Updated: Jul 1, 2021

By Imran Lakha 

Imran Lakha - Senior Advisor

Risk markets began the year in exuberant fashion making new highs as investor consensus seemed to be extremely optimistic. The equity markets even managed to shrug off geopolitical tensions between Iran and the US which resulted in air strikes by both parties after the US killed a top Iranian General causing people to fear the beginning of World War 3.  Despite de-escalation, this confrontation did however trigger some extreme volatility in oil prices and reignited the gold rally, taking the precious metal briefly through 1600 on the upside. 

We had also seen quite parabolic upside moves in stocks like Apple and Tesla over the last few months which have definitely felt bubble like and caused some concerns of too much too fast.  After hitting peak euphoria some time in mid January, the market has had a ‘not so healthy’ dose of reality. The US market has given up all of its gains after being up around 3% whilst European markets are now down 2% on the month of January. The main culprit being the outbreak of Coronavirus (2019-nCoV) originating in China which is sending shockwaves across the globe due to the potential impact it could have on the Chinese economy and hence the global economy. The Chinese stock market is down 13% from its January highs and showing no signs of bouncing since reopening after Chinese New Year. Initially global stock markets had been relatively un-phased by the outbreak and had been comparing it to the SARS virus which had very little lasting market impact. However, that was not at a time where markets were seemingly overvalued, positioning was extremely bullish and global supply chains were as tightly linked as they are now. 

If China sneezes, the world will definitely catch the cold! Oil prices have tumbled a massive 15% since the outbreak as markets factor in the impact on oil demand from the travel bans that countries have begun imposing to China.  The World Health Organisation(WHO) recently declared the outbreak an international emergency due to the growing cases outside of China and the exponential rate at which this can spread if left un-contained.  One saving grace seems to be that fatality rates are relatively low for now, but many of the statistics out of China are regarded unreliable so time will tell.

Currency markets have been quite insulated from the concerns over the virus so far and we have seen EUR trade within the 1.10-1.12 range since the beginning of the year. GBP had a brief downside test of 1.2950 but has managed to trade back up to 1.32 on relief that Boris did actually ‘Get Brexit Done’ and the Bank of England saw fit to leave UK rates unchanged. We would expect GBP to fade as we start to get into the trade deal negotiations which will inevitably bring more challenges and UK growth will likely be hampered by a general reluctance from business to invest until the terms of the deal are known.

In our previous outlook we had said that we felt that Q1 would be challenging for equity markets given positioning, sentiment and valuations. It seems this virus(2019-nCoV) has given the ammunition needed to begin a correction. Another potential cause for concern is the Democratic primaries, where polling suggests Bernie Sanders as the frontrunner to go up against Trump in the November US election. This would be very negative for markets and may prolong the correction if it was felt that he might actually win.  

Overall, we still think the dip will get bought at some point over the next couple of months once these latest fears reach their climax and the various ‘big guns’ get called in to support markets (think FED rate cuts and Global QE).

Good Luck out there.


The risk of trading commodity futures and options is substantial. The high degree of leverage associated with commodity futures and options can work against you as well as for you. This high degree of leverage can result in substantial losses, as well as gains. You should carefully consider whether commodity futures and options are suitable for you in light of your financial condition. If you are unsure you should seek professional advice.

Past performance does not guarantee future success. In some cases managed accounts are charged substantial commissions and advisory fees. Those accounts subject to these charges may need to make substantial trading profits just to avoid depletion of their assets. Each commodity trading advisor (“CTA”) is required by the commodity futures trading commission (“CFTC”) to issue to prospective clients a risk disclosure document outlining these fees, conflicts of interest and other associated risks. These risk disclosure documents are readily available upon request. The full risk of commodity futures and options trading cannot be addressed in this risk disclosure statement. No consideration to invest should be made without thoroughly reading the disclosure document of each of the CTAs in which you may have an interest. Requesting a disclosure document places you under no obligation and each document is provided at no cost. The CFTC has not passed upon the merits of participating in any of the following programs nor on the adequacy or accuracy of the disclosure documents. Other disclosure statements are required to be provided to you before an account may be opened for you. In making an investment decision, prospective clients must also rely on their own examination of the person or entity making the trading decisions and the terms of the advisory agreement including the merits and risks involved


#marketreport #vectorcapital #investmentfirm

116 views0 comments

Recent Posts

See All