Tag Archives: Oil

Oil, gold and rates: something does not work in the markets

Performance evolution of the main world markets last year

Old civilisations believed that weird natural or astronomical events were signals of disasters or even the end of the world. A modern version of those myths could be the evolution of some financial references: oil, gold and rates. Their behaviours are far from being rational. Why? There is a lot of uncertainty and fear amongst investors.

Gold is the traditional safe haven in times of high inflation. This is not the case now, because we experience very low inflation or even deflation. The Depression that we have lived pressured the wages, something that have a direct relationship with the price evolution (in both as a production cost and consumption capacity). Why is the price of gold going up? Because investors buy the precious metal to preserve capital. Currently, there are not many options to obtain good performances: neither fixed income, nor equities (not to mention traditional products as deposits…). Gold is a way, at least, to avoid losing value.

Oil dropped in January to the lowest price for years: Brent was around 30 dollars. However, the market sentiment was not positive at all. The fall of the price was linked with excess of supply from several producers pumping and fighting for a largest market share that demonstrate suicidal. On the hand of demand, the economy does not grow as wished, mainly in Europe. Low demand, large supply: the traditional equation gives as a result a decline in the oil price. Usually, investors smiled, when oil reduced the prices, but it is not the case now. Prices are recovering around the 50-dollar threshold, but it is not enough to calm down the markets.

Finally, rates are in negative figures. The world turns upside down. Creditors have to pay debtors. German 10-year-bund has negative interests and Euribor is negative since 2014. The extreme would be that banks, pressured under the current situation, asked customers for fees or interests for their fixed-term deposits. Central banks intervention is creating a weird situation in which there are no rational behaviours in markets. Another sign is that wealth managers are holding more cash than ever since 2001 in their portfolios.

The Brexit poll, the uncertain US presidential election, China’s deceleration, the absence of strength in the European recovery… too many uncertainties. Investors are always frightened and money looks for security. Gold, oil and rates are indicators that markets are not working. What will be the solution? Will the markets recover their proper operation when central banks end the intervention? But when will they end it? Uncertain questions for an uncertain world.

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