DAR Wong: Fear factor in markets

The market has been reacting in uncertainty since crude oil prices experienced a meltdown from US$80 per barrel to its current US$50 per barrel. The crude prices on global measure are considered as a benchmark to gauge inflation. However, the fear of credit tightening in the US economy is pressuring global equity markets into slumps.

Since last November, the US Fed has completely withdrawn the monthly stimulus which “miraculously” followed by the oil plunge, relieving the pressure of increasing interest rates. The US dollar has been climbing and surging against European and Asean currencies. Market traders and investors are reassured that no rate hike will  occur for at least a few quarters in 2015.

At the end of 1Q, Greece sovereign debt resurfaced in the eurozone and ECB announced the kick-off of a new monthly stimulus at 60 billion euros beginning March for the coming 18 months.

As China reiterates slower manufacturing output, pressure has been reinforced on commodity demand that lifts the US dollar index to new high above 98 levels while challenging the 11-year high record at 99.36 levels.

The latest payrolls for US economy in February surprised markets at 295,000 growths. Though US housing demand recovery is  slow, market analysts are relying on stronger job numbers and higher dollar strength to predict the growing inflation in US economy. While previous forecast has “banked” on rate hikes coming only sometime by year-end, analysts now are calling for such policy action to come as early as June.

Needless to say, Dow Jones market and major equity markets are threatened by the imminent rate hike.

In our opinion, Fed policymakers will hammer the crude prices lower at US$30 per barrel if they plan to delay in rate hike. The debate will come if gold and crude oil both falls inversely to higher dollar value as gold has to maintain above US$1,100 per ounce to record good reserve value for global central banks.

It is highly possible to see gold and crude oil decoupling in the second semester. On the other hand, the effect of new stimulus in euro 19 nations will take three to six months to digest. During this period, the euro currency will continue to weaken with the recurring toxic news of Greece and other European nations.

Nevertheless, we forecast there will be a rebound in the euro against US dollar in second semester, logically below 1.05 levels, once investors begin to liquidate European assets and expect some exit of European “monetary-sick” nations.

Now, this may be a guess work only but it could be a reality when EU is down to no more choice in resolving its sovereign debts. Let’s hope you can find some good opportunity from such market movements.

Disclaimer: Dar Wong is a licensed fund manager in Singapore with 25 years of trading experiences in global financial markets. You may reach him at dar@pwforex.com.

Source: The Borneo Post