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Pedal to the metals

The post-pandemic era has been characterised by both supply-side and demand-side deficits in a range of commodities. The prices of everything from fuel and energy resources to household goods and even industrial raw materials have been gradually driven up by inflation. One asset class has defied all logic these past two years, though: precious metals. Conventional wisdom and the historical record would dictate that gold and silver should have enjoyed huge gains during this protracted period of economic uncertainty and price pressure, but the reality is very different.

The two major precious metals are actually down over 10% from their January 2020 levels. While the whys and wherefores are certainly interesting, traders and investors are more interested in where they’re now headed. So, without further ado, let’s see what the technical analysis says about their likely future trajectory!

FED up with inflation

As we are all aware, price pressure has been worryingly high for some time now, which should translate to higher gold and silver prices. Unfortunately for gold bugs, though, central bank policy has seen things unfold very differently. The Federal Reserve has been battling inflation with a strong hawkish stance and multiple meaty rate hikes over the past year. After a succession of 0.75% increases, we are now hearing talk of a full 1% key rate hike to come before year end.

Following late September’s CPI report and Powell’s affirmations, gold dipped below its $1,700 an ounce support and has now fallen as low as $1,620. Analysts had spoken of the risk of a break below the key support between $1,680 and $1,675, with many predicting serious declines to as far as $1,500 if this level is breached. Now that this has come to pass, it could well signal the end of gold’s three-year bull market.

Dollar signs

If you’ve been following the forex market at all in recent weeks, you’ll know that the dollar has reached a historic parity with the euro. Apart from ravaging the competitiveness of US exports, this has resulted in soaring T-note yields. Bar the 10-year, every single US government bond now pays above 3%, and with a Fed firmly committed to hawkish policy, the only way is up from here.

For ease of access and liquidity, investors would much prefer to hold US dollars as opposed to gold or silver. That being the case, demand for precious metals is sure to suffer in an environment where the dollar is able to outperform most haven assets. As we await the latest euro area inflation data to see whether the ECB’s rate cuts have put a dent in inflation, we can expect a lot of volatility in the EURUSD pair. It would appear that the recently formed falling wedge pattern has fallen flat, and so a reversal in the near term is now unlikely. If the dollar does continue to strengthen against its major competitor, then gold and silver should expect the low demand for metals to persist.

The big picture

Short-term signals and technical patterns are, of course, invaluable tools for any trader or investor, but we ought to remain mindful of the “super-cyclical” nature of commodities, gold and silver in particular. They simply don’t play by the same rules as most other financial assets. Take the GFC of 2008 and the ensuing commodities bull market: stocks had hit their bottom and were almost back at pre-crisis levels a full year before gold hit its 2011-12 peak of $1,800, a level that is still within touching distance a decade later.

This goes to show that the precious metals cycle is frequently out of step with risk assets, and thus, declining stock prices can be viewed as a leading indicator of gold growth to come. Indeed, the IGCS shows that retail traders are currently distinctly long on gold, with 86% of traders currently holding long positions. The general consensus is that gold and silver prices will hold relatively steady at current levels until central bank policy or runaway inflation cause a severe break in the economy. Then, experience would suggest that we will see a precious metals bull market lasting at least 12-24 months.

Go for CFDs on gold with Libertex

Libertex offers trading in a vast array of CFD underlying assets, including precious metals like gold and silver. Libertex supports both long and short positions, and it has ultra-low spreads. For more information or to register your own trading account today, visit www.libertex.com/sign-up


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Don’t take your foot off the gas

It doesn’t seem all that long ago that we were talking about an energy crisis the likes of which we’ve never seen before. As European gas prices peaked above €300 per MWh in August, the world was terrified of what carnage the heating season would wreak on already suffering consumers. But now, as the Old Continent prepares to dust off its radiators, futures in the precious fuel of natural gas are hovering around €100 per MWh, a level nobody would have predicted just a couple of months ago. And it doesn’t stop there. After at-the-pump petrol prices more than doubled, Brent oil is now down almost 30% from its annual high of $127.98. So, what factors are behind this seemingly illogical (albeit welcome) drop in fuel costs, and how can traders take advantage of this trend?

Climate change to the rescue

As serious as global warming may be, it might have just saved many Europeans’ bacon this year. The unseasonably mild autumn we’ve experienced thus far has meant that many households have not yet turned on their heating. At present, temperatures across Northwest Europe, which includes the continent’s biggest consumers Germany and France, are above the long-term average. Meanwhile, the latest forecasts call for further above-normal readings into early November. As a consequence of this, gas prices are expected to remain subdued for at least the next month. Naturally, this doesn’t mean the worst is behind us. Not by a long shot. Many experts have predicted an unusually cold winter to come. As such, when the inclement weather does arrive, there’s nothing to prevent gas prices from skyrocketing in the absence of a long-term resolution to the ongoing supply-side issues.

Full tank

Beyond the atypically warm weather, there are, of course, other factors at play. As prices were rising uncontrollably, Europe went on a buying spree to ensure it wouldn’t be left out in the cold come winter. As a result, the EU’s gas storage facilities are now at 93% capacity, which means that European governments simply have nowhere to put any additional natural gas they might wish to buy. And with the reduced consumer heating use, they aren’t even able to use up some of their existing reserves and replace them with this relatively cheap gas currently available.

All of this has meant that demand for natural gas is well below the average for this time of year, which is, in turn, pushing down open market prices. As such, we can expect the current downtrend to continue until the cold weather finally arrives. All in all, it appears as though the crisis everyone expected following the sabotage of Russia’s Nord Stream gas pipeline has been averted…at least for now. Given many European countries’ preparedness, a standard to mild winter could actually see prices avoid another spike and perhaps even fall slightly further.

What about the US?

With all this talk about Europe, it’s easy to forget that there are other key natural gas markets in the world. The US, for instance, is a major producer of the resource, and, with Russian gas likely to be a much smaller share of the energy mix this winter, prices across the pond have taken on special significance this year. US percentage price action has actually been quite similar to Europe’s, with gas now 40-50% cheaper than two months ago. The Henry Hub is currently trading at $5.17 per 1 million BTU (0.3 MWh), which is significantly cheaper than anything available in Europe right now.

Even after the recent dip, European gas is still almost 20 times the price of its US counterpart. If transporting it wasn’t so cost-prohibitive, we might have been able to resolve the energy crisis rather easily. For ordinary Americans, retail prices have increased over the past year or so, but it hasn’t been anywhere as dramatic as it has been for Europeans. US prices have been significantly higher than their current levels for almost ten out of the last twenty years, whereas the Dutch TTF is displaying prices that are around four times the average historical price per MWh. In an uncertain economic climate such as this, this reality is clearly unsustainable for the EU and will surely foster the political will for a resolution to the geopolitical conflict on its border.

Trade natural gas CFDs with Libertex

With ongoing political and economic instability around the world and a cold winter just around the corner, nobody can be certain as to where the energy markets are headed in the short-to-medium term. However, with Libertex, at least you can be sure you’ll have the possibility to trade gas-related CFDs long or short for maximum diversification. Libertex’s extensive range of CFDs includes the Henry Hub natural gas index for those who prefer to trade the underlying commodity directly. We also offer a wide variety of energy-related stock CFDs, such as Gazprom, Petrobras and Exxon Mobil. It’s completely up to you! Take advantage of tight spreads and low commission and trade at your convenience in our multi-award-winning app. For more information or to create your own account today, visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Libertex joins its parent group in celebrating a quarter-century in the business

Today we join our parent group (Libertex Group) in celebrating a quarter-century of connecting ordinary people with the financial markets.

What began as a small business back in 1997, has grown into a diverse group of companies, serving millions of clients all over the world. Celebrating 25 successful years in the financial markets would not have been possible without the continued support and involvement of our loyal clients, partners and employees so THANK YOU all!

We remain focused on our commitment to always innovate and to offer nothing less than excellence! Here’s to many more years of success, more impact, more excitement, and more history!

#TradeForMore (https://libertex.com/)

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Digital asset bears preparing to hibernate

It's hard to characterise 2022 as anything but a total disaster for the crypto market at large. This time last year, Bitcoin was at all-time highs above $65,000 as fanboys and analysts alike were calling for prices above $100k in the months ahead. As we all now know, that couldn't have been any further from the truth. Since November 2021, Bitcoin has lost over 70% of its value and, as of 1 November 2022, sits at $20,418, paltry by comparison. For much of the year to date, the majority of other major coins and tokens had followed the same disappointing pattern, but then something totally unexpected occurred.

Crypto pack has a new top DOGE

While the original cryptocurrency was stuck trading sideways in a narrow range around its key support of $20,000, the Scrappy Doo of digital assets, Dogecoin, made an independent move against the Alpha Dog. Starting just a week ago, in late October, DOGE has managed to nearly triple in value, rising from a lowly $0.059 to a six-month high of $0.15. This huge upside momentum was also accompanied by a sizable increase in the coin's daily trading volume. According to Santiment, the exciting price action also coincided with a spike in the number of DOGE transactions exceeding $100,000. Taken together, these two indicators would suggest growing demand for Dogecoin tokens among whales. Even the Dogecoin spin-off Shiba Inu rose by 60% in a week amid the release of a gaming guide for Shiba Inu's Collectible Card Game. But what is behind this seemingly illogical moonshot by what have been derogatorily dubbed 'meme coins'?

The unmistakable musk of Elon

The established orthodoxy of the cryptocurrency market (if such a thing even exists) would tend to dictate that the Top 10 coins by market cap move more or less in lockstep with Bitcoin. At the very least, they are not expected to make 150+ percentage gains against BTC itself. It's no secret, however, that Dogecoin is a pet project of Tesla CEO Elon Musk, a man who is definitely capable of moving any market with a simple tweet. And that appears to have been precisely what sparked this latest DOGE/SHIBA rally. Following the long-awaited completion of his landmark Twitter takeover, the South African visionary pledged to introduce DOGE as a payment option for his controversial paid blue tick service. Thus, when Musk tweeted a titillating image of a Shiba Inu dog wearing a Twitter shirt beside a pumpkin with a Twitter logo carved into it, the message to the Dogecoin community was clear: Elon may soon make good on his promise.

In the Ether

This divergence in the crypto market's general trajectory isn't just limited to the unexpected rise of the two big canine coins. Ethereum is another major project that has been going against the grain to make solid gains against Bitcoin. Indeed, the market's second-largest project, Ethereum (ETH), has shocked investors' by climbing as high as $1,600 in last week's 20% rally. This outshines BTC's paltry 7% rise by nearly 300%. At its current level of $1587.27, Ether is now up around 40% from its July lows.

Meanwhile, Bitcoin has barely appreciated by 5% over this same period. Many analysts have attributed this bump in ETH to the project's migration over to a PoS model in the summer. Since making the switch, Ethereum's official net issuance has fallen from 3.6% to nearly 0%. However, data from IntoTheBlock suggest this indicator has actually dropped below zero, which would make Ethereum a deflationary coin. The cumulative reduction in the ETH supply could, therefore, drive the ETH price even higher in the future.

Release the bulls!

The question most crypto traders and investors are asking is: do these recent rallies mean that the end of the dreaded crypto winter is in sight? And while one swallow does not make a summer, the gains we've seen in several major coins of late would seem to tentatively suggest that a reversal could indeed be in the making. The missing piece of the puzzle right now does appear to be the original cryptocurrency. Whatever the community might say about utility and deflationary mechanisms, Bitcoin is still the number one digital asset and represents almost 40% of the $1.06 trillion market.

This being the case, we cannot talk about an official end to the bear market until we see some more convincing upward movement on the BTC chart. Nevertheless, it is encouraging to see other correlated projects moving independently on their own fundamentals, a defining feature of more mature asset classes. In any case, the fact remains that many digital currencies are available at relatively bargain prices, and any long-term HODLERs would do well to pick some quality coins up while they can.

Trade crypto CFDs with Libertex

Aside from CFDs on stocks, forex and commodities, Libertex also offers a wide range of cryptocurrency CFDs for traders around the world. With Libertex, you can hold long or short positions in over 100 digital currency pairs, including Bitcoin, Dogecoin and Ethereum. For more information or to create your very own trading account, visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. Tight spreads apply. Please check our spreads on the platform. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Gearing Ratio: Complete Guide with Examples

A gearing ratio is a financial measure that takes into account the proportion of a company's liabilities (creditors' funds) versus the total equity (shareholders' funds), thus representing the entity's financial risk level. It is a powerful tool that investors can use together with fundamental analysis to gauge the overall performance and financial stability of a company they want to invest in.

In this guide, we'll dive deeper into the gearing ratio, explain how to calculate and interpret it, examine its benefits and drawbacks, and provide you with examples to make it easier to apply this instrument to your analysis.

What Is a Gearing Ratio, and What Does it Tell Investors?

A gearing ratio is a calculation used to show the degree of a company's financial leverage. It is found by dividing total credit funds by shareholder's equity. This number tells how much debt the company uses compared to the money investors have put into the business. As such, a low gearing ratio implies that the company can pay its debt several times over, while high gearing represents a highly leveraged business that is likely to face more risk during times of market volatility.

High Gearing Ratio vs Low Gearing Ratio: How to Interpret Ratio

It's difficult to say whether a company has a good gearing ratio or a bad one. Everything's relative. When conducting such an analysis, it's crucial to take into account the total market situation and make a comparison between a particular business you want to invest your capital in and other companies from the same industry. However, there are some commonly used gearing ratio measures: low, middle and high. Let's have a closer look at them.

1. A low gearing ratio is below 25%. This means that a company uses less debt financing and more equity financing. Both investors and lenders would consider this ratio to be low-risk because, if the asset goes down in value, the equity will cushion the loss.
2. Mid-level or optimal gearing ratio is between 25% and 50%. Companies with this level of gearing are usually characterised as stable, well-established and with a reasonable level of risk.
3. High gearing ratio is more than 50%. A company with high gearing is said to be more leveraged. This means that investors have to deal with an increased risk of losing money. This is because the company's debt holders have the first claim on its assets and profits. If it comes to liquidation, the shareholders will only receive any proceeds after the creditors have been paid in full.

Gearing Ratio Formulas

There are several ways to calculate gearing ratio. However, the most common gearing ratio formula is:

NET Gearing Ratio= (Long-term debt + Short-term debt + Bank overdraft) / Shareholder's equity

Debt-to-Equity Ratio

Another common gearing calculation is based on the debt-to-equity ratio. All you need to do is divide the total company debt by the total amount of company equity. The formula will be as follows:

Company's gearing ratio = Total debt / Total equity

The gearing ratio can also be presented in percentages. It's necessary to multiply the result from the formula above by 100:

Company's gearing ratio = (Total debt / Total equity)*100

Debt Ratio

The debt ratio is very similar to the debt-to-equity ratio. It shows the percentage of a company's assets that are financed by debt and is calculated by dividing total liabilities by total assets.

Debt ratio = Total debt / Total assets

Equity Ratio

The equity ratio is a financial ratio that measures the extent to which the equity capital of a company is owned by its stockholders. It is calculated by dividing a company's total equity by its total assets.

Equity ratio = Total equity / Total assets

How to Calculate the Gearing Ratio of the Company You Are Researching



Once you decide to calculate the gearing ratio of a particular company, here are the steps to follow:

1. Choose the company. As a result, the gearing ratio will help you analyse if it is a potentially good investment option.
2. Choose the most suitable gearing ratio formula. There are various ways to calculate gearing ratio; one of the most commonly used is the debt-to-equity ratio.
3. Calculate the gearing ratio. If you've chosen the debt-to-equity calculation method, it's necessary to divide the total debt of the company by its total equity. If you want to receive the result in percentage, multiply the fraction by 100.
4. Analyse the results. Companies with high gearing ratios are considered risky, as they have considerable debt that must be paid back. Low gearing ratios indicate that the company is more conservative, stable and associated with lower risks.

Example of a Gearing Ratio and Its Interpretation



Here is an example of how to calculate and interpret the gearing ratio. Let's say that an imaginary company — we'll call it AAA — has a total debt of $1 million, while its total equity accounts for $4 million. To calculate its gearing ratio using the debt-to-equity formula, we need to divide total debt by total equity and, if we want to have the result in percentage, multiply the result by 100.

AAA's gearing ratio = ($1 million / $4 million)*100 = 25%

25% is a good gearing ratio, meaning that the company has a higher percentage of financing that comes from equity. This business is likely to be more financially stable and less risky, especially if the investment does not perform as well as expected.

Let's have a look at an opposite example. Company AAA has come with the following financials:

- Total debt - $4 million
- Total equity - $2 million

Then, the calculation of the gearing ratio will look like this:

AAA's gearing ratio = ($4 million / $2 million)*100 = 200%

This is an extremely high result, which means that for each $1 of equity, the company has $2 in debt. In this situation, the company AAA will be significantly riskier to invest in.

Gearing Ratio and Risk: Everything You Need to Know



Gearing ratios are often used to evaluate a company's financial health, as well as its level of risk for potential investors and lenders. Businesses with high gearing ratios are considered riskier than those with low ratios, as they have more debt that must be paid back. In addition, companies with high gearing may find it difficult to obtain new financing, as lenders will view them as being less financially stable. As a result, this can put them at risk of defaulting on their loans or going bankrupt.

However, it's important to note that not all companies with high gearing ratios are financially unstable. Some of them may have such a percentage because they are operating in industries with high levels of debt, such as the oil and gas industry. In these cases, the higher gearing ratio may actually be due to factors beyond the company's control.

The gearing ratio is a robust tool that is helpful when trading any financial assets. However, it's particularly useful for potentially riskier instruments like CFDs.

CFDs are very popular in the modern world of online trading. This is because they offer many advantages, such as low transaction costs, high leverage and the ability to trade on a wide range of assets. For CFD traders, it is important to understand the gearing ratios of the companies they are trading, as this will help them to mitigate the potential risks.

How Can Companies Reduce Their Gearing?

Gearing can be reduced if the company starts to pay off its liabilities. Several techniques can help businesses to control and improve their gearing ratio. Here are some of them:

1. Reduce reliance on debt financing. A company may need to take on new investors, sell assets, or restructure its business. This strategy can be difficult to implement, but it can ultimately help a company protect its financial stability.
2. Raise new equity capital by selling shares. This will help to generate cash that can be used to reduce debt.
3. Increase profits. By increasing profits, the company will be able to collect money to pay off its existing debts and increase the price of its stock.
4. Reduce operational costs. This can be accomplished through a variety of methods, such as reducing the number of employees, lowering salaries or cutting other expenses. While such measures may seem drastic, they can be necessary to keep the company afloat during difficult economic times.

Pros and Cons of Gearing Ratios

A gearing ratio is a handy tool for investors and lenders that helps them make more consistent decisions. However, just as with any tool, this indicator comes with its benefits and drawbacks.

Pros

The major advantage of gearing ratios is that they provide a quick and easy way to assess a company's leverage. For example, a high ratio may indicate that a company is highly leveraged and thus riskier. On the other hand, a low gearing may denote that a company has a strong financial position and is less likely to default on its debts.

Cons

When it comes to the disadvantages of using this ratio, one challenge is that different companies use different accounting methods, which can make comparisons difficult. Additionally, gearing ratios do not take into account important factors such as the interest rate on a company's debt or the maturity date of its debt obligations. Moreover, as mentioned before, it's necessary to understand that high gearing doesn't always indicate financial instability, especially for companies operating in high-risk industries.

Summing up, a gearing ratio is a powerful tool. However, it should be used in combination with other tools in an overall assessment of a company's financial health rather than as the sole indicator.

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Dollar dominance drags on as Europe edges towards recession

Headlines were made when the value of one euro fell below that of one US dollar back in September of this year. That key technical and psychological level – parity, as it is commonly called – had not previously been breached in two decades. It was, and remains, a big deal. Two months on and it appears as if EURUSD could now be stuck in a sideways channel between 0.97-1.00, from which it might well struggle to break out anytime soon. This, in theory, makes European goods more attractive to US consumers, but the general economic climate and high fuel costs are actually producing bigger deficits than ever before. Does this mean Europe will fall into recession and what will be the implications for the EURUSD and risk assets if it does? What is behind this illogical crisis and how can investors protect their capital?

The gas connection

Goldman Sachs has predicted that the single currency will remain at or below parity for as long as gas prices remain at multi-year highs. At their current levels of about 300% above what is considered normal, many businesses have been forced to increase prices of finished goods significantly, negating any exchange benefits from the single currency’s relative weakness. As European countries are now paying exorbitant prices for energy, traditional business centers have deteriorated significantly. After decades of surplus, Germany, for instance, is now running a trade deficit. This means that there is now an excess of euros in international financial markets, thus weakening the currency against its major competitors. It is like an uninterrupted negative feedback loop of sorts. Higher prices make EU-manufactured goods more unpopular, which then makes euros more unpopular. A radical change beyond the power of price discovery will be required to break the cycle. Unfortunately, it doesn’t look like gas prices will fall significantly anytime soon – not until the ongoing political instability to the East is resolved, at least.

Blame the (central) bankers

To ignore the impact of central bank policy in explaining the origins of the euro’s current woes would be remiss at best. It is self-evident that sharp interest rate hikes by the US Federal Reserve have helped buoy the US dollar by boosting the attractiveness of US assets. After all, the Fed has notably raised borrowing costs by 375 basis points since March, which is significantly faster than its European counterpart. Faced with major inflation amid the aforementioned energy crisis, the ECB has been restricted to an increase of just 200 basis points over the same period. The US regulator is now predicted to raise its funds rate by a further 50 basis points (to 4.25-5%) before year end in line with its “dot plot” median projection. The European Central Bank is also tipped to increase its own rate by 50 basis points, but this will only place it at 2.0%, which is still significantly below the Federal Reserve’s. If recession does then arrive as expected, one would expect the euro to continue to crash as investors look to move more capital into high yielding government bonds.

The ”R” word

A deadly combination of higher energy costs, low consumer confidence, and reduced economic activity in general has been understandably devastating for sales across the European Union. This has been aggravated even further by global inflation-fueling factors, such as supply chain ruptures and geopolitical instability. In light of all of the above, a recession seems inevitable for many analysts. Despite this, Eurozone retail sales did manage to rebound in September. According to Eurostat, the indicator rose 0.4% from August instead of declining 0.3% as predicted. Nevertheless, most economists agree that this modest boost in September is unlikely to be the turning point. The latest statements from senior ECB officials predict a euro area recession starting in Q4 2022 and lasting through until Q1 2023. Historical data indicate that the single currency tends to perform poorly during eurozone recessions. Over the last three EU-wide recessions, the euro suffered most between Q3 2011 and Q1 2013, losing 8.9%. Its best performance came between Q4 2019 and Q2 2020, during which time it gained 2.5%. If the US is able to avoid a recession of its own, then the downward pressure on EURUSD would be amplified further. In such an eventuality, risk assets would become even less attractive and savvy investors would naturally gravitate towards a >4% yielding US treasury bond over a sub-2% European alternative.

Trade the Fibre CFDs with Libertex

Whichever way you think the currency market is headed, you can always have your say with both long and short positions from Libertex. Since Libertex offers not only EURUSD CFDs but also a wide variety of other major Forex CFDs, such as GBPUSD, AUDUSD and USDJPY, you’re sure to find something to tickle your fancy. What’s more, Libertex also offers leveraged trading of up to 30:1 for all major currency pairs, enabling you to maximise your potential gains. For more information, or to create an account of your own, visit www.libertex.com or download our handy trading app from the Apple or Google Play stores.


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.8% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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What did 2022 bring? Summing up as we're coming close to the year's end

As the end of 2022 approaches, many of us will be happy to see the back of what has been one of the toughest years in recent memory. Not only have a majority of instrument classes seen devastating losses but the world has also been plagued by runaway inflation, energy insecurity and supply chain ruptures. Virtually all risk assets have been in freefall, with tech stocks and crypto particularly hard hit.

Gas and oil prices have risen to unsustainable levels, along with the prices of most everyday staples. The impact has been even more dramatic for Europeans, with the euro and British pound losing serious ground against the dollar. Even gold has been relatively flat considering the extent of the economic carnage experienced. So, what were the mechanics behind this maudlin market situation, and will 2023 finally bring some much-needed respite to tormented traders and investors everywhere?

Taking stock of the damage

It's no secret that equities have been on the decline since November 2021. But while many expected a short-lived correction, stocks have defied the odds to edge ever lower over the past twelve months. The premier US index, the S&P 500, has dropped 15% on average since the start of the year, while the tech-heavy Nasdaq is down almost 25% over the same period. For individual companies, the losses have been exponentially higher. Take 2021's darlings Tesla (TSLA), Netflix (NFLX) and PayPal (PYPL), for example, all of which are down over 50% YTD.

While it's easy to panic in the face of such declines, it's actually totally normal in times of economic strife such as these. We have, indeed, seen a general flight from risk during these uncertain times, and it's unsurprising that the most overvalued equities have suffered the worst. Recent upticks in both indices and individual stocks over this last quarter, coupled with ECB Vice-President Luis de Guindos' recent confirmation that inflation is slowing, could indicate a bottom has already been reached. Thus, investors who have been dollar-cost averaging over the 2022 bear market may well reap the rewards in the new year.

Crypto's big freeze

In light of the flight from risk discussed above, it's hardly shocking that cryptocurrencies have recorded the most disastrous declines of all asset classes this year. Both Bitcoin and Ethereum are now down an average of 75% from their all-time highs, and some lesser-known coins and tokens have lost over 90% of their value over this same timeframe. Not to mention some outwardly promising projects that have disappeared completely along with billions of investors' money, such as Terra and FTX. As we mentioned, it's quite normal for the most volatile and inherently risky instruments to lose the most in precarious markets. This shouldn't deter investors from holding cryptocurrency for the long term.

Perhaps the most worrying aspect of this crypto winter, however, has been the mass bankruptcies of all too many overleveraged public miners. Compute North is one high-profile name that has already gone, with Core Scientific on the brink. After selling all their coin reserves to keep the lights on, they're now being forced to sell off state-of-the-art ASICs at a fraction of their cost, to the delight of their better-capitalised colleagues. However, once the chaff has been cleared and rewards begin to rise, 2023 could certainly generate new highs in digital assets. According to Huobi Global, at least, BTC should hit a $15,000 bottom by March 2023, paving the way for a new leg up in the final three quarters of the year.

Frisky Forex

The high volatility of crypto is well documented, but traditional currencies are expected to be about as stable and predictable an asset class as they come. Well, 2022 saw that trend well and truly bucked as fiat had one of its most rollercoaster years on record. EUR/USD fell below parity for the first time in 20 years, while the dollar's value soared against a majority of the world's majors. Inflation was naturally a major factor in this unusual scenario, but its impact was then further exacerbated by increased dollar demand in the face of twin liquidity and energy crises. The greenback is still the world's reserve currency, and market participants tend to flock to it during tough times. Not to mention that the global oil trade is conducted in USD.

There has been much talk of Fed money printing devaluing the dollar, but the truth is this money never makes it into the real economy and thus has little effect on the actual USD supply. The demand for dollar-based collateral in the form of short-dated T-bills from the multi-trillion-dollar derivatives market, on the other hand, has worked to drive up the value of the US national currency significantly. With the Fed taking care of demand-pull pressures via sharp interest rate hikes and the expected shift from futures and options to physical securities in 2022, the year ahead should be characterised by a normalisation of the EUR/USD and GBP/USD cross rates going forward. Indeed, Citibank's six- to twelve-month EUR/USD forecast stands at $1.05, rising to a much more familiar $1.10 over the long term.

Has gold lost its shine?

Since as early as 2020, just after the pandemic struck, analysts everywhere have been tipping gold to outperform. It stands to reason, right? Testing times and economic pain have almost always been a boon for the yellow metal. The only thing that has proven even more profitable has been periods of hyperinflation. So, when price pressure hit 10% this year, you could forgive gold bugs for expecting massive gains in precious metals. However, despite a relatively positive first quarter, gold entered the final month of 2022 at basically the exact same level ($1800 per Troy ounce) as it was 12 months ago.

What's the reason for this paltry performance? It's all down to the dollar, of course. Because gold prices are quoted in USD, the metal appears to have traded flat all year. However, if we scratch the surface, we see that inflation means the dollar has actually appreciated by around 10% YTD. As a result, we can say that gold has also gained around the same. Confusing, we know. But if we look at the price per gram in euros, the picture becomes much clearer. Spot prices in Europe are up almost 8% from €50.49 to €54.53. As such, gold has, in fact, performed its role perfectly by preserving its holders' spending power throughout this turbulent year. In fact, analysts from Saxo have claimed gold could slice "through the double top near $2,075 as if it wasn't there and hurtle to at least $3,000" in 2023.

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The factors that shaped the year and what to expect in 2023

As we prepare to close the door on 2022, most traders and investors will be happy to see the back of this disappointing year for a majority of asset classes. It has seemed as though virtually everything is down, with almost no safe place for storing or growing wealth to be found. Tech stocks have been in freefall, and even major indices like the S&P 500 and Nasdaq have suffered over 20% and 30% declines, respectively. As for crypto, the carnage has been unfathomable, with Bitcoin now down 70% YTD.

This time last year, the optimism was palpable: we were finally putting the pandemic behind us, and, despite many instruments probing all-time highs, things were only going to get better…or so we thought. Sky-high inflation, a devastating energy crisis and a looming global recession have seen pretty much everything but gold and the USD's record double-digit losses over the past 12 months. But what market participants are desperate to know is whether 2023 will finally see an end to these calamities and send the bears back into hibernation.

Inflation, inflation, inflation

The headline economic news throughout the past year has been spiralling inflation, with the indicator pushing double digits throughout much of 2022 and reaching a high in the EU of 18% in September. Obviously, this has wreaked havoc on the buying power of ordinary consumers and, by proxy, the exchange rates of all European currencies. This has, in turn, meant a reversal of capital flows into risk assets like stocks and crypto. Of course, holders of USD, gold and other commodities might well have preserved their wealth or even gained slightly, but compared to the bumper profits of 2021's bull market, these were paltry at best.

The Fed has now raised rates by a total of 425 basis points since the start of this year, which has helped the US avoid the worst of it. Europe's central banks have now mobilised to bring this runaway inflation into check, with the Bank of England and ECB hiking their respective key interest rates by 340 pts and 250 pts, respectively. Now, inflation in the Old Continent is below 10%, and the ECB's latest macroeconomic predictions see it moving as low as 3.6% by the end of 2023. According to different economic analysts, in such a scenario, equities and other risk-on instruments are expected to recover in line with consumer spending power.

Keeping the lights on

If hyperinflation wasn't bad enough, Europe's residents have also had to contend with a serious fuel crisis. Natural gas prices rose almost 400% from January to August 2021. Though they have since dropped significantly to €92.50 per MWh, even now, prices are still almost 500% higher than in 2020. Meanwhile, wholesale electricity costs have more than doubled in 2022, with fuel now ten times more expensive than it was two years ago. Of course, the impact on households has not been quite severe, but still significant enough to reduce disposable income by some margin. The resultant drop in consumer spending has had knock-on effects for manufacturers, leading to a stagnation of stock prices in the sector.

As with any complex crisis, the reasons are varied and include geopolitical instability and the associated tariffs on producing countries, the unexpected decommissioning of the Nord Stream gas pipeline, and an over-emphasis on expensive and insufficient green energy at the expense of nuclear power. As an energy-heavy industry, crypto mining has understandably been hit hard by this reality. The rapidly rising cost of mining, coupled with low coin prices and increased difficulty, has created a negative feedback loop of declining prices. If prices stabilise below the cost of mining next year, however, market analysis predicts that we'll see a new bull cycle emerge.

Don't say the "Recession" word

As much as governments might try to postpone the inevitable, it looks like we will soon have to accept the reality that many of the world's economies are now in a technical recession. The combination of rampant inflation, soaring fuel and commodities costs, and supply chain ruptures linked to China's zero COVID policy has been devastating for the business community and global trade in general. A Reuters poll put the probability of a eurozone recession within one year at 78% as Brussels admitted that we could expect to enter one by the New Year. Meanwhile, the UK's GDP has already fallen (-0.2%) for a second consecutive quarter, which means Britain is already in a technical recession.

As scary as that might first sound, the outlook is not quite as bleak as we might think for Europe. Indeed, in a recent report, Goldman Sachs predicted "a shallower recession" for the EU, claiming that "the euro area economy will contract by only 0.7% from Q4 2022 to Q2 2023 (vs 1.1% before)". A recession of any kind is obviously not the best news for commodities and manufacturers, but a mild one could be good for consumer staples, the US dollar and gold as the poor tighten their belts and the rich look for safe havens for their wealth. In any case, we will have to keep an eye on PMI and GDP data throughout H1 2023 in order to try and spot the point of reversal.

Carry on with Libertex

As we bid farewell to 2022, Libertex (https://libertex.com/) remains hopeful for a prosperous 2023. Check out our website or app for the full list of available CFDs, spanning a variety of asset classes, such as stocks, indices, commodities, futures, forex and, of course, crypto. We wish you all a wonderful holiday season and can't wait to welcome you back for a (hopefully) profitable 2023!


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Chinese stocks catch investors' eyes as US and EU continue to lag

Every investor knows too well how much of a disaster 2022 was for stocks. Individual equities plummeted by up to 90%, and even major indices like the S&P 500 and Nasdaq are down around 19% and 31%, respectively. Chinese stocks suffered just as severely in 2022. Between supply chain ruptures, the Chinese Communist Party's (CCP) "zero COVID" policy and government crackdowns on big tech, China's equities market seemed to be on a never-ending downward spiral. Until it wasn't anymore.

But with all the negative news coming out of Western markets of late, you could be forgiven for missing the slow-but-steady recovery that has taken place in China over the past couple of months. It all began in early November, and since then, some of the Asian giant's biggest tech firms have gained over 30%, showing a clear bullish trend emerging. But does this mean traders and investors should move their capital into Hong Kong and Shanghai, or could this positive movement be foreshadowing a wider global recovery?

Party killers

China's tech giants were making headlines for all the wrong reasons throughout 2021 and 2022 as US American Depositary Receipts (ADR) trading bans and homegrown crackdowns by the country's ruling Communist Party drove a mass exodus of investors from household names like Tencent, Baidu, Netease and, of course, Ali Baba. This latter was perhaps the worst hit as a result of its outspoken founder Jack Ma's repeated political faux pas following Chinese regulators' decision to halt Ant Group's much-hyped IPO on Hong Kong's Hang Seng exchange.

But this was just one high-profile example of a clear paradigm shift within the country. On a more general level, China's CCP had ultimately decided that it was time to reign in their own Big Tech firms, lest they become a law unto themselves. The end result of all of this was a long-drawn-out slump to ever-lower stock prices for the majority of China's tech companies. When all was said and done, Tencent, Baidu and Alibaba had lost around 70%, 60% and a whopping 80%, respectively. Meanwhile, the party's misguided "zero COVID" policy piled on the misery for Chinese business as a whole, with lockdown after lockdown stifling trade and commerce.

Watch the dark horse

With the world's focus on recession-threatened Europe and the US, analysts and market participants alike completely missed the bottom in Chinese Big Tech. But since November 2022, the stock prices of Tencent, Netease, Baidu and Ali Baba have been edging up almost unnoticed by western actors. Now, these stocks are up an average of 70% in the past three months alone, and the uptrend looks set to continue. In a global equities market that is decidedly in bear territory, these are certainly not to be sniffed at.

In fact, despite the regulatory barriers and risk involved, numerous US and Europe-based investors are being tempted back to China in search of gains that are so elusive elsewhere just now. Indeed, many of the biggest hedge funds had called the bottom back in October and November, with such funds being consistent net buyers of China equities for over eight of the past 10 weeks now. And now that less major players are starting to bolster capital inflows into Shanghai and Hong Kong, we can safely say the tide has truly turned. With the Lunar New Year also just round the corner, there are further drivers of growth on the near-term horizon.

Chinese stocks CFDs with Libertex

It's too early to tell whether this recovery in Chinese equities foreshadows a general recovery in risk assets globally or even whether this rally will continue into the Chinese New Year and beyond. But one thing's for sure: no other stock markets are showing anything like the positive movement currently being seen in China's tech sector. With Libertex, you can trade CFDs on some of Asia's largest cap firms, including Tencent, Baidu and Ali Baba. More conservative investors can also benefit from China-focused ETFs, such as the iShares China Large-Cap. For more information or to create an account today, visit www.libertex.com


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Bitcoin market cap back above $1 trillion as crypto rot stops

The cryptocurrency market was one of the worst performers of 2022, with prices of many of the major coins falling by over 70%. In fact, the market capitalisation of the original digital currency, Bitcoin, fell from well over $1 trillion to just a shade over $300 billion by December 2022. Hoards of miners and crypto-heavy funds were forced to file for bankruptcy. Then the infamous FTX collapse threatened to sound the death knell for the entire sector. But, as is often the case in financial markets, this moment of peak pessimism actually turned out to be precisely where the bottom formed.

That's right. Against the predictions of even the most relentlessly rabid of crypto bulls, the New Year started with a resounding bang for digital assets. In just a little over the first two weeks of January on the clock, Bitcoin managed to rise around 25%. And though there has been a slight correction since then, it is clear now that this is more than just another crypto bull trap. But what is behind this sudden change of fortunes, and is it safe to call the reversal so soon? In this article, we'll discuss the current situation in this highly volatile sector and look at the analysts' best guesses for the rest of 2023.

It's not just Bitcoin

As has often been the case with the crypto sector, Bitcoin tends to set the trend, and we then see similar movement across the wider market. Well, this time appears to be no different, with the next two biggest projects by market cap (Ethereum and BNB) similarly gaining 20-25% over this same period. However, certain coins managed to gain significantly more than the founding father of digital assets. Avalanche (AVAX), for instance, has managed to gain over 50% since 1 January, while Solana (SOL) has more than doubled in value over this same period.

While there has certainly been some fundamental news that could explain this asymmetric growth — such as AVA Labs' freshly signed collaboration deal with Amazon and its Amazon Web Services (AWS) cloud-computing arm and the launch of Solana's memecoin BONK — there is also a deeper force at play. The explosion of demand in the DeFi and dApps spaces is naturally driving up tokens and blockchains like AVAX and SOL, which are uniquely suited to these kinds of applications. In fact, many analysts, including the Motley Fool, predict that these two projects will be the biggest gainers of 2023 due precisely to these factors.

Becoming institutionalised

It was once the case, not that long ago, that the cryptocurrency market was virtually devoid of what many term "smart money". It was a disorderly, unpredictable free-for-all dominated by devil-may-care retail traders with zero accountability and no quarterly or even annual targets. Together, these features all contributed to the sector's infamous volatility and made it extremely difficult to forecast movement. But all that changed during the pandemic. After many years on the sidelines, the funds started piling into digital currencies, and by December 2020, they already had over $15 billion under management.

Then, just twelve months later, this figure had risen to over $65 billion. One undeniable advantage of this new injection of capital has been the increased predictability that institutional money brings. Thus, when their crypto investments shrunk by 95% over 2022, it was clear to analysts that a bottom must be close at hand. Finally, when the tide turned and inflows began to overtake outflows in the second week of January, the foundations were laid for sustained growth as the year progresses. It's still too early to tell whether the reversal is complete, but savvy investors will continue to watch the weekly inflows report to see if a firm uptrend emerges.

Risk on, risk off

Now that we've established that the cryptocurrency market is gradually maturing to become a bona fide asset class like equities, commodities or futures, we have to accept that it will also be increasingly susceptible to economy-wide factors influencing investor behaviour. Well, you'd have to have been living under a rock not to have noticed the rampant inflation and seemingly ever-present threat of recession that ruled 2022. Unsurprisingly, economic turmoil and uncertainty tend to wreak havoc on risk assets, and this past year was no different. It's no coincidence, then, that stocks, ETFs and crypto were some of the worst-hit instruments over the last 12 months and that the looming spectre of eurozone and US recessions have kept many of these risky asset classes flat into the New Year.

What is unusual, however, is that the historically volatile and inherently riskier crypto market was the first to rebound significantly, more than doubling gains made by even the best-performing US stocks. Could this be a sign that digital assets are now leading risk-on assets as a whole, or is it just more proof of crypto's native unpredictability? As the wider global economy continues to outperform expectations, it could well be that a V- or U-shaped recovery is on the cards, with digital assets priming themselves to lead the risk-on pack into a new bull cycle.

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Fed leads the way on rates as inflation continues to slide

It wasn't long ago that it seemed as if inflation was an out-of-control freight train that was threatening to destroy the world's buying power for years to come. However, thanks to some aggressive action by central banks around the world, the price pressure monster appears to be under control once again. In the space of just over 12 months, the US Federal Reserve has raised its effective funds rate by over 400 basis points (bps) to levels not seen since 2007. Meanwhile, the euro area's ECB has hiked its own lending rate by 250 bps, with the Bank of England opting for an increase of 300 bps over the same period.

Raising rates to combat inflation is a classic central bank play almost as old as time. The underlying logic is that as the cost of borrowing money increases, the value of existing cash stabilises. This is great in theory, but in a world as overleveraged as today's, it also poses a significant risk to the wider economy as businesses and ordinary citizens' debt burdens are exacerbated by additional interest payments. For now, the strategy seems to be working satisfactorily, but what will be the effects of this ongoing hike cycle on the already tense global currency markets?

Fed up with inflation

There are no two ways about it: the US Federal Reserve has come down the hardest on price pressure and has undoubtedly been the most hawkish of the Big Three central banks globally. This was largely due to the fact that it had more leeway in terms of already having the highest rates in the Western world before the hyperinflation of 2021-2022 set in. What's more, it has also enjoyed the privilege of energy security during a particularly tough time for Europe. Since energy is used to produce, well, everything, the 5-to-10-fold rises in energy prices had a much more pronounced effect on the EU consumer price index than its US counterpart.

In any case, the US regulator delivered on analyst expectations yesterday (1 February 2023) when it raised rates by another 50 bps to take the overnight lending rate to between 4.75-5%. And while Fed Chairman Jerome Powell noted that the tightening monetary policy had been effective in bringing down price pressure, he also stated that inflation "remains too high", pledging to "stay the course until the job is done". The effect of this was a strengthening of US Treasury bond yields, with the 10-year T-bill sliding 13 bps to a four-month low of 3.4%. Meanwhile, the dollar remained fairly flat as this rate increase had been more or less fully priced in already.

Lagarde back on track

The European regulator has received some criticism for being too dovish with its monetary policy as the EU has faced severe inflation in recent months and still trails its counterparts in the US and Britain by 100-200 bps. This is due to a combination of a lower starting point following years of zero rates and a keen consideration for ordinary debtors. Nevertheless, the ECB delivered on its promise to raise rates a further 50 bp, bringing its aggregate rate to 2.5%. ECB President Christine Lagarde has even gone as far as to commit to "at least one more" rate hike before the year's end, which will certainly give some solace to the EU hawks.

This also gives us some insight into the euro area regulator's "terminal rate" target, which Lagarde initially stated to be 3.5-3.75%. The ECB Governing Council also affirmed that the APP portfolio will decline by an average of €15 billion per month from the beginning of March until the end of June 2023, in line with December's claims. The euro did dip slightly on the announcement, highlighting that some market participants are somewhat doubtful that this will be achievable in the medium term.

BoE presses on with policy

Since Brexit, Britain has certainly erred more towards its trans-Atlantic cousin's monetary policy than that of its European neighbour. However, it would be remiss to ignore that the BoE was the first major central bank to begin the post-pandemic shift to tightening. From that point on, though, the UK has been playing catch up with the Fed to match the US regulator's 50-75 bps rate hikes. As the analysts predicted, February was no different as the UK regulator announced it had increased its lending rate by 50 bps increase in line with Powell's across the pond. Many analysts and economists, however, will be on the lookout for signals that this tenth consecutive rate rise will prove one of the BoE's last.

One confounding factor for the UK is its relatively higher inflation rate compared to the US and, indeed, the EU. Inflation remains above 10% in the island nation, which behoves a more aggressively hawkish position than in countries that have already brought price pressure down to single digits. For now, the pound remains steady, with this decision already largely baked into its exchange rates.

The future for forex

This past year or so has been an uncharacteristically volatile time for currency markets. The epitome of this had to be the historic passing of EUR/USD parity when the US dollar was briefly worth more than the euro. Thankfully, sound central bank policies on both sides of the water have helped bring the Fibre back into more familiar (and stable) territory. As the geopolitical and general economic climate continues to calm, we should expect asymmetric USD demand to disappear, allowing the other majors to recover.

After hitting a 20-year low in September 2022, the European single currency has made a fourth consecutive monthly gain as energy prices return to more sustainable levels and the ECB maintains its hawkish stance. EUR/USD currently stands at 1.10, and its lack of movement in and around these key rate decisions is a testament to its long-term outlook. The Cable, on the other hand, did move slightly just following Powell's post-meeting comments on Wednesday, 1 February 2023, but quickly fell back to its pre-meeting level of 1.23 the next day. With all the world's major central banks seemingly on the same page, we can expect a period of more typical stability in the forex market.

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