Will Today’s BoE Meeting Stop Sterling’s Plummet? Will The Markets Recover From Here…? We have to go where the value is and currently, with all the QE in Europe, it’s over here. A Closer Look At China…We are now officially in a new era regarding the Chinese economy; the government is becoming worried and clamping down. China is facing uncharted waters. The Bears Are Back In Town…The bears have the control at the moment and will continue to push down. For now it’s probably best to remain on the sidelines. What to Expect From Today’s NFP
Will Today’s BoE Meeting Stop Sterling’s Plummet?
14.01.2016 Today’s meeting should give some insight into the thoughts behind the BoE on the U.S recent rate hike as well as giving some direction to when the BoE themselves will begin to normalise rates. Markets have pushed back a BoE rate hike to May 2017 now. A bit of an over shoot as far as I’m concerned, however I guess we’ll see at today’s meeting. Sterling has had a difficult time lately and is currently testing last year’s lows. There are two major macro themes effecting Sterling. Obviously the first is the BoE’s expected hiking cycle being pushed back. The second is of course the Referendum. Brexit is starting to scare the markets and when we have uncertainty we get risk off; leading to a falling pound. If we get any sense of a possible hike before year end from Carney, then we should see a short squeeze in GBPUSD. Listen out for any hawkish comments regarding inflation and unemployment. If Carney mentions improvements in these two key aspects of the economy, then we should see some bids against the pound. Moreover, any change in the vote count should have a fairly large effect on Sterling, so if we see McCafferty dissent from an immediate hike, to hold, weakness in Sterling should follow.
Will The Markets Recover From Here…?
13.01.2016 This week we’ve seen a bit of a recovery in the global stock markets; excluding China that is. So where can we expect things to go from here? Most likely we’ll get a ranging market with highs of between 2000 to 2040 over the next few weeks. I still think there is more value on the short side taking everything into account when analysing the global macro trends. If we can break key support at 1900 in the S&P then we should more than likely continue lower. Overall however, we are in a bit of a tricky place at the moment regarding stocks. There isn’t much, if any good news going around. Global inflationary struggles and QE in Europe and Japan have created a situation where institutions don’t have any where to put their money. Bonds are still offering crappy yields, leaving dividends as the only place to get any sort of decent returns. Personally I still remain content on keeping long Europe and short the U.S for now. We have to go where the value is and currently, with all the QE in Europe, it’s over here.
A Closer Look At China
12.01.2016 China has been a hot topic lately. By now we all know that the Chinese economy is slowing and that fear in not knowing what’s going to happen with China is ultimately one of the fundamental reasons behind last week’s market sell off. The reality however is that China’s stock market is actually incredibly unique and unlike that of any developed western nation’s stock market. In the U.S, the stock market is run by the institutions. It is used for IPO’s and managing pensions and corporate risk; the shareholders hold the power. In China however, the stock market is a very different beast. It is a very separate animal to the overall Chinese economy.
The bulk of participants are individuals. These individuals are very limited as well. The vast majority of the Chinese people have no connection at all with the stock market. The correlation of the Chinese stock market with the economy, unlike in the U.S, is very small. Overall, market capitalisation has very little to do with the value of Chinese companies. Moving back to the events of last week, the key piece of news that was released was actually related to China’s foreign reserves. On the 7th of January the PBoC revealed that the country ended 2015 with less foreign currency reserves than they started the year with. This was the first time Chinese foreign currency reserves have shrank in any given year since 1992. In effect, it is the first time China saw a decline in reserves since they began their boom. We are now officially in a new era regarding the Chinese economy; the government is becoming worried and clamping down. China is facing uncharted waters.
The Bears Are Back In Town
11.01.2016 I’m sure you’ve read loads of doomsday articles written off the back of last week’s bearish sentiment. There are many statistics going round claiming recessions and bear markets. It’s all fear mongering as far as I’m concerned. Yes, there are problems with the global economy and China’s growth is slowing, however China’s declining growth was inevitable and there have always and will always be issues with the economy. During times like these, the best traders stick with the fundamentals and trade their plan. Personally I think there is still value in the European markets and the dollar. Divergence is still at the backbone of the global economy and all you need is patience and a good price to take advantage. It is possible we’ll end 2016 with an overall decline in U.S stocks, however with the QE in Europe and Japan along with the easing in China, I find it hard to believe that we’ll get a global recession. The bears have the control at the moment and will continue to push down. For now it’s probably best to remain on the sidelines, waiting to see where the institutions begin buying again. There are a number of ways to spot this activity so keep an eye on the global bond markets, the Japanese Yen and the Russell 2000. In many instances the Russell can lead the S&P 500 regarding risk on/risk off sentiment.
What to Expect From Today’s NFP
8.01.2016 The last two figures have been above 200k with October’s employment number smashing forecasts at 270k. Today’s figure is expected to be slightly less than the previous two at 203k. The dollar has been increasing against most major currencies except the Yen and Swiss Franc this week, and due to the divergence theme, the overall sentiment going into this figure is bearish on the EURUSD. Here are 5 scenarios we could expect from today’s NFP: First Scenario: Within expectations: 199K to 207K. In such a scenario, the EUR/USD is likely to rise within range, with a small chance of breaking higher. Second Scenario: Above expectations: 208K to 212K: An unexpected higher reading could send the pair below one support line. Third Scenario: Well above expectations: Above 212K: The chances of such a scenario are low. Such an outcome could push the pair lower and two or more support lines could fall as a result. Forth Scenario: Below expectations: 194K to 198K: A weaker reading than forecast could result in EUR/USD breaking above one resistance line. Fifth Scenario: Well below expectations: Below 193K. In this scenario, the pair could break through two or more resistance lines.
