Everything’s a Buy as Central Banks Keep on Greasing Markets
Risk assets rallying even as global growth outlook worsens Markets are driven by central bank liquidity, Commerzbank says Misery is making strange bedfellows in global markets. At a time when risky assets including stocks, commodities, junk bonds andemerging-market currencies are rallying to multi-month highs, so are the havens, from gold, government bonds to the Swiss franc and the Japanese yen. No matter that the U.S. labor market is deteriorating and the World Bank has just cut its estimates for global economic growth. Investors either don’t believe the news is bad enough to kill a global recovery that’s already long in the tooth, or they’re betting that sluggishness in some of the biggest economies means central banks will stay more accommodative for longer. “Everything is being driven by high liquidity that ultimately is being provided by central banks,” Simon Quijano-Evans, chief emerging-market strategist at Commerzbank AG, Germany’s second-largest lender, said in London. “It’s an unusual situation that’s a spill over from the 2008-09 crisis. Fund managers just have cash to put to work.” For much of the time since the financial meltdown eight years ago, investors have been in the mindset that bad economic data is good news for markets. The near-zero interest-rate policies by major central banks — and negative borrowing costs in Japan and some European nations — have pushed traders to grab anything that offers yield. And every indication that the liquidity punch bowl will stay in place is greeted by markets with a cheer. Euphoric Market The latest euphoria started Friday when the U.S. job report showed America added just 38,000 jobs in May, the worst reading since 2010. That has eliminated any chance that Federal Reserve policy makers will raise interest rate from as high as 0.5 percent, when they convene next week, according to data compiled by Bloomberg based on Fed fund futures. The odds for a move in July have declined to 20 percent, from 53 percent a week earlier. China, which contributes the most to global economic growth along with the U.S., has played its part to buoy the sentiment. The economy has stabilized following a new dose of credit expansion from earlier this year. In the euro-zone, the European Central Bank entered new territory in its effort to stimulate the flagging economy, buying the debt of some of the continent’s biggest companies for the first time. Relieved Traders By Wednesday this week, the Standard & Poor’s 500 Index reached a 10-month high, commodity prices jumped to the strongest since October and non-investment-grade bonds extended this year’s advance to more than 9 percent. The pared expectations for Fed rate hikes have also pushed the dollar lower, helping boost assets sensitive to the greenback, such as gold, oil, the yen and franc. Investors can be forgiven for feeling a sense of relief. Signs are everywhere that the U.S. economic recovery, which started seven years ago, is maturing. Earnings growth has plateaued. Business spending has sagged and global trade remains stagnant. On Tuesday, the World Bank cut its outlook for global growth this year to 2.4 percent, down from the 2.9 percent estimated in January. In the U.K., a narrowing of polls over the past week has raised the likelihood of a British exit from the European Union. Against all this, preemptive Fed rate increases would be a body blow. “There was a lot of nervousness in the markets with respect to the Fed,” said Manish Singh, who oversees about $2 billion as Crossbridge Capital’s head of investments in London. “The Fed and U.S. dollar are definitely the big factors — the fact that the Fed is not raising comes as a relief.” Exotic Corners One consequence of the concerted gains is that investors will find it more difficult to protect themselves in a market selloff, according to Goldman Sachs Group Inc. Higher correlations between regional markets make it difficult to hide out in foreign stocks. Bond yields hover near record lows, squashed by central banks’ quantitative easing plans, and defensive equities have been bid up, Goldman’s Christian Mueller-Glissman wrote in a note to clients Wednesday. That and dovish central bank policy have chased investors into exotic corners of the market looking to hedge, said Michael Purves, chief global strategist at Weeden & Co LP in Greenwich, Connecticut. “There’s a lot of rationale getting long the VIX right now,” Purves said. “It’s one way of hedging, and that argument applies anytime we get some sort of follow-through rally and volatility is low.” Shares outstanding in exchange-traded notes betting on an increase in the VIX are at all-time highs. The counts, which rise along with demand for ETFs, has nearly quadrupled over the past three months for the VelocityShares Daily 2x VIX Short Term ETN, a security that appreciates as turbulence increases and often used as an equity hedge. Short interest on the security, while still well above its historic average, has fallen 60 percent since March. “I am not entirely convinced by this rally,” said Francois Savary, who helps oversee the equivalent of $2.7 billion as chief investment officer at Prime Partners in Geneva. “There is too much correlation between asset classes and that’s dangerous when sentiment remains erratic.” Source : Bloomberg
Gold Shines In 2016!
Ladies and Gentlemen, Gold has rallied almost 17% this year and most analysts are looking at the Metals markets heading higher, spear headed by the Yellow Metal. So what has been the key driver of Gold this year? Well, Monetary Policy in US. If we look back at last year one of the reason Gold struggle to rally is because it was cautious about the rate hike. This year, the drivers have changed. Looking at the Financial Market & Global Economy as a whole. After last months FED meeting we saw Gold getting a lift, upon the cautious dovish notes. We also saw that China Gold imports were lower recently and heavy restocking, especially ahead of the New Year (Jan – heading into February). So what is the cap then on the upside? Well, as Gold prices rally quickly the downside range can also be greater. Hence why if we saw a huge spike up to $1300 it could be bad for the market. However, if we see prices correcting at these levels (as well as the physical market adjusting) and the market coming into the right support – this could provide for a much more sustained move higher. Another interesting market… Platinum. Platinum flirting with 1,000 per ounce, after a 5 year pressured market and that has not been enough to lift prices at all. The underlying stocks have also been quite high with supply growing also. However, 2016 looks like the year we will see XPTUSD start to base around the 1,000 per ounce mark and prices should be lifted from here. There is also a strong fundamental reasoning for this sustained move higher. Firstly, South Africa (accounting for 80% of the World’s Platinum) and their wage negotiations, which will be very significant. From this, we should see more producer discipline and cut backs in supply growth, this should lift in investor sentiment. Most of the Rand volatility should also support this wage case. Secondly, the Jewelry market – which was incredibly weak last year.. although the price elasticity has come back into play this year offering a greater floor for prices. As always. Trade Smarter Anish8FX@Atom8.com
CALLS FROM THE TRADING FLOOR – Hold Gold Longs in 2016!
CALLS FROM THE TRADING FLOOR – BUY GOLD! Ladies & Gentlemen After a four-year slide, the price of Gold has nowhere to go but higher and many investors are starting to agree. The case for the “safe-haven” was further assured today, as China’s manufacturing data showed a contraction. For the majority of the Commodity markets, January was another bad month in a long bear-market cycle – apart from Gold. Gold rallied 5% in Jan, the best monthly gain in a year. Turmoil in Chinese markets (with the view of a potential Global Sell-Off), Oil price uncertainties and a slowing US growth has tickled Investors demand for the traditional safe-haven asset. Again, their remains a high chance the FED will hold off on further interest rate rises this year adds to the attraction for the yellow metal. There is really no sign of a re-surge in inflation and this has also been a large factor to Golds rise and this relationship goes back to the 1980’s. However, what is interesting is that through the last 12 month Gold slide, we have had China, Russia and India continuing to purchase Gold (about 55% more in 2015) – but then why did not this affect the Price? It seems investors are more focused on Financial Assets & The state of the US Economy rather than Countries Gold holdings. James Cordier, CEO of a US based Options firm said “With stock markets looking to crash all over the worlds and the US economy growing slowly, nothing is pointing to rate hikes and that is why Gold will continue to rally” . However, as mentioned in posts prior – it is important to note that Gold does not pay a coupon like other competing assets, although the price elasticity (over the last 5 years) seems to have drawn Investors (especially Central Banks, like China, Russia and India) towards the Bullion. For the coming weeks, months / Central bankers like Kuroda and Draghi have key speeches scheduled (as well as NFP this week) which could further spur the rally in Gold as the consensus is for further tightening and talks of Negative interest rates and more uncertainty. As always, Trade Smarter Anish @Anish8Fx
What To Expect With Oil At $20?
What To Expect At $20 Oil? Ladies and Gentlemen As we saw Oil dip below $30 per barrel yesterday, we have seen somewhat of an overnight reprieve in the Oil trading sessions of Asia and Europe. However, it is very hard to find reasons to be optimistic in current conditions, especially with the over-supply and concerns about China growth. The pain low Oil prices has so far caused for Oil investors and Oil producing countries may just be a taste of things to come as we head to $20 per barrel. We are now confronting $20 Oil and the likelihood is fairly great. Clearly Oil markets cannot maintain these prices (below $30) for very long and the question is for how much longer? The Gulf Economies as well as other Oil producing countries are suffering immensely, such as Malaysia – who are losing $68 million for every $1 decline in the price of Oil. Oil producers too.. EconocoPhillips – losing $2 billion for ever $10 decline and yesterday Petrobras announcing it is lopping $30 billion of it’s 5-year spending plan… Hours late, BP announces that they would slash 4,000 jobs. If there is some sort of optimistic note to leave you on and that was last year China (2nd largest consumer of Oil) imported a record amount of Crude, but that was simply taking advantage of low prices… and if/when prices go up they can start taking advantage of their huge stockpiles. $20 oil just acts to dig an even deeper hole from where you need to be before the markets look to open up again! Best of luck guys! Anish8FX @Atom8.com
Oil Crisis? Should We Now Buy Gold?
Oil Crisis? Should We Now Buy Gold? Ladies and Gentlemen With a 17% fall in Oil since the start of 2016, the possibility of $20 oil becomes a real target for Investors, as we see major Hedge Funds exit the commodity. Gold since August has been swung around in a tug of war, with Chinese equities on one side and a strong USD on the other. This pendulum has been relentless in the recent months, however with new lows in Oil prices, Gold continues to hold well in retaining it’s safe haven status.Gold has climbed 3.4% already in 2016 and investors risk aversion does not seem to be letting up. Geopolitical tensions persist in the Middle East and North Korea, as well as concerns about China’s growth forecasts. However, with a persistent strength in the USD forecasted for 2016, some analysts still call for sub $1,000 (per oz) Gold… as a “Competition for Gold” increases. With Oil prices reeling from oversupply and Gold getting a small boost, Brent crude is now at the cheapest relative price in almost a generation. But what is a “Safe-Haven”? By Economic definition (as pointed out by James Steel, of HSBC) The Safe-haven inspired demand for Gold (and other precious metals) rests on the interconnection between the state of the Gold Market and the Financial Markets of countries with long-term structural arguments for Gold accumulation (i.e. China and India) – and with this being said, HSBC forecast average Gold prices of $1,205 this year. Mr Steel is looking more with a long-term view, as accumulations continue to rise. We always tend to think about Gold being a hedge on safety, however recently Gold has been more about uncertainty and a reflection of anxiety. Gold in a deflationary environment, may actually be likely to continue it’s slide down. 2016 could well be the story of Central Bank delivery, especially as we are now risk-off as we strength in the Yen for example… but we hear nothing about the BOJ pushing back.So Is Gold still a mark of uncertainty? Well the recent shocks coming from China did Send Gold immediately higher, which is reassuring to see. I personally am long Gold, as I think it’s safe-haven status will be the trend for 2016 but in the short-term we may remain bearish. I wish you all the best of luck with your Metals trading and as we all stay tuned to this theater of events in the World markets, I wish you safer trading. Anish8Fx @ Atom8.com
The Future Is Bright – The Future Is Silver
The Future Is Bright – The Future Is Silver! Ladies & Gentlemen, As we tick closer to “Lift-Off” from the FED, the Precious Metals continue to remain cursed by the USD bulls. But what will happen after the initial FED fiasco? Will the Markets quickly learn to appreciate reality of US Debt? Will investors flock into the Metals?… I’m not too sure, but I do make a good case to stay long Silver (XAGUSD) for the next 5-10 years. Commissioned from Mr. Hague (SocGen), he has created a propriety model on measuring a move in the commodities in relation to Macro factors, the Strength of the USD, Interest Rates & Market Fundamental (Variables) & from his analysis, it is clear that Fundamentals have taken a back-seat over the past 12 months. The Macro variables are the driving force behind the Markets, covering the environment for Risk Attitude, the Volatility Index & Equities…. This is what (according to Mr. Hague) is moving Silver (chart below): Over the past 2-3 years, Silver has been trading more like Gold & recent moves have been primarily driven by the strong USD and all-round been a strong head-wind for the Metals. With Silver being 60% Demand driven, more for Industrial uses (mainly Electronics).. we begin to see Silver evolve from a Precious Metal to a Base Metal. The long-term outlook for Silver is bright, and a big part could be due to the anticipated exponential use of Solar. According to the IEA’s growth forecasts (on a mass scale) over the next 5-years, they would be using nearly 1 Billion ounces of Silver! This bodes very well for Investors looking at today’s chart, as you finally have (after 12-13 years) Silver Supply declining, especially when you think about the 2011 peak. The longer term Demand sets to pick up and it looks to be setting itself up for a Constructive move. Silver is absolutely everywhere! In your computers, in your phones… & as Emerging Market demand picks up over the next 10 years for Electronics, only naturally should this Market increase in value. So Anish, how do you see the Market shaping for the end of the year?… Well there is not much left for this year as we remain merciful to the FED’s hiking plans but I do expect Fundamentals adding more promise to the Metals market in the Longer term & hope to prove the doubters wrong, as I am personally a big fan of Silver. Best of Luck Anish8FX @ Atom8.Com
The Commodity Bloodbath
The Commodity Bloodbath Ladies & Gentlemen, As we begin to make sense of the shocking lows in Commodities across the board, we must turn our eyes onto the Macro picture to find reasoning for the short-term and also look to consider the worst-cases for the coming years. The “Demand-Destruction” story begins in China. The Chinese Economy is slowing down and the demand for commodities forming from the Chinese manufacturing sector is also on it’s way down south – with the fall led by Material/Energy companies in the Asia Pacific (falling this year circa 13%). This Market slump has shown the World how strong the in-elasticity of demand on price from China actually is. Key Chart 1 Copper is trading at 6-year lows (chart below) & Nickel (the biggest loser on the LME) is at 12-year lows. Key Chart 2 $BHP & $RIO all fell yesterday to 10-year lows as producers continued to slump across the global equities amid the bloodbath. $BHP is now looking at the prospect of having its credit rating downgraded in the next 12 months in response to further possible falls in Iron Ore & Oil prices. Another major reason behind the Commodity-glut is due to the Market concerns about further USD strength, starting with the first hike in December. Countries who do not use the USD as their primary currency will feel further heat as their currency begins to weaken amid prospective USD rallies. This will then make is cheaper to produce and create further over-supplies!Will OPEC do anything about the Over-Supply in Oil? Well, further to comments made by the Saudi’s yesterday – they are keen to work with other OPEC countries in stabilizing the market – however the facts remain & there is no quick fix! We will find out more on Dec 4th, when the OPEC heads all get together…. Meanwhile, the Glut continues as people talk about the biggest decline since the fall of the Soviet Union.Can we really find a bottom?.. Let’s take it back a notch. If we look at some charts, we can see stability over the last few weeks. and it is important to remember that the Commodity business is extremely cash intensive and producers will not be looking to cut supply but rather costs. Major Commodity producers still need the revenue. I personally think, the actual effect of this fall will truly depend on how fast the US Economy can accelerate & how long the FED Rate Hike cycle will last for. Take out your 3D Glasses and watch the rest of 2015 unfold. Best of luck Anish8FX @Atom8.com www.atom8.com
How To Make A Camel Vomit Gold
How To Make A Camel Vomit Gold Ladies and Gentlemen, Has Gold lost it’s shine? Gold traded near a 5-year low as investors continued to short bullion-backed equities pricing in expectations for the US to increase interest rates this year, further Rusting the Metals Market. Gold is heading for a thirds year on year decline as investors now brace themselves for a first interest rate increase since 2006 and according to the “theory” – Higher Rates = Less competitive metals. But Why? It is simple, as the Metals offer no dividend, hence investors naturally flock to other assets that pay interest or offer dividends. Can we head below $1000? What is now known as the “Vomiting Camel” (from the formation of the two humps [yearly highs]) – we now have the camel resting on a rhombus, indicating that a break below current levels = free-fall! The Splat Zone indicated on the char signals towards the $700-$800 for possible areas that Gold could fall into post December hikes. But what about Central Banks, The Russians & Chinese – are they still buying? – Yes!Gold purchasing (And Demand) is at record highs, as both Russia and China still maintain a policy to hedge against their currency & they will probably remain net buyers. China for example, added an extra 14 tons in October. So what happened to Economics? Well, we have to remember that XAU is backed by the USD and experts point to a “Bear-Market” cycle driven by the FED. But in my view, if we do see a hit of $700-$800 we could see a spark in the bulls. Absolutely a fascinating time to be watching the markets. Trade Smarter, Anish8FX@Atom8.com
Will 2016 Mark The Fall Of The #EmergingMarkets?
Brace yourself for a complete change in dynamics for 2016 and of course, the FED hiking cycle will become the catalyst. So should I still stay long the USD in 2016? Well in theory – Yes! In practice however, as the FED raises interest rates the USD will strengthen but these persistent increases (during the proposed cycle) will worry investors – especially for companies with Overseas Investment & for Industrial corporates (with the continued decline of commodities). It could be very expensive! A stronger USD now becomes a touchy situation. Mainly because the majority of Emerging Market Countries hold USD debt and this puts a stranglehold on the USD rallies. The probabilities of larger outflows from Countries like China, India is likely and will be the epicentre of pressure. It will be interesting to see how these Push/Pull Economic factors react next year.. Will it help their continued debt? The stage for 2016 has been set. China is an almost perfect author to this story. With recent trade numbers declining (6.9% yoy) and a staggering 18.8% decline in imports – Other Asian nations who once so heavily relied on China could now look elsewhere. As the commodity boom slows, the GDP growth required for China to maintain its growth pattern could also fall off the charts! Instead we see a Global Deflationary Threat. How will the USD react to each FED Rate Hike? – Looking at the past 11 Rate Cycles and in particular more recently when the FED moved from neutral to tightening, the USD fell 7% and to tell the way the USD could react now – one would have to look at the yield curves. Whenever it has been steep (and right now it is steep) it falls over double digits! But again, that would also depend on the forecasted tightening cycle… but really how long could it be? What about the Equity Markets? You want to be really focusing on Industrial, Tech & Energy stocks, because they will benefit from the inflationary cycle of the US Economy. But really does the public trust equities anymore? There are currently huge disparities in the major US indexes as during the past 5 years the Public have not really put any money into the equities, it has all been primarily driven by the FED & a lot of these position builders could effectively price in the first hike. Next stop… December 17. Trade Smarter! Read more: http://www.marketstoday.net/analysis/Analysis-Commentary/will-2016-mark-the-fall-of-the-emerging-markets/12906/en/#ixzz3r6u5toh4Follow us: @marketstodayme on Twitter | marketstoday on Facebook
How Do I Trade The FED Rate Hikes?
What Can I Trade When The FED Hike Rates? Ladies and Gentlemen, After a surge in Bitcoin prices, more doubts grow about the stability & long-term value of the USD. Many Economists & Analysts believe the USD to be heavily over-valued & have been calling a reversal in the USD for over 2 years now, but the brute force that is QE has only but stood in the way of purists. Figure : DXY over last 2 years Let’s first turn our eyes to the Euro and as it currently hovers around the 1.10 mark, as the FED breathes more clarity over the coming months (heading into early 2016) – many Traders are calling for 1.15-1.16 as the “Fair-Value Equilibrium”. However, until then we could still stay on the weaker side of 1.10, as Draghi continues to seemingly over-deliver on expectations… But could we really go to parity or lower? – To be honest, there is nothing magic here! When you throw in lots of numbers, taking into account coherent Econometric studies (interest rate differentials, relative to the size of the Eurozone’s balance sheets) – you can’t really go near numbers close to parity. What about the FED? The FED has a mandate which is not related to the FX Marketwhatsoever, and this is one of the main arguments from more sophisticated FX watchers (in the short-run at least). Since the first Quarter of this year, the rates market has remained completely flat but the USD has only but rocketed (more so since April)… The main question beckons.. Will the FED pull the trigger in December or not? If yes, it would only be by 25 basis points & would that really cause a huge impact?.. I don’t think so. Reality Check again! The USD is overvalued and what the FX Trader should be wary of is the Hiking Cycle that the FED will signal. In order to really justify the USD at current levels, they would need to plot an aggressive hiking path. We could actually see another 150-175 basis points over the next few years…. & that would really hurt! Again, this depends on a variety of Domestic/External factors.. (as well as the price of Oil).. A difficult one to predict now. So what do I trade? Well I would look at Cable. The Market expectations are that the BOE are maybe 9-12 months away for changing pricing, and if you compare this to the FED/ECB outlook, the“time-gap” is extremely stretched. If you look back in time, since the inception of the Bank Of England as n independent Central Bank, there has never been such a significantly wide time gap between movements in the FED to a change in the BOE. Two things to look at here, the Fundamentals & what the Market has already priced in. I do believe (as per the graph above) 1.70 to be fair value for £/$. Looking at the Markets Carney has a responsibility for bringing the market back in and delivering on his mandate. He sees risk moving way too much against him and the Market seems to remain complacent.End of the day! USD is over-valued and has been for many months. Look at Cable & it should be grinding higher and the main view on USD is that the over-evaluation will also slowly cause other Central Banks to ease of. Best of luck Anish8FX @ Atom8.Com