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Global Financial Markets in the Last Quarter of 2016

Trading the Global Financial Markets in the Last Quarter of 2016

  • Forex Markets:EURUSD to continue ranging, GBP to face further selling pressure, AUD uptrend possible continuation
  • Equity Markets:We should expect the outcome of the American Elections, the odds are in favor of the sellers
  • Energy Markets: Production cut (1 million BPD) is expected in late November, if there is confirmation by Iran and Saudi Arabia, crude is heading for $60 / barrel

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Increased Volatility Towards the American Elections of November

During the past couple of weeks, the global financial markets have been pretty volatile. The UK Prime Minister Theresa May set a date in March 2017 to begin exiting the EU and that pushed the British Sterling even lower against the Euro and the US Dollar. The EURUSD, as we have stated many months ago, is expected to continue ranging, at least until the American Elections. ECB and FED see the EURUSD exchange rate as the stabilizing factor in our current unstable financial world.

Equities are still trading close to all-time record highs. We should wait and see what happens after the American Elections in Tuesday, November 8, 2016. The oil markets are moving up after a historic agreement between OPEC and non-OPEC countries for cutting oil production by nearly 1 million BPD, in late November.

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Foreign Exchange Markets

The British pound slumped furthermore after the UK Prime Minister Theresa May set a date in March to begin exiting the EU. That will happen “no later than the end of March” setting the UK up to leave the EU by 2019. The British Sterling reached a post-Brexit low against the euro. UK chancellor Philip Hammond said that we should expect Brexit-induced turbulence in the UK economy. He said also that the Foreign Exchange market is inclining towards believing the pound has further to fall.

During September, Jean-Claude Juncker announced that the EU will double the duration and the financial capacity of the European Fund for Strategic Investments. He said: “we will ensure that the European Investment Fund will provide at least EUR 500 billion by 2020. We will do even more to reach 630 billion by 2022”.

The US Dollar is still pretty strong. Janet Yellen has said in September that the case for an increase in short-term US Dollar interest rates has strengthened recently amid firm jobs growth. The US Dollar Index (USD-X) continues to consolidate towards the American elections of November 2016 but maintains a bullish momentum trading within the channel (A1:A2).

Chart: US Dollar index (USD-X)

The US Dollar Index (USD-X) continues to consolidate towards the American ellections of November 2016, but maintains a bullish momentum trading within the channel (A1:A2).

Crude Oil -The End of the Production War?

In late September, OPEC members reached an unofficial agreement to limit the production of oil to 32.5 million barrels per day, that means cutting production by nearly 1 million BPD. That is expected to happen at OPEC November's meeting in Vienna (November 30th, 2016).

This is the first time OPEC and non-OPEC countries agree together in over a decade. As many oil analysts support, this agreement could lift the crude close to $60.

In any case, the importance of this agreement for the oil markets will be determined by the confirmation of Iran and Saudi Arabia. If that happens in late November, then we should expect the Crude to reach $60 / barrel.

Is There a Bubble Formation in the Global Equity Markets?

In an international level, today the sovereign and corporate bonds with negative yields are exceeding $13.4 trillion. That is the outcome of the quantitative easing programs of the past few years, in Europe, and in the US. Central banks inject liquidity, and that causes the valuations of stocks and bonds to rise, and consequently their yields to fall. These are some facts:

-In Europe, there are more than 120 bonds offering negative yields

-There are continuous record highs in the global bond market

-There are continuous record highs in the US stock markets (US30, US100, and US500)

-In the US, there is the longest period of growth profit multiplier in history, exceeding 7.5 years

 

George Protonotarios, Financial Analyst

» George at Linkedin

 

Trading the Global Financial Markets in the Second Semester of 2016

TradingCenter.org, October 2nd, 2016


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