China is reeling under a major crisis as the outbreak now begins to threaten a pandemic. Reportedly, more than 1500 have already lost their lives, with more than 66,000 reported cases. The deaths includes 6 medical workers who got infected while treating the patients.
BREAKING: People in Wuhan, China have been banned from leaving their homes
— The Spectator Index (@spectatorindex) February 15, 2020
Michael Novogratz ,the founder and CEO of Galaxy Digital, notes in an interview yesterday,
Do an aerial view, nothing is moving in China. So the Government is getting ready for two barrels of liquidity. Its driving stocks, crypto and gold.
Unprecedented Growth or Economic Stimulus?
Nevertheless, stock market and commodity investors are trading with a risk-on intention. The S&P 500 index closed on ATH yesterday at $3380; the Dow Jones Index increased as well. Moreover, positive consolidation in Gold has pushed it’s price above $1583. Novogratz also noted that the added liquidity from China will cause another wave of highs in Gold and Bitcoin as well. He added,
“That’s going to be good for Chinese stocks at one point, but that stimulus always finds its way around the world. So oil prices end up coming back up, and you get another surge of growth.”
To ease the growing tension, the Chinese are making use of one of the easiest QE programs, i.e. printing more money. Despite its’ shortcomings, the liquidity surge has so far been stable. Peter Brandt, leading chart analyst notes,
Those that bet against U.S. capitalism keep losing their money, their reputation, or both.
I guess it must be a thrill to proclaim a top at every new ATH. Someday they will be right. Maybe!
Brandt is bullish on the stock market for the current decade. According to veteran financial analyst, Thoman Lee of Funstrat, 2020 is going to be bullish for both.
Dow to $30k. #bitcoin to $40k
— Thomas Lee (@fundstrat) February 10, 2020
Moreover, Bitcoin’s halving and performance as ‘safe haven’ is adding to the bullish sentiments.
Bitcoin and Gold: Risk off or On?
Fundamentally, the increased liquidity must be balanced by economic growth and fair distribution of wealth. However, as China continues to battle the deadly virus, with diminishing world trade, it can lead to a huge recession.
Recently, Chinese President, Xi Jinping warned the officials of over-spending beyond the country’s means as well. Currently, investors are exhibiting a risk-on sentiments as stock market uptrend continues. As the interest rates are already near lows, a rise in the rates seems imminent as well.
Moreover, as Gold and Bitcoin continue to to hold on to their gains, the optimism around futures prices grows in a risk-off environment as well. However, if the threat from the virus subsides due to the efforts of the people in China, the risk-on environment in stocks should continue.
Which sentiments is prevailing dominantly: Risk-on or Off? Please share your views with us.