#78 The insurance cut and the new Trump Tweet

The insurance cut and the new Trump Tweet

BOJ keeps pumping, FED cuts rates, Brexit beyond the BOE’s capacity, New tariffs on September

3+9 minutes read report, 2+6 pages


Getting ready for a trend reversal, as it was stated at the last week’s report was once again the correct thing to do. The FED’s rate cut was communicated as an insurance cut within the cycle, and not the beginning of a new monetary loosening round. The face-to-face negotiations of Bob Lighthizer, Steven Mnuchin and Liu He in Shanghai, ended with PresidentTrump announcing that an extra round of tariffs will be imposed, starting from the 1st of September, that are set to increase later. The week ended with Trump joking about the possibility of imposing tariffs to European and Japanese automobile industry. “Μεταξύ αστείου και σοβαρού” is a Greek expression that implies that within the lines of being serious and joking, the actual real intentions are being expressed.

In the upcoming week, there is no play, other than keeping the risk-off trades (shorting equities, CNY, AUD and going long JPY) from last week and adding more positions at any probable rebound that could happen.

A sudden deterioration of EU-USA trade relations is still on. The sudden deterioration of US China relations has already happened. Worth noting that (a)China is no longer the number one trade partner of USA and (b) the trade deficit has already been cut to half (used to be around $400bn annually and has narrowed to $110bn during 1H2019).

Major events of last week:

  • US-China: New 10% tariffs will imposed starting from the 1st of September on the rest of $300bn worth of Chinese products that could reach to 25% tax rate when the negotiations fail.
  • Japan-South Korea: Japan removed S.Korea from the list of favored trading partners.
  • ASEAN summit:This year’s summit took place in Thailand and the maritime code of conduct was high on the agenda. Vietnam and Philippines accuse China of being aggressive at the South China Sea. Australian-Chinese relations are relaunched since November, but the progress is not satisfactory (5G was included on the agenda, as Huawei is not allowed to offer it’s 5G solution to Australia). Australia-USA-Japan criticized China in a joint statement at the summit.
  • Iran: Officials from the UK, France, Germany, Russia, China and Iran had constructive talks in Vienna over the Iranian 2015 nuclear deal. The Deputy Foreign Minister of Iran noted that all parties are still determined to save the deal. Meanwhile, Australia is being pressured by the USA, to join patrols at the Strait of Hormuz. Iran is objecting the plan for a EU-led naval mission to ensure the freedom of navigation in the region.
  • Geopolitics: N. Korea performed a 3rd missile test in 2 weeks. The UK, Germany and France called for a UN Security Council meeting on the issue, but the USA is downplaying the whole thing, given the short-range of the tested missiles. The nuclear treaty between Reagan and Gorbachev that marked the end of the Cold War is officially dead, as the deadline for USA’s withdraw has been reached. The independent mayor of Tapei, Ko Wen-je, will set up a new party to run in the legislative elections of Taiwan in January.
  • UK : The UK’s Liberal party won the seat held by the governing Conservative party at the by-elections in Wales. MP’s do not want Brexit, BOE does not have the capacity to anticipate-prevent-fix Brexit, the Governing party and the Labor party are self-trapped into Brexit, the EU is offering an extension of the 31st of October deadline. Brexit talking will become an ongoing issue to address (like the repeated increase of the US debt ceiling), is my take.
  • Protests: Protests in Hong Kong, against the extradition bill to China, continue for the 9th weekend, as the one country-two systems scheme ends on 2045. On Monday, China addressed the protests with a statement for the first time, and later it was revealed that Hong Kong army is doing anti-riot drills.

Major events of next week:

  • Central Bank of Australia’s (RBA) monetary meeting on Tuesday


Issued by Labis Michalopoulos, CFA




For the readers of the report:

Redistribution is allowed as long as the author and his contact details are referenced.

This material is for Qualified Investors and Professional Clients only and should not be relied upon by any other person.

Past performance or past accurate forecasts is not a guide to future performance and the accuracy of future forecasts and should not be the sole factor of consideration. All financial investment decisions involve an element of risk.

This report is for information purposes only and does not constitute an offer or invitation to anyone to invest or trade and has not been prepared in connection with any such offer.

Any research in this document has been independently produced by Labis Michalopoulos, CFA for his own purpose, and is intentionally written in first person. The views expressed do not constitute investment or any other advice and are subject to change. The author has an interest in the currency pairs, indexes and any other security disclosed in this report, as he is an active trader.

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For qualified perspective clients of the advisory service:

GIPS standards are all about full, fair, consistent and comparable presentation of actual returns of the past. No models, no back-testing, no promises. I am doing that. I am publishing in real time, via a 3rd party, my actual returns since inception where one can see the most strict, comparable, revealing metric of the industry: the monthly Sharpe ratio.

My current monthly Sharpe ratio stands at 0.27 as can be found at www.forexfactory.com/dxmix

My current annual Sharpe ratio is 0.27 multiplied by 12 = 0.27 x 3.46=0.93 Annual Sharpe Ratio

The numbers used to stand at 0.5 monthly Sharpe ratio and 1.73 annual Sharpe ratio up until the August of 2019 for 45 consecutive months. On 24 August 2018, I mistakenly ordered to open a position 10 times bigger that I am used to. My equity level is currently back on track, but my statistics are no longer as impressive as they used to be. My 54 months, since inception, monthly Sharpe Ratio (that includes the leveraged AUDUSD trade) stands at 0.27, equal to 0.93 Annual Sharpe Ratio.

I cannot claim that I will be performing with the return of my best months, but I can tell that I will hover around my average returns. Claiming with a 95% confidence, that my next month* return will be within my average monthly return ± 2 standard deviations is a well educated statement I can make anytime.

My average monthly* return ± 2 standard deviations is from -16.54% up to 20.49%

My average monthly* return ± 2 stadard deviations becomes -5.74% up to 9.47% , excluding the 4 months effect of the one time mistake trade.


* the monthly returns are the actual returns within a month. They are not presented on annualized basis.

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