Is this the beginning of the end for Hong Kong's autonomy?

Russian dictator and revolutionary Lenin who overthrew the Tsarist regime made a famous quote “There are decades where nothing happens; and there are weeks where decades happen.” We are experiencing something that lives up to that quote.

On Friday, the Chinese Communist Party unveiled details of a plan to impose national security laws on Hong Kong. The true colors of the authoritarian regime in China are at full display to the rest of the world.

The autonomy, democratic institutions and civil liberties, which have been key factors in preserving Hong Kong’s special status as One Country, Two systems and its future is clearly under threat.

US was quick to react to it. The US announced on Friday it would add 33 Chinese firms and institutions to an economic blacklist for helping the regime to spy on its minority Uighur or because of ties to weapons of mass destruction and China’s military. The US is getting explicit on the nuts and bolts of its long-standing feud with China. This will have major implications on US domestic politics, geopolitical issues and other economic developments going forward.

President Trump will use this as a major talking point for his re-election chances with Democrat candidate Joe Biden. Democrats are considered to be weak on China and especially Biden’s track record on China and his son receiving over one billion dollars - working for a Chinese state-owned bank does not look good for him.

Americans hold extraordinarily negative views on China and both candidates will want to tap into it.

Market movements were fairly subdued yesterday considering the long weekend in US on Monday due to Memorial Day. Let’s get into the details.

Equities

Friday had the weakest total stock market volume in three months. The advance/decline was nothing to talk about at 1.26:1. Up and down volume was slightly negative but for the week, all the three major indexes were slightly higher than 3%.

On Wednesday, the S&P 500 made a new recovery high at 2980 in between our projected window of 2975-2985. It looks like it has completed the bearish rally but if there is some more bullish potential left it can rise to the 200-day moving average at 3007 or to 3024 to fill a gap that exists from Mar 05.

We do not believe the markets can rise to the 3140-3240 levels that we mentioned before but wanted to point out the risks. A move below 2850 will significantly weaken the above risks.

Bonds

The bonds are going through some repeated corrective patterns and looks like it is ready to resolve it soon. A move below the May 19 low on a closing basis should open up the doors for much significant lower levels.

Euro

With the recent break up in Euro it has opened up conflicting possibilities. There is a developing triangle and triangles are mostly difficult to trade. If the closing levels hold, there is a risk Euro can rise to 1.1200-1.1235. A move below 1.0727 the low of 24 April, should invalidate this possibility.

Gold

Price action in gold is not very convincing but the intraday top at 1766 on May 18 could hold. Strong resistance remains in between 1790-1805.