Despite sanctions being lifted on Iran over the weekend, Oil did not take the plummeting that many expected this morning and its losses were moderate. We have to remember that at these levels, even a price change of a single dollar represents a 3% change, so we need to look at actual prices rather than movement of prices. Could it be that this development has been priced in already? Possibly. Could it be that that oil found some support from Russian comments to lower exports and Oman’s comments to be willing to cut production if other agreed? I do not know. At this point, we have to wait and see. Your guess is as good as mine. I guess none of us has all the answers. Other than that, with US markets closed for the day, there is limited trading going on.
Anyway despite Nikkei crashing over 2.5% shortly after opening, it finished the day 1.2% lower while Shanghai finished the day with gains. The Yen lost support after China fixed the yuan more and took measures to make sure that short selling speculators on the currency can not gain. This is a major hindrance for the Yen as it was the yuan depreciating that was the major driver behind the yen strength. As a result, it failed to gain today and lost ground even with equity markets in the red. I see this as a good sign for us, that the tide is starting to turn.
The second factor supporting the Yen was concerns over Chinese growth. I expect these concerns to disappear when official Chinese Government data released tomorrow shows that in fact Chinese GDP has grown by 6.9% or more year on year. I expect this to temporarily strengthen the AUD and NZD (due to their trade relations with China) and put a strong barrier to further advances of the JPY. If I am right about how this data turns out, this will be the turning point for us.
The third factor going against us, and likely the only persistent one after tomorrow is oil prices. I do not know how long this will last, some institutions say Oil may touch 20 and below. However, I take comfort in the fact that having already fell by 60 dollars, another 10 dollars decline will have a smaller impact and low oil prices WILL NOT last for extended periods. The same people who have touted that it can touch 20, have their Q1 estimates at 40 dollars, this says a lot to me.
The cable remains range bound at this crucial level despite some attempts to rally, as markets wait for inflation reports, employment reports, retail sales and comments from Carney later in the week. At this point, with sentiment so negative for the Sterling, any positives will result in a rally at these levels.
I have to say, these massive panic sells offs that have people saying recession are very strange indeed. While risk aversion has made people panic and sell and turn to havens, company earnings and employment data are far too healthy to be anything like a recession. If you look at banks and financial institutions, profits keep increasing while non-performing loans are at low levels. This is nothing like 2008 when you look at the bigger picture. Regardless, it will all soon be clear one way or another. I just remember Dubai in 2008 when there was a global recession and I compare it to today and can see the story is completely different, liquidity may be tighter due to falling hydrocarbons and reduced sentiment, but other than that all appears to be well. In short, I believe there is no crisis. Just people panicking at the start of the year after being caught off guard by central bank actions and over reacting. Time will tell if I am right or not.
Lets see how fortune treats us tomorrow,