Predictions of November 2016

On Thursday, Yellen gave a hint on US rate increase which made dollar get stronger over again. Oil, gold, currencies fell on the news.
markets are very interesting. there is too much action and volatility currently in the market in all assets. Yields are going up and down, dollar keeps rising, other currencies are being hammered, gold and oil is down. Oil is fluctuating up or down. What i understand is I just can not focus on short term. i should aim for long term. why? because of the volatility. it is hard to predict what is gonna happen. market participants don’t know what they are doing.
So there are important questions that need answers.
  1. what will happen on Nov 30 OPEC meeting? will they agree to production cut? or will they not come to an agreement?
  2. Will Yellen raise the rates in December? why?
  3. if she does how will market react? how will dollar do? what about oil and gold? and bonds?
  4. if she does not, will dollar fall or keep rising because of Trump policies?
  5. What policy move Trump emphasize first? will it be about tax cuts, spending or trade protectionism? How will each impact markets? currencies, US stock market, gold, oil.
Now, 3 issues are strongly intertwined and the order of execution is like this. OPEC comes first, Yellen announcement second. TRUMP, however, is uncertain. That raises uncertainty which is not good news for my prediction.
Now, I have to go through various scenarios.
  1. What will happen on Nov 30 OPEC meeting? will they agree to production cut? or will they not come to an agreement?
 
 1. OPEC comes to an agreement. This causes oil prices to shoot higher close to 50$. above that, i don’t think so, while prices are currently around 45$. 5 – 7$ up makes sense. The market will respond quite positively because there is less optimism about OPEC deal right now, therefore, it has reflected itself in the market.
2.OPEC does not come to an agreement.  Two cases are likely: If the market has reflected the pessimism surrounding OPEC case then downfall is less likely. probably around 40$. If it has not , then fall is gonna be huge I believe. can go down as much as 35$.
Which has more chance of happening either deal or no deal I don’t know. What do you think? News says deal is unlikely as some countries keep increasing production like Iraq, Iran so without Iran, Saudi Arabia is not gonna cut its own production. So, prices are gonna fall. My guts say deal is not gonna happen because as members are cheating, Saudi Arabia won’t give its market share so no cuts can occur. Maybe I should short.
Impact of deal or no deal in other markets
As far as I know the price of oil will not have an impact on other financial assets. Basically, it will be all about speculators driving the market.
  1. Will Yellen raise the rates in December or not? why and why not?
 
As I have written in my previous blog and As Yellen mentioned yesterday, she is gonna watch the Congress and Trump policy. Obviously she said raising rates is relatively soon, employment is at reasonable levels and inflation can hit FED target. Only thing she is constraining herself is Trump policy. Therefore the answer to this question is highly linked with the last one (Trump policies)
Dollar has strengthened recently, if Yellen raises rates that is gonna push the yields and dollar more while both are up. So, Yellen probably has got herself in new dilemma she did not anticipate. IF Trump had not won, I am certain of rate hikes would have occurred in December. Now, she is thinking twice. IF she did raise, then Trump came forward with trade protectionism then that is not gonna be good news for FED , she is not gonna like it. If Trump came forward with tax cuts, fiscal spending then she is what she wants. tight monetary policy hand in hand with expansionary fiscal policy.
 
Impact of deal or no deal in other markets
 
The impact is large, basically gonna effect everything. Dollar rise , bonds fall, stocks might go down , gold can go up and probably lower oil prices ( oil price effect will depend on OPEC deal first).
  1. What policy move Trump emphasize first? will it be about tax cuts, spending or trade protectionism? How will each impact markets? currencies, US stock market, gold, oil.
OK, this is tricky part. I don’t have much knowledge of when president elects start talking about their policies seriously whether before January or after. What is important here is two things. When will Trump talk? whether before OPEC and Yellen announcement or in the middle or after? Secondly what is he gonna say? Now, first part is as important as the second. Because this is  connected to Yellen announcement as well. The issue I might miss here however is that Yellen might have decided already what to do. Then when will Trump talk will not matter for my prediction. However, i think Yellen is as uncertain as anyone else, so she has not made up her mind yet or any other board members of FED. So, let’s keep going with prediction.
Trump talk i think has more chance to talk after December Fed meeting which is gonna take place on Dec 13-14. As we have got less than 2 months to the meeting I think Trump will be busy appointing his team to the White house and drawing his plans about the his policies. he is gonna probably wait for till he sits in the office. What might go sideways is that he starts giving hints about what he is gonna do and market overreaction to his statements.
So, if he comes up and talks before December meeting and goes with tax cuts and fiscal spending first then Yellen might raise the rates as the counter balance. If Trump comes with trade protectionism or does not come forward then Yellen will not raise rates probably then she is gonna wait for market respond.
If Trump comes up before FED meeting and talks about tax cuts and fiscal spending then, high inflation is certain then higher yields on the horizon, stronger dollar, weaker foreign currencies especially Yen and EM currencies, gold is down, Oil might be affected negatively as well.
If Trump comes with trade protectionism then somehow counter effect I presume, however, my exact prediction is uncertain in this environment. Definitely, Mexican peso is gonna sink, as well as other currencies, might as well.
What about the case which I think is likely to happen? His plans only after FED meeting. Impacts won’t vary much i believe in this case of course , FED decision will be first then , If FED keeps rates stable  + Trump fiscal spending then , i don’t see more market impact on the first event. second event will be as mentioned before.
If FED increase + Trump fiscal spending then the dollar will rise in both cases pushing the dollar higher. Bonds will fall, gold likely increase due to rate hike.
FED stable + Trump protectionism then the market will react softly to the first one and stronger to the second as mentioned before.
FED increase + Trump protectionism then that is gonna be bad news for the market. US stocks will sink heavily by both events, the dollar might rise, on the other hand, oil might go much lower, gold I think might rise in this case.
My bet will be on no deal for OPEC, no rate hike by Yellen as she will wait for market  and Trump reaction, and Trump will probably talk about his policies after mentioned two previous events. What he will mention first however is uncertain for me. Therefore, I will take bets I can see. I will short oil, gold and go long on dollar as well. Because in many played scenarios I see rising dollar, rising US stocks for now, falling oil and gold. My current positions in gold, and oil however is the opposite therefore, I will reverse and go short and see how I am right.
My first scenario is FED stable + Trump spending. 
second is FED hike + Trump Spending.  Fed might increase without waiting for what Trump is going to say because if Trump is likely to talk about spending that is good for economy so, economy will prosper than before, employment might be lower so FED will raise rates.
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