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This was the first semester… and these are some clues for the second

These are tough times for investors. We have already commented some of the weird phenomena that we are living in the markets, but the first semester was not easy at all to find good performances. Instability comes from several fronts:

  • EU: the ECB has no clue to solve the current troubles to make money and credit flow. Interest rates are negative, Euribor is also negative and the debt gives no return for investors. In the current unstable and volatile situation, investors prefer to pay instead of becoming profits from Treasury Bonds, specifically German ones. Finally, the black swan appeared: Brexit is there to stay.

Europe global trends in the first semester

  • USA: the Fed shows doubtful and indecisive. Markets have become mad and Mrs. Yellen prefers to delay the more-than-once announced (in Fed gobbledygook) rate hike. The presidential election also opens a new possible black swan, because a victory of Trump could cause another turmoil in the exchanges. The poverty of returns in the US markets is very clear with a figure: S&P 500 has produced positive returns YTD since Easter and its peak was under 4%.

USA global trends first semester

  • Asia: China sets the pace in the continent, but there are hard signs that the economy doesn’t grow as before. Exchanges reflect this low confidence and Shanghai performed erratic since the crash last August. The performance fluctuation band was between -15% and -25% YTD. Japan is also deadlock, because no policy obtains a positive outcome to get over the long economic stagnation of the country. This continent is the weakest for investors.

Asia global trends in the first semester

  • Latam: Although Brazil has experienced a great political crisis, investors acted more confident and the performance moves between 10% – 20% YTD. Mexico also shows a stable evolution in the markets, as the oil price has begun to rise.

Latam global trends in the first semester

This is the past and current situation, but where are the opportunities for the second half of the year? We do not publish forecast, but we can speak about trends.

Some days ago, BlackRock, the main ETF manager, decided to downgrade equities, because “stocks still face several obstacles”. Bank of America published a survey in which investors declared to bet higher for cash, peaking the highest allocation since 2001 in investment portfolios. Gold soared a 25% since January and volatility index VIX rallied this last month after a quiet quarter.

Times are hard to take investment decisions. The best one is no panic. Current volatility has to do with it and decisions under this pressure are usually wrong. Investors play for the long term. These are times to keep calm, avoid sudden changes and smart rebalance your portfolio.

Q1 confirms that instability is the rule in the markets

The closing of the Q1 in the markets confirms that this will be a complicated year for equities. The Great Crisis that the world lived since 2007-2008 is not ended at all, as there are some points of instability. Some of them are related to international politics: the shadow of terrorism, the wars in Middle East, the fight in the European Union and the US elections are some points to watch that affect the market evolution. However, there are also financial and economic troubles to solve: the ECB policies show that they are not enough to stabilise the European credit flows and return to some inflation, while the Federal Reserve stays cautious in the next steps to follow in its monetary policy. No one wants to be blamed of being a cause of a second big recession.

The T-Advisor charts show these statements. As we can see in the both charts below, comparing the general trend in global regions, there has been a positive evolution between the beginning of the year (above) and the end of the Q1 (below), but very slight apart from the Latam region:

T-Advisor global trends in January, 1st, 2016

T-Advisor global trends on April, 1st, 2016

If we check the evolution in each region, we can perceive much better the specific changes:

EUROPE

European stock exchanges evolution in Q1 2016

Besides the traditional parallel evolution amongst the European markets, it is also to underline that no main stock exchange registered positive returns YTD. The recovery from February was stopped by the instability created by the possibility of a Brexit (an independence of UK from the EU) and the terrorist attacks in Brussels, in the heart of the capital city of the European institutions. The ECB has also lots of troubles to make efficient their decisions, because its expansive policy has still no positive effects in the real economy to consolidate the general recovery.

AMERICAS

American stock exchanges evolution in Q1 2016

The trend is positive since the second half of January, but S&P Index was finally positive YTD in the last weeks of the Q1. The uncertainties related to the US election (no candidate is clearly heading the primary elections) and economic evolution make investors cautious. However, the announcement of the Fed about a delay in the next rate hikes was welcomed and consolidated the slight bullish trend.

The market behaviour was better in the emerging countries, although some evolutions are very linked to national decisions. For instance, the evolution of Argentinian Merval in March was erratic because of the agreement with the creditor funds, which was not totally assessed as positive by investors. In the case of Brazil, the cases of corruption in the Government have determined the ups and downs in Bovespa.

ASIA

Asian stock exchanges evolution in Q1 2016

The biggest markets (Shanghai and Tokyo) are really bearish and sum a very negative YTD return in this Q1. In China, the bubble broken last summer produced a hard landing in which the market is still moving. The trend is erratic or, better said, there is no trend. In Japan, there are worries about the global evolution, because the country has a great support from its exports. The doubts about the economy, underlined by the low oil price, and the instability of the exchange rate with the dollar are two hard reasons to be wary.

What can we expect in the Q2? We do not like to make any prediction or copy what others expect, but we prefer to alert about some relevant issues:

  • Look at the oil price: it is linked with the global activity.
  • Follow the Fed and ECB decisions: the Fed is progressively hawkish and the ECB should be more dovish to push the credit flow and inflation in the Eurozone.
  • Watch the Q1 profits of the companies, because they provide a guide about the economic activity.
  • Be wary about emerging markets: the dollar evolution (if the Fed hike the rates) can be negative for them.

Global market trends: markets in the second quarter

Trends in the second quarter of the year have been dominated by the Greek crisis. After the election of left-wing party Syriza, Greece and the UE tightened the negotiations about the payment of the debt. The result is already known: Greece defaulted the IMF. The crisis is not only for the Greeks, but also for the whole European system, as one of the partners of the Euro did not follow the established rules. What will be the next? Referendum in Greece? Grexit? New elections? The future is more open than ever. We can read several articles in the media with both positions blaming the troika and the Greek government for the current situation.

Regional global trends in T-Advisor

Generally speaking, there are some differences between the market evolution in US and Asia, on one side, and Europe and Latam, on the other side. The evolution in Europe swung depending the news around Greece, what has altered a regular trend: sudden ups and downs happened when somebody came with a new statement or rumour. Above all, investors in Greece did not experience the best results, as this T-Advisor chart shows:

5-year Greek stock exchange evolution

In Latam, the troubles in the stock exchanges are linked with the strength of the dollar. These countries are very dependant from commodities and exports are being punished by the strong greenback, that rises against all currencies as the Euro weakens and the US Federal Reserve considers hiking rates.

The more positive regions are US and Asia, but the improvement in the markets has also shadows. Asia is the region where there are more alerts. The overheated Chinese stock exchange in this year has begun to fall severely. Recent measures, as a rate cut, were not enough. Shanghai has felt a 25% since the peak on June, the 12th, and the effects are still to watch.

5-year Shanghai stock exchange evolution

Finally, US plays with strong figures and the stock exchanges are counting them. However, there are still doubts about a possible rate hike, because the Federal Reserve stated that they need more evidences about the improvement of the labour market. The next job reports in US can be decisive to preview the chances of an increase of the rates, which will can move strongly all markets (stocks, debt and currencies). Well, investor, be ready, because the road has bends.

Global market trends: markets in the first quarter

The first months of 2015 were really busy. The markets have a main driver: the currency war. The main central banks are playing with the monetary policy, which has become very expansive everywhere. The list grows every month: more than 20 countries have reduced their rates. Cash flows everywhere, because monetary authorities and governments are really concerned about disinflation (not deflation…still). The main effects are the consequences in the exchange rates and the positive wave in the stock exchanges.

World and regional global market trends

In the middle of this trend, US seems to be the odd, because the Federal Reserve has begun the way back from the quantitative easing applied in the last years. The outlook is that the institution will raise the interest rates sooner o later, as some messages have been already sent to the markets, but its members do not agree about the proper date. US economy has slowed its path in the last months, although it is typical in the last years linked to hard winters that stop the economic activity. However, the intention has already effects in the dollar, which has strengthened its position against all currencies. On the other hand, this possibility has no apparent effect in the stock exchanges, as the Nasdaq has topped historic positions.

Europe is living what many experts and governments (mainly from Southern Europe) demanded before: a quantitative expansion, as it was made in the US. The European Central Bank began the asset purchases in January. Euro has dropped to forgotten levels (around 1.07 dollars). Meanwhile, the decision opens a rally in the European stock exchanges, which have very welcomed this cash flow: just in the first quarter, Madrid increased 11.3%; Frankfurt, 22.5%; Paris, 20.7%; Milan, 21%. The new Greek government and the chance that Greece can be out of the euro (known as Grexit) is probably discounted by markets.

Latin-American countries are, on the contrary, suffering from a strong dollar, as most of them depend on exports. The drop also in the oil price (around 50% in six months) has very negative effects for Brazil, Venezuela and Mexico, which are very dependent from it. Other negative effects are inflation, as the exchange rates against dollar have become very volatile.

Finally, Asia is looking its three poles with different eyes: India is becoming stronger, as markets are really betting for Mr. Modi’s government. China, on the other hand, is creating new worries about the strength of its development, as several indicators open some doubts. In the case of Japan, the country is still in its endless crisis since the end of the 20th century and the outlook is not much better despite the recent new election.

Global market trends: markets in January

This year has begun with the markets playing hard rock. The list of figures and events is long and all of them have effects on the markets. Obama declared the end of the crisis, radical left won in Greece, ECB began the European QE, China grew at the lower pace since 1990… Impossible to miss!

First of all, it is necessary to take into account a point in macroeconomics. IMF reduced its world growth outlook for 2015 last month. Amongst the risks, it is found the cheaper oil prices. Why? Yes, it pushes consumption and reduces industrial costs, but it can feed the deflationary trend. Deflation is very risky, as people tend to postpone investments’ and purchases’ decisions. Current price is around $50, but the pressure from Arabian producers could push it to a lower bar.

Global market trends in January in T-Advisor

Several experts have already warned that 2015 would be an unstable year for economics. However, US President Obama said in his State of Union address to the Congress that the economic crisis was over. American economy has experienced a recovery, but Federal Reserve is still reluctant to increase rates, as it does not perceive inflation risk. Although observers tend to think that the American central bank will hike rates in summer, it is still soon to have a clear perspective about that decision with the current instability.

US global trend in T-Advisor

In Europe, the ECB did finally what many economists recommended some months, even years, ago: an expansive monetary policy printing money. The European QE will expand ECB balance in €1 trillion, but effects will take at least six months. In any case, markets make their own party, till Greeks voted the radical left party Syriza in the last election. New Greek prime minister declared his intention to negotiate the country debt, but European partners do not agree. Markets have suffered abrupt ups and downs. Another point of instability was the Swiss National Bank decision to unpeg its currency from euro, which was not expected by investors.

Europe global trend in T-Advisor

Latin America is still the weakest world region. As the IMF comments, these countries are very dependent from oil and commodities. The current negative price trend for these products is punishing the market evaluation about the region.

Latin America global trend in T-Advisor

In Asia, China registered the lowest growth (“just” 7.4%) since 1990, which can show some weaknesses in its develop. These figures have partially stopped the soared trend since People’s Bank of China reduced its rates in November. In Japan, recent election victory by prime minister Abe guarantees that his expansive economic decisions will continue, but it is to see if they have effects after 25 years of weakness.

Asia global trend in T-Advisor

 

Global market trends: markets in the beginning of 2015

The beginning of the year in markets is all except quiet. After the traditional rally at the end of December, the global market trends are very open: ups and downs in an unstable landscape. There are some reasons that show that risks are increasing, mainly: oil, euro and Greece.

Global market trends in T-Advisor in the beginning of 2015

What is happening with the oil price? There is a fight amongst producers, mainly OPEC countries and USA. Americans become the world largest producers thanks to fracking techniques and OPEC countries wants to be still influent and keep their market share. Winners? Consumers, carmakers, chemicals and many industrial sectors. Also general world economy, which will increase a bit more due to the oil price drop. Losers? Oil companies and some weak producers as Russia or Venezuela. Dropping oil prices (-55% since the last peak) are affecting deeply Latam stock exchanges, because apart from Venezuela, other countries as Mexico, Brazil and Argentina are also oil producers.

The other instability front is Europe in two ways: first of all, the euro is falling against other currencies. Above all, the most important exchange, the US dollar, accounts today a drop of 15% since the last peak in May 2014, when it reached $1.39. Yesterday, the doors were more open to a possible monetary quantitative expansion (QE) by the ECB, in the same style as the Federal Reserve did. What does it mean? More euros in the market and a lower exchange. This will be better for exports, but it deepens in the discussion about the ECB role and the risks of buying European debt with money from the Central Bank. However, the Eurozone closed 2014 with a -0.2 % negative inflation and some are afraid of a possible deflation process… or even a similar process as in Japan.

Last risk is Greece, again. An internal political crisis linked to the election of the President of the Republic has led to new elections. Traditional parties (centre-right New Democracy and centre-left Pasok) have governed in coalition last two years. Now, the risk is a new left party, Syriza, which promotes in its political programme the renegotiation of the Greek debt. Who are the main creditors? Germany and other European countries.

In the other side of the world, despite the slowing China, other countries show strength, as India. Yesterday’s Bank of India cutting rate decision boosted the stock exchange and consolidates the perspective of opportunities in the country.

In any case, generally speaking, the unstable landscape because of the above-mentioned reasons opens several doubts about the improvement of the world economic recovery.

T-Advisor global trend in Europe

T-Advisor global trend in USA

T-Advisor global trend in Latam

T-Advisor global trend in Asia

Global market trends: What will 2015 bring?

November was an interesting month as developments in economy and finances brought some surprises: the main one is the drop of the oil prices, that positively affect to consumption, but it put at risk the economic viability of fracking and other alternative oil ventures. There is an open war between Arabian countries and other producers as US and Canada which colaterally affect Russia and Venezuela, for instance.

Global market trends in T-Advisor

Global market trends in November were quite positive. US stock markets are still in peaks. In Europe, after the volatile October, last month was better with the outlook of a soon action from the ECB. LatAm and Asia are also obtaining benefits from the positive stream in the developed markets. The trend change between October and November was very clear.

But what about 2015? What do experts say about the outlook for next year? Generally speaking, economic figures will be positive, as world expected growth will outpace the 3% bar, but IMF is pessimistic about recovering the former pace before the current crisis.

If we focus on different markets, the main detected trends by experts and entities are as follow:

  • USA: it is taken for granted that the Federal Reserve will increase rates. This decision will strengthen the dollar as currency against euro and others. It is also expected that US will be again the engine for the economic development in the world. Opinions about market evolution are also positive, although prices are in historic records.
  • Europe: the point in the Old Continent is quite different. US abandon the expansive monetary policy and Europe is adopting it. There is an internal fight amongst some EU members (mainly Germany and France) about the next steps. Poor economic projections affect France and Italy, which are pressuring for quicker monetary policy decisions to boots their development.
  • LatAm: many of these countries are depending on commodities and foreign investments. Brazil is again in recession, Argentina still fights with its eternal debt troubles. Next US rate hike and a more expensive dollar will make this region more volatile.
  • Asia: Abenomics in Japan are not working as expected. Japan lives also an eternal stagnation and next election will surely not solve anything. Two key countries will also have important developments next year: China and India. China presented last months mixed figures about economic progress, while Modi’s government is expected to favour business, making India a stronger economic pole in the continent.

Global market trends: markets in October

October is generally known in the stock exchanges as an unstable month. This year was not an exception in this trend. Market trends were influenced by economic data and the ebola crisis, which hit unexpectedly some developed countries. Just to get an idea about the volatility last month: Dow Jones moved more than 1,500 points, S&P highest and lowest marks were between 200 points and Nasdaq moved more than 500 points. The debate was whether the negative trend was a correction or a real downward trend after these positive years.

Global trends in T-Advisor

The correction in US exchanges last month stopped around the second week and the markets turned again into positive. This trend was also pushed by the good third quarter GDP, which exceeded the analysts’ predictions. Another relief was that the Federal Reserve announced that interest rates would maintain the current situation despite the end of the quantitative easing policy.

Market trends in US in T-Advisor

Europe lived the worst situation, as the constitution of the new European Commission led by Mr. Juncker is taking a very long time. This is important, as the European Union has an unstable balance between common institutions and countries’ interests. On the other hand, the German machine is failing. After the fall in the second quarter, it is expected that third quarter GDP will confirm another recession (technically, two negative quarters in a row). The perfect storm took place with the economic crisis in France, the unstable political situation in Italy and the results of the bank stress test, which did not totally clear up doubts. Banks suffered a hard correction.

Europe market trends in T-Advisor

Latam main news were related again to Brazil. Socialist candidate Marina Silva, who was expected to be in the second round in the presidential election, lost this chance as socialdemocrat Aecio Neves obtained a better result to fight against President Rousseff. Finally, Rousseff gained a second term but with a very little difference (51- 49). Markets bet for Neves, with a more center-right programme, and reacted negatively after Rouseff’s victory.

Latam market trends in T-Advisor

In Asia, warning signals came again from China, as the economy is growing at a lower pace. Some figures offer many doubts about a future evolution. Crossing the sea, Japan has reacted with more Abenomics (the expansive programme organized by Prime Minister Abe). Bank of Japan will enlarge the monetary expansive programme in another attempt to move the economy of the second largest Asian giant, which lives in an eternal crisis since the 90s.

Market trends in Asia in T-Advisor

Global market trends: markets in September

If we talked last month about the effects of the crisis in Ukraine in summer, we have to talk now about more political instability in September. The war in the Middle East promoted by the group ISIS and the referendum in Scotland were to main issues (of course, not linked at all) that move the markets.

Middle East is a steady trouble hotspot. The never closed war in Irak has become more dangerous as the ISIS jihadist group has under its control a big part of the country as some part of Syria. Western countries have organized a coalition to fight it. Markets are always very frightened of this kind of crisis. On the other hand, the Scottish referendum for the independence opened an unexpected crisis as some surveys published that a majority would vote for the separation from Great Britain. At the end, calm went back to markets when the NO option won.

Global market trends in T-Advisor

In US there are many comments about the next trend in the exchanges. The rally in August, brought S&P500 to its historical peak over 2.000 points two weeks ago (Alibaba IPO helps a bit), but some investors and experts think that the next movements will be negative. In any case, our trend shows a retrace.

US market trend in T-Advisor

In Europe, Mr. Draghi has the power. ECB today’s meeting will reveal the following steps in the monetary policy management, but it seems that the ECB Chairman is determined to act with expansive monetary decisions. Germany is behind trying to avoid such idea, after the next year budget of the first European economy shows that no “bunds” will be issued in 2015. However, ECB September meeting has had an effect in currencies: euro is in the lowest point versus dollar since August 2012.

Europe market trend in T-Advisor

Recession was awful news for Brazil, as it was commented last month. Not only because of the negative effects, but due to the Moody’s reaction: a cut in the outlook from stable to negative. On Sunday, presidential election will take place in the biggest South American economy and the result is still open: current President Rousseff of candidate Silva?

Latam market trend in T-Advisor

In Asia, doubts increase with the recent decision made by Japanese Premier Abe to increase taxes, putting at risk his expansive programme to push up the economy. On the other side, new figures alert investors about the economic development in China.

Asia market trend in T-Advisor

Global market trends: markets in summer

Summer is usually a term quite unstable for the markets. August is a month with higher volatility as capital flows diminish and movements show bigger than they really are. This summer, markets experienced a sudden fear not related to economic or financial reasons, but political ones: the Ukraine crisis. Investors were always with an eye on this country, which is living a civil war. Behind of this war, there is a hidden power fight between Western countries and Russia, as a new edition of the old Cold War. When such kind of political tension exists, money flees. The war still exists and is far to be solved, but it seems that the market worries changed in the last weeks to other motivations: Central Banks.

Global market trends in august in T-Advisor

The World Central Banks meeting in Jackson Hole, US, some days ago, showed the different strategies that are being discussed by the monetary policy managers in their influence areas. Analysts and investors are almost sure that a rate hike will be sooner than later in the main world economy, but Mrs. Yellen is still reluctant while unemployment does not strengthen its downwards slope.

US market trend in August in T-Advisor

In Europe, on the contrary, markets are very sensible to every word that Mr. Draghi says, because it is to expect that new expansive monetary decisions will be taken. For today’s ECB meeting, analysts opt for some explanations instead of new decisions, as more details about TLTRO (a system to lend huge money amounts to banks). ECB Chairman announced in Jackson Hole that the institution is ready to act. Meanwhile, main European countries inflation and GDP figures were quite bad. This is considered as a pressure for the ECB to decide new measures.

Europe market trend in August in T-Advisor

LatAm countries are under the shadow of two crises: the eternal Argentinian debt troubles and the recession in Brazil. In the case of Brazil, analysts comment that this decrease in the GDP has to do with the post Football Worldcup effect. In any case, low prices are still attractive for investors in this area.

LatAm market trend in August in T-Advisor

In Asia, worries increase around China, as the recovery momentum slowed and opened doubts about the strength of the upward movement. However, T-Advisor global trend tool shows that the second world economy markets are sounder that some months ago, when the trend was deeply bearish.

Asia market trend in August in T-Advisor