I dedicated my last post to China which is diversifying foreign reserves with large Gold purchases. This time, I want to share my thoughts about a reviving empire and the northern neighbor of China.
The Eurasian Economic Union (EEU) is the largest union on Earth by territory. It is so vast that on one side of it people try to survive in Arctic frost and on the opposite side one can enjoy a mild winter full of sunny days skiing in the high Kyrgyz mountains. The union ranks fifth by GDP (PPP) and seventh by population and it’s only the beginning. The member states are (in alphabetical order): Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. Continue reading ""Winter Is Coming"… Hungry For Gold"→
Unless you’ve been asleep for the past 72 hours you’ve no doubt heard that Turkey shot down a Russian fighter jet. Of course, whether the Russian fighter jet did or did not cross into Turkish airspace is debatable.
What is not debatable, however, is the rising tension between the two countries, which seems to be leading to a trade war. Though less grave than a military conflict, it could ignite a rout in Emerging Markets and their currencies.
What Ignited the Mess
Even before the unfortunate incident it was clear that tensions between Moscow and Ankara were heating up. The reason for that is a very clear conflict of interest between Russia and Turkey over what’s happening in Syria. More specifically, it involves the area of Turkey’s border with Syria. Continue reading "The Perils Of A Russian Turkish Conflict"→
By: Marin Katusa, Chief Energy Investment Strategist
One of the most striking things about the Colder War—as I explore in my new book of the same name—has been the contrast between the peevish tone of the West’s leaders compared to the more grown-up and statesmanlike approach that Putin is taking in international affairs.
Western leaders and their unquestioning media propagandists appear to believe that diplomatic relations are some kind of reward for good behavior. But it’s actually more important to establish a constructive dialogue with your enemies or rivals than your friends, because that’s where you need to find common ground. Indeed, it’s been the basis for diplomacy since time immemorial.
Reassuringly, despite having been the target of the Ukraine crisis rather than the instigator, Putin still sees the West as a potential partner, not an enemy. Nor does, he says, Russia have any interest in building an empire of its own. In theory, if Putin is sincere, there should be plenty of room for cooperation, especially in the fight against terrorism.
As Putin said in his speech at the Valdai International Discussion Club in Sochi in October—whose theme was “The World Order: New Rules or a Game without Rules”—he hasn’t given up on working with the West on shared risks and common goals, provided it’s based on mutual respect and an agreement not to interfere in one another’s domestic affairs.
Putin has, of course, already shown that he can rise above the fray. By negotiating the destruction of Assad’s chemical weapons arsenal under international supervision, he did Obama a big favor and got him off the hook in Syria. Continue reading "Where Have All the Statesmen Gone?"→
This week was undoubtedly a busy week for FX traders, with the utter meltdown of the Russian Ruble followed by Putin’s speech, the across-the-board selloff in emerging markets and the surprise negative rate announced by the Swiss National Bank. What this week won’t be remembered for is a Pound Sterling turnaround, yet I intend to illustrate in this article that that might just be in the cards.
Across the Channel
The fact that the Pound Sterling has shed value against the almighty Dollar might not come as a surprise; after all, the Dollar has rallied across the board as the Fed turned hawkish and the economy accelerated. But what is a surprise is why the Pound Sterling, the currency of an economy which has grown at an annual pace of 3%, has been essentially flat versus its European peer, the Euro? In short, after a robust performance from the UK economy, investors are beginning to get the sense that rather than continue accelerating the UK is been dragged down by the woes across the Channel with Europe pulling UK growth potential down. Below, the two major charts that made investors ponder and Sterling stagger.
The first and foremost piece of data is inflation, but not just headline inflation which is also affected by external factors such as Oil prices (which, as we all know, happen to be collapsing) but core inflation that isolates external volatile factors including energy and food. As you can see in blue, UK Core Inflation just took a nose dive, hitting 1.2%, just 0.5% above the Eurozone’s 0.7% core inflation rate. With such a collapse in inflation expectations investors are beginning to question the UK recovery, wondering instead if growth is about to slow rather than accelerate, or perhaps that wage growth is not just around the corner as the pundits have said, and that maybe the Eurozone’s own stagnant growth is dragging the UK down along with it.
Thereafter, comes job market data; although unemployment has fallen to 6% it’s stubbornly fixed at this level and the claimant count rate, which measures the fall in unemployed (as seen in our second chart) has slowed down in pace. That had led investors to ponder that perhaps the job market is about to reverse some of its earlier job gains and that unemployment could nudge a bit higher.
This has all led to one very basic question; are rate hikes in the UK really on the table next year? What with inflation in a nose dive, wages failing to rise and unemployment perhaps on the verge of a hike? Certainly, the possibility of a rate hike being pushed back into 2016 seems, especially after those readings, more probable. And that pretty much explains the flat performance of Sterling even against a battered Euro.
Retail Sales Changes the Game?
So what is the game changer? We have established the reason(s) why Sterling has been stagnant thus far but what makes investors think the game has changed? In two words: retail sales. The robust retail sales figure coming out of the UK on Thursday, a 6.4% (YOY) gain, surprised even the most optimistic investors. That unexpectedly positive figure has resulted in yet another possible scenario for Sterling watchers; say, the one in which the recent mild UK data was just a temporary bump or a minor glitch, and that the UK is actually gearing up towards another fall in unemployment, a rise in wages and maybe even a rate rise in 2015.
Matching Technicals and Fundamentals
As seen in the chart below the reaction in the market was not too late to arrive and the EUR/GBP quickly took a nose dive amid renewed Sterling bets. This could very well be the start of another push south for the pair, especially considering the formidable resistance the pair has generated and how this resistance pattern was reinforced today. But, and although this could be the signal for the start of another bearish push in the pair, more needs to happen. Next week’s final Q3 GDP reading may very well provide that fuel, that impetus, which can push the pair below the 0.777 level. However, most investors are eying December’s CPI data and 4th quarter GDP which is due out next month. Because if those two readings follow suit after the robust retail sales numbers, the 0.777 support could be broken, and as the chart illustrates below, the next support for the pair may be quite distant, creating a potentially long bearish cycle for the pair and taking the Sterling bullish bet back into the game. So, if you are in it for the long haul, be patient; Sterling just may surprise you for the better.
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
No doubt by now, you've heard of the problems in Russia with its currency. You have to say to yourself, "a 17% return on my money sounds pretty good," but when the ruble sinks more than that in one day, you say, "WHOA, will I get my money back?" And that my friends is Russia’s Achilles' heel right now, as investors ponder whether they going to get their money back before capital controls are put in place.
If you didn't think commodity markets are important, think again. The correlation between the collapse of the Russian ruble (CME:6R.Z14.E) and the collapsing oil market is extraordinary and I will illustrate it for you in today's video.
Who knew that Saudi Arabia alone could, in essence, break the Russian economy almost in half, not with tanks and bombs, but with a commodity called crude Oil (NYMEX:CL.F15.E).
Saudi Arabia has continued to push production from its vast oil fields in order to lower the price of oil and make it difficult for competitors to stay in business. One of the amazing side effects to all this is the fact that Saudi Arabia has basically ripped the guts out of the Russian economy and its cash cow, crude oil. Continue reading "Russia's Achilles' Heel"→