NIC Index February & Market Overtone

10:32 PM

- Index performed poorly this month, -6.22% in a volatile month

 Market Overtones
 G20: Underwhelming (All)
PBoC Cuts Required Reserve Ratio (All)
Oil Oil Oil! (OIL/AUD/CAD), 
Central Banks Continue To Tussle (USD/JPY/EUR)
Brexit! (GBP & EUR)

NIC Index
The 50 most popular investors in etoro(for more on this, please click here) were not well performing well for this month, this is not surprising given the volatility of the market. However selfishly this has been a fantastic two months of to really see how the traders perform. More on this in a post coming soon.

Key economic overtones affecting currencies/ETF for the next month:
G20 - Underwhelming (All)
The G20 meeting didn't impress with the world economies not seeming to increase market confidence in an overall coordinated stimulus program. The thing about trading markets is most of this is perceived confidence, as in if there were strong statements by politicians perhaps the general news from all the FX/ETF/Investments sites would report a positive on confidence, but when we see headlines such as "G20... Underwhelming... not impressive.. No concreate action... etc" we tend to think that maybe they don't think a global recession is on the horizon.

With the recent slump experienced in the global equities market for the past 3 months, this may not be surprising that some portion of the market think this is happening. Personally I think it has to, we have been living in a time of low-interest rates, leveraging has been high. One can argue that other countries such as Japan and Europe are still providing low interest rates, but as short term view traders in FX and ETF, we only care about the mood of the Mr. Market and he is having some really bad diarrhea at the moment.

Those expecting this downward trend to end soon might have to wait a little longer. This will specifically affect ETF traders with long term views, be careful of resistance levels not holding as strongly as one would expect.

PBoC Cuts Required Reserve Ratio (All)

The Chinese Central Bank has decided to cut its required reserve ratio requirement for the banks. One of the main purposes of this is to provide liquidity in the market, and effective 1 March, this will drop by -0.5% to +17% (in line with expectations). While the numbers in themselves do not mean much, the comments that they made were quite interesting, “guide stable and appropriate growth in credit and create appropriate monetary and financial conditions for supply-side structural reform”, likely meaning they are trying to maintain their target growth rate.

China has been pretty much a one trick pony when it comes to stimulating the economy, at the moment they are looking at increasing the liquidity till their "one belt one road" can provide some much needed fundamental upside. But till then, I feel China will continue to cut rates till they reach their target growth rate.

The most affected by these comments should be the commodities and related currencies for volatility (AUD & CAD), although I feel this is likely already priced into current levels. Mr. Market tends to overreact a lot of the time, and when first news of all the myriad of slowdown, raising interest rates and not to mention oil slump, we can already see the major drop in the currencies.

Speaking of which!!

Oil Oil Oil! (OIL/AUD/CAD)
Oil (which we can trade on etoro directly, though i will not focus on this due to my lack of understanding of this instrument, I have some exposure outside etoro, but they are stock related so far far less volatile and doesn't need to be traded at frequent intervals) the top global producers agreed to discuss fresh efforts to stabilize the market. The Venezuelan Oil Minister Eulogio Del Pino that they would include Saudi Arabia, Russia and Qatar, to steady prices. OPEC-Russia also announcement to freeze production output.

However this on-again, off-again deal that has been in the works for weeks,

To be absolutely honest with you guys, the fact that oil has slumped 70% over a 20-month rout is mind blowing to me. Again I have no expertise in commodities, my circle of confidence is still within the FX / ETF space. But any rout so heavy without a correction is scary.

For us though, just keep an eye on the commodities currencies.

Central Banks Continue To Tussle (USD/JPY/EUR)
Mr. Market might be in a super bad, a good mood, or just kinda cruising along on the Fed (March 16th), ECB (10th) and BoJ (15th) for later this month depending on what kind of monetary policy clues is presented to him.

JPY - "BoJ Governor Kuroda reiterated that Japanese policy makers stand ready to lower rates further if necessary, monitoring the impact of negative rates on markets and the real economy." Yes, yes, we can go on and on about Abenomics and its effect but let’s not, again, lets focus on Mr. Markets and his moods, interest rates up, unhappy and yen goes up? Maybe happy and yen goes down? Time will tell on this one. Mr. Markets is very unpredictable.

Oh by the way, the governor has pledged to continue with negative rates and QE until their +2% inflation takes hold.
EUR - The European Central Bank is a funny one to watch with ECB chairman Draghi stating the bank will be swift to act. But this may not be true especially given not all board members see eye-to-eye. French board members already talking about the need for anticipated extra easing measures. The German board member agreed however said that said it would be dangerous to further expand already “highly accommodative” monetary policy given the longer-term risks and side effects of negative rates. So now what? Hopefully the best and brightest from Europe can figure this out.

The thing about these combined currencies, is historically they don't last, as in after a while they disband at some point of time. People argue that the US has done it for a long time, and that is true, but they also had a single government, without this, there tends to be a disconnect between policies which protect the economy and social policies. The Bank of England’s former governor also said the same, stating its “created a conflict between a centralized elite on the one hand and the forces of democracy at the national level”, producing dangerous consequences.

Not a déjà vu but speaking of which

Brexit! (GBP & EUR)
The Brexit is also an interesting one to watch, like mentioned above, it doesn't traditionally work to have a combined currency. The divergent social and economic issues is a real issue, and another factor is the strong GBP vs. the weaker cable, it is a disadvantage to Britain. They do stand to benefit to gain from preferential economic agreements between the Eurozone members, but losing out on social issues might be too much for them

If the Brexit (Britian Exiting the Eurozone happens), the Grexit (Greece Exiting the Eurozone) becomes far more likely. And given the sheer amount Greece owes to the various countries. This might become a major issues.

Do continue to watch the GBP & EUR currencies as D-day approaches.

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