*My thoughts on what is happening across global markets*
Welcome back to the blog. In this blog post I am going to talk you about my thoughts on what has happened across 3 main financial markets that I trade which is FX currencies, Indices and Commodities. I will also do a recap of any major events that might be coming up soon to give you an insight in to how I understand fundamentals.
Let’s get right in to it because there is a lot of information in this blog post!
Let’s look at the year to date (YTD) performance of some major currencies to see what has been moving the most.
US dollar has been performing the best, particularly against emerging economy currencies. Swiss franc has been strong especially against the British Pound which has been weak for some time now. As always, the Japanese Yen has done well which is expected in a risk off environment.
USD saw strong buying initially when the coronavirus pandemic occurred and this is normal when risk appetite runs out of the market. I believe USD will continue seeing demand for as long as this continues (global uncertainty). The Swiss franc has also seen prolonged increased demand and I explained why in a post on my Instagram.
As you can see on the chart above, the Euro vs Swiss franc has continued to weaken despite increased supply by the SNB. This is purely from demand for the CHF. The Swiss have political stability, they are neutral in terms of conflicts and their taxation and banking laws favour the wealthy so it attracts large capital inflows.
The British Pound is likely to see more volatility heading in to the end of this year. Brexit is still dragging it’s heels and there is potential for our own political instability to have an effect. However, I do believe that if Brexit does finally get sorted and we do leave the EU (with or without a deal) then a long term bullish bet on the Pound will see a good return.
The UK Pound Index chart shown above looks like there is good potential for upside movements if market fundamentals can clear the way.
Stock Market Indices.
Global indices have seen some wild swings recently. Volatility is high and it is primarily being driven by changing fundamentals and a lack of understanding. The chart below shows 2 major indices and a global stock market ETF.
As you can see there have been 3 main waves on the stock markets recently. Consistent bullish buying through 2019, the Q1 sell off due to Covid-19 and then the recent recovery. So why are stocks recovering?
The main reason in my opinion is that there is no where else to put money right now. Global interest rates are effectively zero or negative so fixed income is dead and FX currency speculation is not good for long term bets. Everyone is buying stocks with a long term view that we will get back to normality within the next 12 months or perhaps slightly longer. Remember, stocks are priced of their future value and earnings potential. They are long term investments and not necessarily bought for immediate returns although this theory is somewhat contradicted next.
People are bored, people are being given money that has not been earned (stimulus checks, furlough, benefits) and they are betting on the stock market. Speculatiive trading positions are at all time highs right now.
The U.S. Fed and central banks are also still adding to existing fiscal stimulus. Many trillions of financial support has entered the global markets in recent months and there seems to be no end in sight. The U.S. Fed are now even buying individual corporate bonds… the next stop will be them buying individual stocks at this rate. Is this considered market manipulation at this point? If I lose money I want the SEC to investigate them for sure.
Here is an interesting fact that you might not be aware of. The FTSE100 index has pretty much remained flat since the turn of this century (2000) and has produced very little growth if you were to have bought in then. As it stands, the FTSE 100 stock index is currently trading below its market price on the 1st January 2000. At its all time highs in mid 2018 it was still only up around 15% from the price at the the beginning of the century. This is shown on the chart below.
I think everyone now knows what happened to the global oil markets during the first half of this year. Huge lack of demand from global lockdown and travel restrictions meant price dropped dramatically and over supply became too much. Futures prices briefly went negative in April and I covered this in a previous blog post (link below).
The chart above shows the moment oil futures prices went on the 20th April but also the fact that oil has now recovered to almost $40bbl once again. This is quite a dramatic recovery considering that there are still very few people travelling right now and demand is not back to levels seen before the coronavirus pandemic.
Long term, my views are bullish on oil and I believe that renewable energy will not fully replace fossil fuels in my lifetime. In my opinion, buying crude oil at low prices is a good bet for long term returns.
If you haven’t seen it already, I was also featured in an article by VanityFair on the global oil crisis. This can be found via the link below.
It’s always am argument as to whether Gold is a commodity or currency, however there is no denying that it always does well in a risk averse market like we have seen since late February 2020. The spot gold chart shown below shows the last 12 months of price action.
Gold has been bullish since summer last year and it is currently consolidating around multi year highs not seen 2012. Mid march saw prices drop and this actually caused a lot of issues for some hedge funds and money managers using gold as a hedge for falling stock markets. None the less, it the continued to rally up to the current levels. I believe Gold will likely being to continue to consolidate in its current 800 point range (1680 – 1760) until either covid-19 beings to remove its control over market fear or potentially the U.S. and china trade war sparks conflict again.
A more interesting impact on commodities is that the price of Rice (Rough Rice Futures) have been increasing over the past 12 months and saw a huge spike in price more recently. Asia produces around 90% of global rice supply and consumes the same amount, when the coronavirus pandemic began to gain traction, importers rushed to stockpile which raised prices.
Unlike other sectors, agriculture is effected more by the actual timing of the coronavirus pandemic because certain foods can only be grown at certain times of the year and the success of farming relies heavily on planning.
Another potential side effect of these increased prices is causing concerns. There are under developed countries and poverty stricken countries where rice is a staple food in their diet and it is almost a necessity for the survival of hundreds of thousands of people. This could cause humanitarian issues.
What is coming up this week?
Below is a list of all high impact economic data releases for the next 7 days.
Tomorrow (Wednesday 17th June) is the U.K. inflation figures which will be interesting and might certainly move markets, the GBP and FTSE as well as EUROSTOXX. Inflation is a key measure of demand for goods and services and due to the coronavirus pandemic and the effect it’s had on the economy, there is a real chance that the U.K. will see negative inflation this year.
I am not trading any Australian or NZ currency pairs or stocks right now so I am not too interested in their employment levels or GDP growth but again, this will likely have an effect on the relative currencies.
Remember! It is not necessarily the actual value of the the data (positive or negative) that moves the markets but what that value is in relation to what is expected and priced in. Throughout the coronavirus pandemic and recent stock market recovery, the U.S. unemployment data was consistently negative and bad for the economy yet every time it produced a positive reaction in there markets. Why? Because traders and investors were expecting it to be worse.
Longer term financial market fundamental influences.
As seen over the past 6 months, Covid-19 news has dominated the markets and has pushed and pulled prices continuously. Market chop is going to be present in the markets for at least the remainder of the year and all eyes are on the possibility of a vaccine to give us long term hope. There are talks of a second wave in the USA and even the U.K. which seems very likely considering the state of affairs in these countries with the rioting, protests and political instability.
Coming up later this year we also have the 2020 U.S. elections which will likely increase political instability in the largest economy in the world. This will undoubtedly have an impact on global markets as seen when Trump was first elected. I imagine tensions surrounding the U.S. vs China trade war will likely surface again in-between now and then.
Do you remember Brexit? What a joke that has all been. Well technically, it is still ongoing and with the “final deadline” on the 31st December 2020 looming I imagine that will see increased volatility in GBP, the FTSE and Euro currencies and stocks.
I would also like to remind you that FOR THIS MONTH ONLY I am offering a 30% discount on all of my trading education packages to celebrate this blog reaching 50,000 readers. Please check out the trading education page of this site and look at what I can offer you if you want to TAKE YOUR TRADING TO THE NEXT LEVEL.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.