Will 2016 Mark The Fall Of The Emerging Markets?

Ladies & Gentlemen, 

Brace yourself for a complete change in dynamics for 2016 and of course, the FED hiking cycle will become the catalyst. 

So should I still stay long the USD in 2016? Well in theory - Yes! In practice however, as the FED raises interest rates the USD will strengthen but these persistent increases (during the proposed cycle) will worry investors - especially for companies with Overseas Investment & for Industrial corporates (with the continued decline of commodities). It could be very expensive! 

A stronger USD now becomes a touchy situation. Mainly because the majority of Emerging Market Countries hold USD debt and this puts a stranglehold on the USD rallies. The probabilities of larger outflows from Countries like China, India is likely and will be the epicentre of pressure. It will be interesting to see how these Push/Pull Economic factors react next year.. Will it help their continued debt? 

The stage for 2016 has been set. 

China is an almost perfect author to this story. With recent trade numbers declining (6.9% yoy) and a staggering 18.8% decline in imports - Other Asian nations who once so heavily relied on China could now look elsewhere.  As the commodity boom slows, the GDP growth required for China to maintain its growth pattern could also fall off the charts! Instead we see a Global Deflationary Threat.

How will the USD react to each FED Rate Hike? - Looking at the past 11 Rate Cycles and in particular more recently when the FED moved from neutral to tightening, the USD fell 7% and to tell the way the USD could react now - one would have to look at the yield curves. Whenever it has been steep (and right now it is steep) it falls over double digits! But again, that would also depend on the forecasted tightening cycle... but really how long could it be? 

What about the Equity Markets? You want to be really focusing on Industrial, Tech & Energy stocks, because they will benefit from the inflationary cycle of the US Economy. But really does the public trust equities anymore? There are currently huge disparities in the major US indexes as during the past 5 years the Public have not really put any money into the equities, it has all been primarily driven by the FED & a lot of these position builders could effectively price in the first hike. 

Next stop... December 17. 

Trade Smarter
Anish8FX @ Atom8.com 

All aboard the GBP/USD Roller-Coaster

Ladies & Gentlemen

In the last 24 hours we have witnessed one of the most wildest days for Cable, with a near 200 pip swing - behaving more like a "spoiled kid" trading FX for the first time.  We moved to 1.5390 when the AB InBEV / SAB Miller deal (now the world's biggest brewery) was announced before a sharp move to 1.5210.

UK employment data this morning has kept calmer the beast that could form this month in Sterling as it is held below 1.53... For now at least! The UK ILO Jobless rate was posted at 5.4%, actually the lowest since mid-2008... giving a further insight into an all important component for the UK employment sector, as people get their butts into work before Christmas.

So what are the important intra-day levels to watch? Well the initial hurdle of 1.53 is clear and above that to really prove bullish power would be 1.5345, where the 200-Day SMA marks. However, a breakdown in Cable this week could fast see an exposure of 1.5107 - the low from October 1st and then a bearish eye towards the 1.50 levels once more (lows of May & also key psychological support).

What is the Future for Cable? - Again the long-term dynamics of £/$ are likely to be determined by the continued debate around rate hikes and as we all know the global economy is slowing slightly and this slow-down could backlash on the UK as well as the USA. The near-term bias could still be on the down-side.

Wishing you the best of Luck

Anish 8FX

The FOMC Countdown To Take-Off!

Ladies and Gentlemen,

Today the Federal Open Markets Committee begins a two day meeting in Washington, concluding with an announcement at 19:00 on 17^th September, followed by a press conference chaired by Janet Yellen. The stakes are high and the global financial markets wait with bated breath.

The members have a tough decision to make, should they raise rates for the first time since June 2006?

Larry Summer, the 71^st Secretary of the Treasury for President Clinton and Director of the National Economic Council for President Obama has stated in his blog that in the last 20 years the Fed has never tightened without guiding the futures market to at least a 70 percent chance of a tightening. Right now the Fed Funds futures market is assigning only a 28 percent chance of a September tightening.

There is a more centrist view, held by John Williams the San Francisco Fed President that low interest rates are sending out the wrong signal. They indicate that a crisis going on, when reality is very different. The labour markets have improved the economy is getting back on track and the correct signal is to raise rates. However the recent turbulence may make the members cautious.

What options are available? Do they raise rates and say they will not do so again until the inflation mandate is meet or do they continue to be data dependent and give further hints as to when lift off will happen.

We believe the press conference will give us a larger clue as to the normalisation process and prefer to be long volatility as the Fed seeks to explain how it’s mandate of maximum employment, stable prices and moderate long term interest rates will be achieved.

Best of luck

Anish S. Lal @anish8fx

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

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