— This is the script of CNBC's news report for China's CCTV on June 4, 2018, Monday.
Yes, the market will face a series of risk events this week; it is also analogous to "Whack-A-Mole". The similar point between market and game is Whack-A-Mole has contingency; people who played this game know that. Hammer hits the moles wherever they come from. The challenge is the randomness; moles may appear at every hole in the next step, requiring the player to be highly focused and once you miss the hitting time, then the probability of the entire game crash will increase. In this week's financial market, we are also facing seven moles. We will sort it out. The first mole is oil price.
In recent few months, because of the positive inventory data of oil price, production cuts of OPEC, Russia and other countries are beyond expectation, as well as the geopolitical turmoil in Middle East, boosting oil price. However, Saudi, Russia and other oil production giant countries are prone to increase production.
Weighting down the price of WTI crude future last week, with a biggest one-day loss within 1 year, and shares related to petroleum and natural gas declined. However, most of analysts think that as long as the oil price can maintain at more than 70 US dollars per barrel, then from the point of view of the entire industry, the fundamental recovery trend of the oil and gas industry will be able to maintain.
Secondly, global trading is another mole. This is not only the trading friction between US and China, but also the trading dispute between US and EU, Mexico, Canada and other trading partners.
Currently, for the specific revenge measures, we have to hear the position from different parties, but some analysis thinks that there are different voices within EU regarding the tariff that aims to revenge the US. Among them, German has more worries compared to French's aggressive attitude, because in case they take revenge measures, then that may lead to an escalation of the situation and further deterioration of the trade conflict, including the possibility of a sharp drop in German car exports.
At present, many analysts believe that EU may be forced to open its markets further to the United States in order to ease the pressure from Trump's tariffs. In addition, the Italian political situation is the third mole. Although the new Italian government finally took office on Friday, that ended the political fluctuations that lasted for several months and the threat of re-election.
However, investors still feel nervous, because the united government promised to increase expense, cut tax and challenge EU's financial regulations, all these may increase Italy's debt burden. And the new government holds suspicion on Euro. This may affect EU's stock market, bond market and Euro.
At the same time, geopolitical events around the world may continue to warm up, including the leaders of North Korea and US will meet soon and any changes that may happen in this week. In the Middle East, the situation in Israel and Iran is still tense, the market worries that the war may erupt. Those worries will continue to affect oil price and investor's demand for safe heaven assets. This is the 4th risk mole.
Then, last Friday, the US employment data was strong, boosting dollars and making the Fed lift interest rate becomes a foregone conclusion and may raise expectation for the 4th round increase interest rate. The Fed increase interest rate, this 5th mole also triggered a chain effect; making the currency exchange rate in emerging market under more pressure and kicking off the risk of capital outflow and local currency devalue, as well as increasing inflation across the globe. Those are the 6th and 7th moles.
As in the game, these risky moles may appear at the same time, and then this requires the market to adjust and respond more quickly, but at the same time, there is also a great chance that we will face a volatile week in the financial market. We will keep an eye on those risky moles for you.