Tag Archives: Euro

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

Investment chances playing with currencies

Currencies exchange rates wallboard

Exchange rate between Euro and Dollar is far from being stable. When the Euro began in the markets, the exchange with the Dollar was 1,15. Then it dropped till 0,85 in October, 2000; but it jumped till 1,60 in the summer of 2008. The rate for 2013 has been between 1,27 and 1,38, what is also quite volatile.

A strong Euro or a weak Dollar has, as usual in markets, both good and bad consequences. The strength of a currency shows the confidence that investors have in the economy. It also shows the outlook that investors have in the revenues of their investments. In this case, the look should be focused in the interest rate. The highest, the better, in comparison with the other currency. ECB has kept a higher rate than the Fed and that explained partly the strength of the European currency against the greenback. But the Fed did also its work to push this trend. The quantitative easing, that means, the massive money printing of Dollars, operated also as a reduction of the interest rate.

The economic effects of a weak Dollar are several. European industries enjoy fewer costs from imports and commodities, as they are cheaper; European tourists find also cheaper have holidays in the US. Against that, exports are more difficult and Europe receive fewer US tourists.

But what about finance markets? A weak Dollar supports buys in US markets, as they are cheap, but the investment returns are lower when they are converted into Euros. However, listed companies with an export-focused business get more revenues. For an investor, these companies have more chances not only to increase the value of their stocks, but also share dividends. In other perspective, it is interesting for an investor to have a diversified portfolio with securities in Dollar and Euro to protect from exchange risks.

Dollar is now weak, as the Fed has promoted this policy to cheer up the economy and the employment. But this weakness is far from meaning that the greenback is living a decline. The US currency is still the reference as a reserve.

Although the future is impossible to predict, experts and analysts tend to think that Euro will weaken against Dollar in 2014. The current ECB policy and the possible tapering of the QE by the Fed open new chances for investors, as European securities will be cheaper for foreigners in a strong contexts for the stock exchanges, following the increases of European indexes.