China.  With that said, China’s CPI figures are expected to come a little bit softer than the previous month, at 0% growth.

Lighter week ahead. Eyes on the vaccine rollout in the UK. Stay safe and Trade safe.

GBP/USD – the pair for the global economy?

Two main fundamental factors depressed the GBPUSD for the past couple of years—Brexit, and now recently, the Coronavirus.

The trade is relatively simple – once there is a vaccine for the Coronavirus, alongside certainty on Brexit talks, a good case can be made for the pair to reach its Pre Brexit/Pre Coronavirus levels around 1.45

Pound needs to meet two catalysts to hit 1.45

1.45 for the Pound against the U.S Dollar?

Let's go over the technical first. A Fibonacci drawn from 1.34 to 1.15, from the 2019 high to the 2020 low, can see the level of 1.45, hitting perfectly with the 161.8% retracement level, which was the level before the Brexit referendum results were announced in 2016. Alongside predicted further weakness in the US dollar, as vaccine hopes rise, the pound may rally on relatively less stimulus to its US counterpart.

We can also see some consolidation zones and congestion around 1.32 and 1.38, where bulls and bears fight it for a higher or lower move. However, movements to the upsides past these zones paired with positive fundamental news may see price levels freely hit strong Fib levels. A robust full recovery, with pre-Coronavirus level economic activity alongside a positive post Brexit environment, and we can see levels hit 1.50 – 1.55.

Brexit – time is running out, risky for the Pound

It has almost been five years since the Brexit referendum took place—a quick refresher on why Brexit occurred. There were talks amongst the public that they were getting the short end of the stick regarding the European Union and that the majority of the citizens in the UK wanted to leave. The Prime Minister at the time, David Cameron, disagreed with the notion that the UK public wanted to leave. Therefore, he initiated a referendum to show that the UK did not want to leave the European Union. It turns out he was wrong, and they did want to leave. David Cameron retired soon after.

Five years later, and we're edging closer to a deal. Brussels and the UK have started in-depth negotiations again after the Coronavirus ravaged the world. A "deadline" has been set for 31st December, where Britain will "leave" the EU regardless of whether a deal has been met. However, "deadline" is in quotations as both have agreed to extend deadlines that have passed many times before.

An EU official has stated that "its getting terribly late and may be too late already" and that "they [the EU and the UK] haven't quite reached where they had hoped to be." If a "no deal" Brexit occurs on 31st December, shock waves will be sent not only in the financial markets but also supply chains all across Europe and the UK. There is currently free trade and free transport out of the UK and into Europe and vice versa. However, a no-deal Brexit would mean that on the 31st December, the EU will treat the UK like any other country.

A no-deal Brexit should see the pound drop to a similar magnitude of that in 2016. However, if the optimistic scenario occurs and a vaccine comes alongside positive Brexit negotiations, we should see the pound rally against the US Dollar.

Week ahead - Central Bank speeches, CPI's

This week is relatively light regarding data coming out from countries. However, investors and traders will be focusing on one essential item – clarification on the Pfizer vaccine's efficacy and timeline. Anthony Fauci stated that the Pfizer vaccine has an "extraordinarily high degree of efficacy – more than 90%, close to 95%" and that the U.S. may begin offering the vaccine to priority groups at the end of December. This hope of a vaccine before year-end boosted risk on sentiment last week. But further clarification of the vaccine's timeline may solidify its move upwards, not to mention an additional step back to normalcy in the world.

Let's hope that the vaccine comes sooner rather than later, so we can focus on rebuilding the economy instead of listing deaths like a statistic. Here is your week ahead.

Coronavirus Cases continue to rise around the world.

Wednesday, 18th November – U.S. Retail Sales

As we put the U.S. election behind us, traders and investors' focus starts turning to the U.S. economy's health. Dubbed as the backbone of the economy, the United States consumer helped lift the economy pre-Coronavirus, helping support equities with higher valuations. The balance between households who were able to save their incomes due to lockdown and the households who could not keep their jobs became the critical question of whether the consumer will become the backbone of the United States recovery. However, with stimulus checks slowly drying up, alongside the Coronavirus worsening in the United States, analysts predict U.S. retail sales growth to slow around 0.5%.

Wednesday, 18th November – Speech form the Governor of the RBA, BoE, and the BoC

Australia
After beating a brutal second wave, Australia is on its way to a long and grueling recovery. Further supporting the recovery is the RBA cutting its interest rate from 0.25% to 0.1%. Analysts will be focusing on Governor Philip Lowe and his explanation on implementing lower rates and whether it will translate to lower retail rates. This contrasts with how New Zealand's implementation of lower rates in which they released a new tool to enable banks to lend at rates near the interest rates. AMP Capital Chief Economist Shane Oliver stated that he expects Governor Lowe to reiterate the Australian Economic Recovery as "bumpy and uneven" and that the bank stands ready to do more.

United Kingdom
There seems to be some relief with the Coronavirus situation in the United Kingdom, as the death toll is slowing. However, deaths were at around 170 in the previous couple of days, showing that the Coronavirus grapples with the struggling country. The Bank of England recently held interest rates at 0.1%. However, they decided to expand its target stock of asset purchases to around $1.2 Trillion U.S. Dollars. Vivek Paul, U.K Chief Investment Strategist at BlackRock Investment Institute\, stated that "For an economy with the headwinds of rising Covid rates, a national lockdown. And a still-uncertain outlook on Brexit, a strong monetary and fiscal policy response is essential."

Canada
Canada continues to rack up Coronavirus cases with no end in sight. Canada recorded around 5,500 new cases, an all-time high, with Dr. Theresa Tam, Canada's top doctor stating that Canada is on track for 10,000 daily Coronavirus cases if Canada is unable to rein-in the Coronavirus resurgence in the coming weeks. Dr. Tam states "Fires are burning in so many different areas and now is the time to get those under control." The Senior Deputy Governor of the Bank of Canada, Carolyn Wilkins, stated that the Coronavirus's economic "scars" could be permanent without a concerted effort from all Canadians. Canada is also set to release CPI figures year over year for October the day after, with a market consensus of a slight decrease in the growth of the CPI to 0.9%.

Thursday, 19th November – Australia's Employment and Unemployment Rates

As Australia slowly opens up their businesses alongside Australia and New Zealand borders, businesses in Australia slowly grapple with a decrease in foot traffic alongside compliance with certain Coronavirus restrictions. With women primarily bearing the brunt of job losses in the early part of Australia's recession, Shadow Minister for Future Work, Clare O'Neil stating that "a tsunami is coming for workers in predominantly male industries" Australia is set to see a 30,000 decline in employment, alongside an increase in the unemployment rate to 7.2% from 6.9% last month.

Friday, 20th November – PboC's Interest Rate decision

China has been reluctant to implement significant monetary policy changes this past year, even during the Coronavirus pandemic, opting for quantitative easing and stimulus instead. As China is relatively ahead of its recovery compared to other countries, it is seen as the first to likely exit its emergency programs, potentially increasing the offshore Yuan. However, if there were a perfect time to cut rates, it would be now as China would be better positioned to take advantage of lower rates, propelling China's recovery. My theory is that the PBoC surprisingly cuts rates this week ahead.

Eyes on the vaccine this week ahead. Stay safe and Trade safe.

Week ahead – United States Election!

With over 93 Million US Citizens voting early, surpassing two-thirds of all 2016 and consisting of 43% of registered voters, the United States election is finally two days away this week ahead. Many regard this as one of the most important Presidential Elections in history, possibly changing society's fabric in the United States for the foreseeable future.

Although the Presidential Election will probably get most of the attention, this week continues to be eventful with a lot of data being released. Here is your week ahead.

Dates are in NZDT.

FiveThirtyEight predicts in 20 out of 22 scenarios Biden will win the Presidency

Monday, 2nd November – US ISM Manufacturing

A key point in Trump's campaign in 2016 was his promise to bring jobs back to America. However, an amended NAFTA agreement, alongside many more amendments to foreign policy, has lost many manufacturing jobs. For example, over one in four Michigan manufacturing jobs have been lost since the NAFTA agreement amendment.

The Coronavirus has just brought more pain to the sector, with an estimated 381,000 manufacturing workers in Michigan, Ohio, Wisconsin and Pennsylvania were laid off or furloughed – with all, but one (Pennsylvania) states being in the midwestern part of the USA. These states were one of the key reasons why Donald Trump was elected in 2016.

As states slowly open up, the Coronavirus continues to run rampant, affecting workers employed in the manufacturing sector. Unlike the tech and finance sector, manufacturers can not work from home. With that said, the US's ISM is predicting to increase slightly from last month to 55.6 this week ahead, as suppose to 55.4 last month.

Tuesday, 3rd November and Wednesday, 4th November – RBA Interest Rate decision and Australian Retail Sales

Australia reached a positive milestone yesterday – zero community transmission. The country has a long road to recovery ahead of them, and the Reserve Bank of Australia acknowledges that. With dovish tones in the previous RBA minutes, analysts predict a 150 point basis cut, from 0.25% to 0.1% tomorrow. However, Insight Manager at Finder, Graham Cooke believes that further cuts will not make dramatic changes to the finances of ordinary Australians, stating that "a further 10-15 point basis cut us unlikely to have much of an impact on the economy –however, our experts seem to think that the RBA is in "every little bit helps" mode."

Furthermore, Retail Sales will also be released a day after the decision. Analysts predict a further 1.5% decline in Retail Sales as the Coronavirus continues to take a longer-term toll on employment.

Wednesday, 4th November – US Presidential Election.

The event everyone and I mean everyone, including your mother, will be watching.

There is nothing much to say about this other than to buckle in. Many polls state that Biden is likely to win. FiveThirtyEight predicts that in 20 out of 22 scenarios, Biden is stated to win. Other polls from firms such as RealClearPolitics see Biden leading over 9%.

Judging by the polls, the only way Trump can win is if he wins all of the swing states. The popular vote in NYC and California have Biden to win anyways, which means the popular vote will be absorbed within the Electoral college (tl:dr, the RealClearPolitics poll may be closer than is stated).

However, the polls showed Hillary winning in 2016. And we all know what happened then.

Friday, 5th November – Bank of England Interest Rate Decision

The UK struggling with lackluster leadership

The UK has finally imposed a stricter lockdown (however, not a full lockdown) on citizens for one month, with analysts predicting that the lockdown may be extended further to allow the UK to have their Christmas not under lockdown. The Bank of England is set to inject over 100 Million pounds buying back bonds to fight the second wave.

However, this may not be enough, with analysts at HSBC predicting that the BoE's bond-buying regimes are "running out of room," which may leave the central bank with no choice but to implement negative rates. Governor of the Bank of England, Andre Bailey, has not ruled negatives rates but has described evidence of their effectiveness as "pretty mixed" and that negative rates might be most effective when an economy is in a recovery phase for the economy to take full advantage of the negative rates. Analysts predict rates to stay at 0.1%.

Saturday, 5th November – US Non-Farm Payroll

A key indicator showing how well the US economy is recovering, Non-farm payrolls is predicted to print 700,000 new jobs, up from 661,000 the month before.

This week ahead is going to be a turbulent one. Strap yourself in, and brace for the ride.

Stay safe, Trade safe. Have a good week!

Elimination vs Suppression – Effects on the Market and Society

Elimination vs. suppression – What's the difference?

A dance club in Wuhan, China after stamping out the virus.

In short, Elimination and Suppression can be categorized by "Hard and Fast" and "Low and Slow." Elimination is akin to ripping the band-aid off, in which one hopes the intense pain is short and quick and can be over and done with. Suppression is akin to slowly ripping off the band-aid in hopes of spreading out the problem over time.

The goal of the Elimination strategy is to enact measures to eliminate all community transmission in society. Unsurprisingly, this would require stringent community movement restrictions, consistent contact tracing, and effective quarantine measures for the infected.

Suppression attempts to balance economic damage and the spread of the Virus. Suppression is almost the opposite of Elimination, in which measures are enacted, which would allow businesses to operate as much as possible while minimizing the spread of the Virus.

New Zealand officially was the only country that perused a full elimination strategy. However, we will include countries that implemented a significant and early lockdown as an attempt to "eliminate the virus." We will try to see its effect on the local economy, the relative stock market, and society. For the sake of this piece's length, we will not include small islands and populations who eliminated the Virus as a function of their size.

New Zealand

The poster child for how all countries should have handled the Coronavirus, New Zealand, led by Jacinda Ardern, was the only country which directly opted for a full Elimination strategy. The Director-General Ashley Bloomfield and Prime Minister Jacinda Ardern tend to get all the love regarding New Zealand's success. Regarding the Coronavirus. However, one doctor initially formulated New Zealand's elimination strategy – Michael Baker, a Public Health expert at the University of Otago, was the doctor who initially drafted the elimination strategy. He stated we should "throw everything at the pandemic at the start." His plan got criticism, with "some likened it to using a sledgehammer to kill a flea," he says.

The government ended up going with his plan due to his track record. On the March 25th, New Zealand had no deaths and 205 Coronavirus cases, when Prime Minister Jacinda Ardern, over a couple of days, closed the borders and ordered everyone to confine themselves at home, only allowed to leave their homes for essential reasons – buying food, going to the supermarket and if you were an "essential worker" (Doctors, Supermarket workers, Nurses, etc.)

Everyone was concerned about the disastrous Economic calamity that such a strategy would bring. Estimates by the government were around a 24% fall in GDP year over year – however, September figures showed a 12.2% contraction. There was a second flare-up of community transmission cases around August – however, the government was more or less expecting a second wave of community transmission with no links to any clusters. Again, they went hard and fast and locked down Auckland for a couple of weeks to stamp out the Virus. Currently, cases are controlled, with many off-cases coming from individuals entering New Zealand.

In New Zealand, life is back to a relatively normal, with most businesses that lasted the lockdown back in full trade with no more social distancing mandates to follow. Sports are back on, with large crowds. Economic recovery is fully underway, with voters voting in Jacinda Ardern for a second term in hopes that her leadership during the peak of the Coronavirus Pandemic can follow through in the economic recovery. The NZX 50 is positive year to date, around 6.83%

China

If New Zealand is the poster child for how all countries should have handled the Coronavirus, China is the older child everyone forgot about but is equally successful.

With the Coronavirus originating from Wuhan, China, the government quickly controlled and stopped the Virus from spreading to other places in China. They altogether stopped the movement of 60 million people in and out of Wuhan and 15 other cities in the Hubei provinces. However, soon after, just like New Zealand, the government implemented a lockdown in most cities, only allowing citizens to leave for essential supplies and food. China was ahead of the rest of the world in implementing measures to curb the Coronavirus. On March 25th, just as New Zealand started to enter their first lockdown, China was a couple of weeks into their lockdown.

China has received some flack for allegedly withholding information from the WHO and not allowing scientists from other countries access to crucial information regarding the Coronavirus and its makeup. However, their shutdown of the economy has otherwise been as effective as New Zealand, with stated daily figures dropping shortly after implementing their lockdown.

Figures released yesterday show China's GDP growth rate at 4.9% - slightly off the markets' estimates at 5.5% growth. However, this is nevertheless close to pre-Coronavirus GDP growth. Morgan Stanley cites "very strong exports and the gradual improvements in domestic consumption." The Shanghai Composite is positive this year, up 9.8%.

Vietnam

Vietnam (like Taiwan, which we will talk about later) has an advantage over New Zealand – they were prepared for a pandemic. During the SARS outbreak in 2003, Vietnam was recognized by the World Health Organization as the first country to be SARS free. In the following months, Vietnam ramped up interventions and made sure they were prepared for a future pandemic.

On April 1st, Vietnam entered a nationwide lockdown for two weeks, with extensions to 3 weeks in a couple of provinces. However, even before the lockdown, they were implementing restrictions to travel in and out of the country and limit gatherings and businesses in the country.
Vietnams GDP growth rate dropped to 0.39% during the peak of the lockdowns. However, it recovered back to around 2.7% once they opened. Vietnam's stock market, the Ho Chi Minh Stock Index (HOSE, HSE), is still down for the year, by around 13%.

What is important to note with the elimination cases is that the respective countries' governments re-opened their economies after there were no traces of community transmission. This is the crucial factor showing the strength of the elimination method, as no community transmission gives the societies the confidence for businesses and the government to open businesses with little restrictions. However, what happens if governments try to implement a "business-lite" approach, trying to balance the daily case count and economic health?

United Kingdom

Five weeks after the first Coronavirus case in New Zealand, UK's Prime Minister Boris John stated 'It is very important that people consider they should, as far as possible, go about business as usual". Nearly 300 deaths later, alongside himself contracting the Virus, he decided to put the country in a lockdown. However, the lockdown was relatively non-restrictive, initially allowing individuals to leave and enter the country.

After the lockdown, Boris focused on getting the economy back on track, providing incentives for people to eat at restaurants by providing subsidies alongside upholding job wage schemes. However, they did not consider the crucial factor that made Elimination successful – there was no community transmission coming out of the lockdown. When the UK exited lockdown restrictions, daily new Coronavirus cases were around 500-800 a day, nowhere near 0.

Now, the UK is paying the ultimate price for complacency. Daily cases are almost triple the initial wave. UK Citizens are again imposed to tiered restrictions relating to the region they live in – however, the UK has still not imposed a strict lockdown, even on the harshest tier 3 level. Unlike New Zealand, where they imposed University and Schools to close on their 2nd most severe level, the UK states that Schools and Universities to remain open even under tier 3. There have been around 43,700 deaths in the UK due to the Coronavirus. The FTSE is down 22% year to date.

The United States and Brazil

Surprisingly, the Coronavirus situation in the United States can be explained quite easily. President Donald Trump played down the Coronavirus. Once it reached the United States, he refused to enforce proper measures such as social distancing and masks. The Coronavirus started to spread and spread and spread. It has not stopped spreading. If the US Coronavirus were a CFD, it would be up 47% this year. United States' total cases are around 8.2 Million, with a death toll of 220,000. They have a population of approximately 329 Million.

Similarly, Balsonaro played down the Virus, reacting to Brazil's death toll at what point, stating, "So what?" – "I'm sorry. What do you want me to do?". Brazil's total cases are around 5.25 Million, with a death toll of approximately 154,000, of a population of roughly 210 Million.

Both Presidents have contracted the Coronavirus.

There have been some honorable mentions with nations initially seeing some success in suppressing the Virus, ultimately failing and seeing their cases spike.

Australia and Japan

Initially, critics of New Zealand's harsh lockdown pointed to New Zealand's next-door neighbor, Australia. In the early stages of the New Zealand lockdown, Australia achieved similar and sometimes even better daily reductions in cases without having to lock down its economy fully. However, near June, it became clear that the strategy was failing. Alongside accusations that outsourced security guards were sleeping with quarantined citizens, a second wave hit the state of Victoria like a rock. To this day, some citizens in Melbourne have been in lockdown for seven months.

Similarly, with Japan, the nation was admired for keeping their daily cases relatively low while many citizens continued with their daily lives. Many analysts cited Japan's citizens having good hygiene habits, with many citizens wearing masks in everyday life. However, just like Australia, the lack of Elimination in community transmission led to cases spiking near June, ultimately leading to a second wave.

One lockdown is better than two

One can deduce that one lockdown is better for the economy than two. In hindsight, it is clear that the elimination strategy is more effective than the suppression strategy. If every country used the elimination strategy, chances are we would have been on the road to recovery, travel would have been reinstated, and most importantly, fewer lives would have been lost. The question becomes, why were New Zealand and China the only ones who implemented an Elimination Strategy? It would be reasonable to assume there are brilliant experts in every country, so why were experts in China and New Zealand the only ones to figure out that it was the best strategy forward? Economy > Human lives?

Do you rip the band-aid off, or do you slowly pull it off?

Week ahead - Debates, Speeches, PMI's & CPI's

Who else feels like this year has gone by so quickly? Each week ahead article, I have been talking about how the election is coming and how volatile times are coming ahead.  Now we are neck-deep into election season, with the first one in New Zealand granting Jacinda Ardern and her party a landslide victory, enabling them to govern themselves. All eyes now are on the Presidential Election in the United States and the Brexit outcome between the UK and the EU. Here is your week ahead.

Note that Jerome Powell is set to speak on Monday – however, this is regarding digital currencies that may provide good information on his stance on digital currencies, but is unlikely to move the market much unless he provides other viewpoints on the future of the economy.

Congratulations, Jacinda Ardern

Monday, 19th  and Tuesday 20th October – China's GDP YoY, Third Quarter and PBoC's Interest rate decision

Everyone likes to talk about how well New Zealand handled the Coronavirus, with the nation opting for an elimination strategy rather than a suppression strategy. However, not many talks about China's statistics. They, too, went with an elimination strategy rather than a suppression strategy and have achieved results similar to that of New Zealand.

Coronavirus is all but a memory in Mainland China, especially in Wuhan, where the virus originated. A Bloomberg Poll of economists expects China to a third-quarter economic growth rate of 5.5%, which is near pre-Coronavirus levels.  Morgan Stanley believes this is due to "very strong exports and the gradual improvement in domestic consumption," citing higher exports in the previous month.

Furthermore, China's central bank is set to release its decision on interest rates later this week. Unlike the rest of the world, which cut rates at the start of the Coronavirus pandemic, China opted to restrain in cutting rates in favor of the fiscal policy. Ma Jun, a PBoC adviser, stated earlier this year that "the PBOC doesn't use its bullets all at once. China has plenty of room in monetary policy". And it seems like analysts predict to keep it that way, with the consensus being that the PBOC will keep rates unchanged at 3.85% this week ahead.

Monday, 19th and Friday, 23rd October – ECB's President Christine Lagarde speech and EU PMI's

With a second wave of the Coronavirus hitting Europe as they enter into their winter seasons, Christine Lagarde is expected to reiterate further support for the economy and the central bank's relatively bearish stance. With lax lockdown measures in the UK and Spain, alongside many partial reopening's around the nations in Europe, has wreaked havoc as the second wave in many countries nearly doubles or even triples the new daily cases seeing the first wave.

Furthermore, PMI's are set to come out for both the EU as a whole and Germany. Analysts predict EU PMI's to drop below 50, to 49.5, showing a consensus of contraction in manufacturing in October.

Wednesday, 21st October – Australia's retail sales Month over Month

Australia has tamed its second outbreak of the Coronavirus, providing the opportunity for a quasi "trans-tasman" bubble that has been talked about between them and New Zealand. As things return to relative normality in Australia, many cities in Melbourne, Victoria, continue to be in a state of lockdown, which may weigh on the Retail Sales figure, which is predicted to drop by 4% this month.

Wednesday, 21st October – UK's CPI

The mismanagement of the Coronavirus by Prime Minister Boris Johnson has put the UK in a terrible position. Even with a second lockdown, the Coronavirus continues to post double-digit new cases each day, way more than the first wave. With Boris keen to get business back on track, his focus became on ensuring economic downfall was minimized as much as possible. However, as shown by countries that opted for a full elimination strategy rather than a suppression strategy, the first step in an economic recovery is eliminating the virus.

The UK seems to have skipped that bit and opted to recover without fully squashing the virus. This has lead to disastrous consequences, with England's deputy chief medical officer Professor Jonathan Van-Tam resorting to hopes that the UK can roll out a Coronavirus vaccine "soon after Christmas" A restriction in demand in the UK alongside many subsidies has forced business in the UK to raise their prices – therefore, analysts predict an increase in the CPI this month by 0.5%.

Wednesday, 21st October – Canada's CPI

Another country that opted for a relatively loose lockdown – who encouraged, but did not enforce, citizens to stay at home is facing the consequences. A second wave has hit many Canada regions, with 80% of the cases having stemmed from Ontario and Quebec, its two most populated provinces. However, the government still has not ordered a complete lockdown, with Ontario closing certain establishes like gyms, movie theatres, casinos, and restaurants. Analysts predict the rate of CPI increase to drop slightly by 0.7%.

Thursday, 22nd October – New Zealand CPI

New Zealand has been the poster child for how the world wishes they initially handled the Coronavirus. As I stated many times already, New Zealand opted for an elimination strategy, and has seemed to work. "Hard and Fast," the Motto Prime Minister Jacinda Ardern went by, seemed to work, with New Zealand back to a relatively normal. The Coronavirus success has also won many voters' hearts this weekend, with elections giving her and the party a second term with a landslide victory. They retained 49% of the votes, enabling them to govern alone.  With that said, there are mixed thoughts regarding CPI figures this week ahead, with last month's print showing a 1.5% increase.

Friday, 23rd October – US Presidential Debate.

A lot has happened since the last Presidential Debate. President Donald Trump contracted Coronavirus, a new stimulus bill has been proposed, and Biden's son Hunter Biden has been in the news for leaked emails. Personally, I do not think the debate will provide much insight into future policies. It will be more comedic than anything. If anything, I believe this is a period where traders and investors should keep trading at a low, as both candidates' comments may whipsaw the market – as shown by the previous debate.

Stay safe, Trade safe.

USD/JPY on a downtrend as safe haven strengthens

Volatility lies ahead as we head into the election season. One of the places investors and traders like to park their money is the iconic Safe Haven, the Japanese Yen.

USD/JPY on a downtrend

After the initial spike in the US dollar strength, the Japanese Yen strengthened against the US dollar by around 5.2%. Not as drastic as commodity pairs such as the Australian Dollar against the US dollar; however, the trend of the strengthening of the Yen has been consistent and strong.

Many banks see a strengthening in the Yen against the US dollar as we enter volatile times ahead. Bank of America's Global FX Team stated that they predict to see the USD/JPY pair at 103, citing the "reintroduction of COVID-19 measures in most countries, particularly in Europe". They further state that the Yen has gotten stronger during the recent periods of weakness in the stock markets.

US weakening providing tailwinds for the Yen

However, it's not just the Yen that is in the picture. Weakness in the US dollar may provide tailwinds for the Yen. Many large institutions such as Goldman, UBS, and Invesco predicting a weaker dollar, citing Biden extending his lead over President Donald Trump.

Japan has not been in the news much regarding their Coronavirus response. Similarly to Australia, they went with no lockdown opting for social distancing and face masks, trusting citizens to continue their life with the Coronavirus in mind. However, just like Australia, the method backfired. They experienced their second wave, which was larger than the first. They have since tamed the Virus, however, at a significant cost. The political risk of a sudden change in Prime Minister saw the Yen jump.

With elections coming up ahead, there is a high chance we see the Yen rally against the US dollar in the future.