Resurgence of euro debt crisis

Since late last year, I have emphasised many times over investment conferences, seminars and media that the resurgence of euro debt crisis is likely to return sometime during end 2018. Many speculations have been gossiping in market of Greek debt that might cause another debacle in June.

My rationality is on the adamant sentiment of US President Donald Trump in creating a strong dollar and strong oil prices for stoking inflation.

This would give a good excuse for the Federal Reserve chief to hike the Fed fund rate for at least bringing it to two per cent benchmark by end of this year. Naturally, bond yield will begin to climb and trigger a rise in mortgage loan cost.

While the dollar surges and oil stabilises at US$70 per barrel, this situation enables the US exporters to sell at reasonable good prices that bring profits to the American economy.

Thus, it came as no surprise why Trump first declined the Paris Climate Treaty in last August and then followed by pulling out of Iran deal in this year May.

In consequence, what we have seen is the collapse of emerging market economies like Latin countries and oil exporting countries when their currencies have devalued rapidly!

As most global funds begin to flight back to US soil, there erupts the sign of cash shortage in the emerging countries and Eastern Europe.

Looking at the current European economy, we all know the Quantitative Easing policy since 2013 has not stopped and the inflation growth has not really helped to recover over the 19 nations while sitting on ballooning debts.

Therefore, it is definitely not possible for European Central Bank to start tapering the stimulus when most of the member countries are still sinking in doldrums of asset-purchase program on monthly basis.

While the Fed has initiated the credit tightening since end 2015, it is not difficult to understand the agenda for normalising the interest rate is to prepare for the policymakers to start slashing it when another recession hits before year 2020!

However, this has become an indirect impact to European region when European Central Bank fails to follow suit. In late May, Italy has created a whirlpool in market when it announced the national debt at US$4.2 trillion while most investors were ogling at Greece with US$570 billion struggling debts.

Since March, the election outcome in Italy has not enable any major winning party to form a new Government, hence the situation may force the country into another referendum in July.

Unfortunately, this political crisis has waned the investors’ confidence and abandoned the Italian Bonds causing the debt to be revealed!

Following this unexpected crisis, there could be many more ugly heads to be surfaced in coming months as euro currencies plunge into devaluation as counter balance to strengthening dollar.

Soon, other countries like Germany, Spain, France and Eastern counterparts will surface with debt once their national bonds are punted by investors.

Once the chain of debt crisis erupts, the fund will flow back quickly into the dollar and major commodity as safe haven.

This is the time to exit European equities and real estate properties.

Ironically, some parts in Asia are still immersed in frenzied speculation for property markets.

Nevertheless, we reckon this could be the final top for the whole decade that asset prices might be fizzling out soon as the cost of borrowing is no more cheap and affordable like before! You may choose to eat the shark for dinner or let it eat you.