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What the US labour market's strength might mean for markets

From having to survive off of government handouts in 2020 to holding all the bargaining power today, unskilled workers have been on a rollercoaster ride of ups and downs over the past couple of years. But it isn't just restaurant workers and retail employees who have gained the upper hand in labour negotiations. The latest topline economic indicators reveal a remarkably strong US labour market across all sectors. That's right, over the last 3 months, the US economy added an average of 356,000 jobs, while national unemployment stands at a 50-year low of 3.4%. Almost all major industries have now exceeded their pre-pandemic engagement levels. Meanwhile, the "quit rate" remains at near record highs, which is a clear sign of American workers' confidence in the labour market and an abundance of better employment opportunities.

Following last week's (08/03/23) release of the US Labor Department's Job Openings and Labor Turnover Survey, the numbers remain very positive, albeit slightly less impressive than the last report. New job openings were down slightly to 10.8 million, layoffs were marginally higher, and the quit rate dipped mildly. However, this is perfectly normal in January as the seasonal employment effect disappears and businesses look to trim costs for the next financial cycle. And while this is all very well and good for employees, traders and investors would understandably like to know what the implications of such a strong labour market are for their investments in the financial markets. Therefore, this article will look at the effect of the strong labour market on three of the most-traded asset classes around: stocks, forex and commodities.

Equities in the frame

A strong labour market is generally good for the stock market as it means more people are secure and confident about the medium- to long-term future and, thus, more likely to have surplus income they wish to invest. Combine this fact with the pandemic-era influx of retail investors into the equities markets and the relatively low prices of US stocks right now, and you would think it's a recipe for stock market gains to come. However, the reality is that many of these same new retail investors bought at the top and are nursing heavy losses. And despite logic dictating that buying more now is the wisest way to try and recoup what they've lost, statistics demonstrate that most do the exact opposite: sell at a loss and swear off stocks for good.

Another compounding factor here is the US Federal Reserve. The US regulator is likely to view these steadfastly positive labour numbers as a green light to press on with their rate hike cycle. As anyone with even a passing interest in trading knows, higher interest rates are typically bad news for stock prices. We would also be wise to consider the effect of strong labour bargaining power on company profits. Employees with plenty of options tend to be able to negotiate higher wages, which is bound to impact corporate bottom lines in 2023. At its current level of 3,946, the S&P 500 has been flat since May 2022, and it's hard to see cause for a major swing to the upside anytime soon.

Dollar bills

One asset class that undoubtedly benefits from a buoyant labour market is the country's national currency. In this case, it's the US dollar. As Americans' earnings go up relative to their counterparts' in other countries, the greenback's foreign exchange value increases. But in the current climate, this effect has been doubled, and, once again, the Fed is at the centre of it all. As we touched upon earlier, Powell is watching the labour market like a hawk and using it as a gauge for how fast and hard the regulator can continue to tighten. While the data remain largely positive, the central bank will carry on pressing towards its projected terminal rate of 5.3%. And we all know that higher interest rates always translate to a stronger USD.

Add to this the ongoing economic uncertainty globally and the dollar's safe harbour status, and there's reason to believe that green truly will be the colour of money in 2023. Apart from the US national currency, we can also expect positive returns for other haven currencies such as the Swiss franc and Japanese yen. The US Dollar Index has already risen 5% to 105 this month and could well continue to push on towards its September 2022 high of 114.10.

Don't forget commodities...

With more fashionable assets like crypto and stocks, we can often overlook simple commodities like gold, silver, and even energy resources. However, these are powerful vehicles for profit in bull cycles, especially for day traders. Interestingly enough, there is a direct link between higher commodity prices and labour market strength, as was noted as early as 2017 by Martin Bodenstein of the Washington DC Federal Reserve. In his report Commodity Prices and Labour Market Dynamics in Small Open Economies, he notes that "for every one per cent increase in commodity prices, our estimates suggest a one basis point decline in the unemployment rate and at its peak a 0.3% increase in unfilled vacancies". Well, we all know all too acutely how much energy commodities have risen over the past year, and this could indeed have played a role in strengthening the labour market.

However, in stark contrast to other commodities, precious metals have been fairly flat. In fact, at its current price of 1,834 per Troy ounce, gold is actually down almost a full 10% from this time last year. Meanwhile, silver has fared even worse. It's currently sitting 20% below its March 2022 level at 20.11 an ounce. One has to feel that if the rest of our predictions play out in terms of a stronger dollar and further Fed tightening, these core commodities will have to make good at least some of this lost ground before year's end.

Trade with Libertex

As a veteran CFD broker providing access to multiple different markets, one of Libertex's main advantages is its versatility. Our traders and investors can gain exposure to a wide range of instruments, from stocks, bonds and forex all the way through to energy, precious metals and more. Libertex's extensive CFD offering includes major indices like the S&P 500 and Nasdaq, forex options like the US Dollar Index — as well as major pairs such as the EURUSD and GBPUSD — and even gold and silver. And because Libertex offers long and short positions, not only can our clients diversify across asset classes, they can trade on any market outcome. For more information or to create an account of your own, visit https://libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89.1% 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.

[Libertex]

UBS saves Credit Suisse, but for how long?

In a matter of days since the collapse of Silicon Valley Bank and Signature Bank, yet another behemoth of corporate finance has had to be pulled from the jaws of bankruptcy in what has been dubbed a “shotgun wedding” takeover. Long-maligned Credit Suisse has finally bitten the bullet, with UBS forced to absorb the ailing business bank and its $5 trillion of invested assets. Optimistic analysts are claiming that this finally draws a line under the questions about Credit Suisse’s viability, while their more pessimistic colleagues are pointing to potential signs of contagion much like during the 2008 GFC that could spell catastrophe for the world’s already precarious financial markets. So, who’s right and what does this mean for traders and investors in the short term?

Devil’s in the detail

The collapse of SVB and Signature was by no means a drop in the ocean – they now rank in second and third spot respectively in the US’s biggest bank failures of all time. However, their highly speculative activity predicated on the unsustainably high stock prices of 2020-2021 made them especially vulnerable during this extended bear market. Credit Suisse is a completely different animal altogether. This is a Swiss national institution with a history dating back to 1856 and a much broader spectrum of activity than its US counterparts. With major investors including the Saudi National Bank and Qatari Investment Authority, Credit Suisse is a major global player with influence on a wide variety of asset classes and businesses. For this reason, its failure would have far-reaching effects on world markets, which is most likely why it wasn’t allowed to go the same way as SVP and Signature.

A long time coming

It might have come as a shock to hear that a bank with a 167-year history has gone under, but this failure has been building for some time now. Over the past two years, Credit Suisse’s stock price had fallen 84%, while its new owner UBS had managed to cement 15% gains over this same period. Last year, Credit Suisse posted a loss of over $7 billion, and just a week before the eventual $3 billion takeover, it was valued at just $8 billion. Indeed, amid mass depositor panic that saw tens of billions of dollars being withdrawn each day, the Swiss government provided the bank with a bridge loan of $54 billion – all of which has now been spent. In fact, so dire is the situation that the Swiss National Bank has even agreed to provide a further $108 billion in funding to UBS in order to boost Credit Suisse’s liquidity over the long term. As a result of this entire debacle, even UBS’s share price has taken a hit of more than 10% over the last week alone.

Why worry?

There are many who would say that these are just three overleveraged banks whose chickens have come home to roost and there’s no sign of wider contagion like in 2008. And while that would certainly be true enough for SVB and Signature, Credit Suisse is a totally different matter. Its own shareholders have already lost over 50% of their investment following the post-takeover share swap, while the bank’s AT1 bondholders have been left with nothing. It has been made clear that the bank is still far from out of the woods and, with over $5 trillion in invested assets, a future collapse would be absolutely disastrous for markets everywhere. This loss of principle by the AT1 bondholders has already provoked a rout on the European convertible bonds markets, which could lead to further trouble for the banking sector at large. Analysts are also predicting a general dip in demand for risk assets until confidence returns. Nothing is certain just now…and that’s part of the problem. But if another major bank falls into trouble, then it could well be time to panic and consider increasing one’s gold allocation.

Trade any trend with Libertex

As one of Europe’s leading CFD brokerages, Libertex provides competitive terms on a wide range of instruments and asset classes. Beyond CFDs in individual stocks like Deutsche Bank, Goldman Sachs, and Citigroup,  and a range of indices and ETFs, such as the S&P 500, DAX, and EURO STOXX 50. We also provide CFDs in gold and silver. For more information or to create your own account, visit https://libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89.1% 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.

[Libertex]

India on the up again as current account gap narrows

When talk turns to major developing economies, India can sometimes find itself overlooked. However, with a population of more than one billion and industrial might to rival some of the world's biggest economies, we would all do well not to underestimate the great sub-continent. It's not without reason that some refer to the South Asian nation as the New China. In fact, India's GDP growth rate averaged between 5-10% from 2010-2020 and, last year, it finally overtook China for the title of Asia's largest economy and the world's fastest-growing major economy.

But, like the rest of the world, India had some of the wind taken out of its sails by the pandemic. Supply chains were broken, and industrial output dwindled amid weaker demand for durable goods and energy products worldwide. Things got so bad that the emerging market's current account deficit reached an all-time high of $36.4 billion (or 4.4% of its GDP) in Q3 2022. Now, however, the tide finally appears to be turning, with the latest predictions tipping a reduction of the Indian trade deficit to 2.7% of GDP in Q4 2022. This will, of course, come as good news for the rupee, which has been underperforming of late. But what does it mean for world markets and investors in India and beyond?

Always believe in…gold!

It's a little-known fact, but India is the world's second-largest consumer of gold. In fact, before it was overtaken by China in 2009, it was actually the largest. As such, the performance of the Indian economy has a huge effect on the global precious metals market. While the overarching trend in the West is for gold to rise commensurate with economic strife and uncertainty, India's relationship with the yellow metal is very different. For many on the sub-continent, gold is the preferred method of saving, with many prizing it for its phenomenal store of wealth capabilities. Thus, when the Indian economy is doing well and the country's citizens have surplus income to save, gold tends to experience upticks in demand.

Indeed, Indian gold consumption in the bear market of 2022 stood at 774 tonnes, which was down from 797 tonnes in the post-pandemic buzz of 2021. Now, the World Gold Council is predicting increased demand on news that El Nino will likely not affect the 2023 monsoon season, which is absolutely crucial to Indian agriculture. With rural India accounting for up to 60% of the country's gold market, the effect of the surplus wealth generated by a good harvest will likely translate not only to higher gold prices in Q3 and Q4 of this year but also to declines in the price of India's major agricultural export, sugar cane.

Crude but effective

Energy is the lifeblood of any economy, and for an energy-producing country, good fortunes are typically measured in exports. However, for the past year or so, the energy markets have been anything but typical. Despite reduced supply and increased demand for oil and gas products on account of geopolitical insecurity on Europe's borders, Indian energy exports have been yo-yo-ing between extremes since at least late 2021.

While the country doesn't export much crude oil at all (since it only has 3 years' worth of extractable reserves available), it is a major exporter of value-added petroleum products. With the abundance of cheap Russian oil, the Asian nation has seen its refined product exports rise exponentially. From April 2022 to January 2023, this indicator increased to $78.6 billion, up 54.78% from $50.8 billion year over year.

While one would think this would be good for the country's trade balance, we also have to consider how much crude it has imported from Russia. From April through December 2022, Indian imports of Urals crude stood at $27.7 billion, a 700% increase from $3.4 billion in 2021. Naturally, there is a lag between when crude is imported and the refined derivatives are exported. Thus, any changes in the Indian current account balance should be taken with a grain of salt for the moment.

Return to favour for risky rupee

As much as Indians love gold, like in any country, the national currency is the most liquid form of money, with its value tied inextricably to the economy's health. As an inherently "risk-on" currency, the rupee suffered severely since as early as 2020 and has now lost 20% of its value against the world's safe-haven currency, the US dollar. India's relatively poor trade balance, coupled with an aggressively hawkish monetary policy from the Fed, threatened to push the rupee even lower, but the tide now appears to have turned. With Barclays and Citigroup slashing their Indian current account gap forecasts to 1.9% and 1.4% of GDP, respectively, it looks as if the RBI will now be able to cut its sales of foreign currency reserves while still holding back imported inflation.

The recent turmoil in the US banking sector that culminated in the collapse of SVB and Signature earlier this month has also forced the US regulator to tone down its hawkish rhetoric, with the FOMC announcing a relatively dovish hike of just 25 bps as it similarly reduced its target rate from 5% to 4.75% in a bid to settle markets. The end result of this fortuitous combination of circumstances for the rupee could see the Indian national currency become naturally stronger on its own fundamentals while the greenback continues to weaken amid ongoing worries of systemic risk to the US banking sector. The gains are unlikely to be huge, but the USD/INR pair could still prove a lucrative long position for active forex swing traders.

Trade CFDs on the world's markets with Libertex

Regardless of the economic situation at home, you can trade CFDs on world markets with Libertex. Because Libertex offers a wide range of underlying assets — from forex and precious metals through to stocks, commodities and indices — you're always sure to find an asset class to interest you. You can trade CFDs in both pure gold and major mining stocks like Vale and Rio Tinto; energy resources like Brent crude oil or Henry Hub natural gas, as well as connected companies like Gazprom and Rosneft; and, of course, hundreds of currency pairs, including the US Dollar Index. You can even buy and sell CFDs in agricultural commodities like sugarcane and soybeans. Enjoy leveraged trading, highly competitive commission and tight spreads on the world's most popular instruments. For more information or to create an account of your own, visit https://libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 89.1% 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.

[Libertex]

Bitcoin bears back off as crypto closes Q1 on a high note

Bitcoin's 2022 descent was almost as spectacular as its rise a year earlier. After tripling in value to reach a high of $64,440 in November 2021, it gradually slipped to a local low of $16,450 twelve months later. Amid the second round of lost fortunes, ensuing bankruptcies, and assorted scandals — FTX probably being the most notable — many pundits were quick to write off cryptocurrencies as still nothing but a speculative fool's errand. And don't even get them started on altcoins!

Fast forward just six months later, and it seems that many have since considerably changed their tunes. Since the lows of November 2022, Bitcoin has gained almost 80% and has now reached a goal of $30,000 at the time of writing (11/04/2023). But it's not just BTC that has had a solid Q1. Solana is also up over 100%, while Dogecoin and Ethereum have managed to gain around 50% over this same period. So, what's bringing the bulls out of hiding? And what might the future hold for digital assets and their investors?

Getting institutionalised

Perhaps the biggest shift in the digital currencies market of late has been the active adoption by institutional investors. Cryptocurrencies were previously viewed as an inherently volatile and uncorrelated asset class that had no place in serious portfolios, but all of that changed in the last 24-36 months. Back in 2020, annual institutional inflows into crypto stood at a respectable $6.8 billion, but just one year later, they had gained 36% to reach an unprecedented $9.3 billion. Even after the severe flight to safety in 2022, total crypto assets under management by institutions are still around $30 billion. A recent study by Fidelity Capital showed that nearly 80% of investment funds were "interested" in crypto, but of these, only 12% have held digital assets for two years or more.

Regulation is a major restricting factor for more conservative institutions, and with the PwC Crypto Regulation report stating that a majority of global regulators have either enacted regulatory schemes for dealing in digital assets or are on the brink of doing so, it's expected that this barrier will fall in 2023. Indeed, the data show that Bitcoin institutional inflows are once again positive after over a year of net outflows. Last week's $2.5 million BTC inflow might look modest, but this could be the turning point that signals the development of a bull market. 

Risk appetite remains

In the wake of the Fed's aggressively hawkish policy to combat inflation, risk assets fell significantly as investors moved wealth to gold and the US dollar. However, the recent collapses of SVB and Signature, as well as the shotgun takeover of ailing Credit Suisse, have all forced the US regulator to put the brakes on its monetary tightening programme. Now, crypto might well be a difficult market to call, but if one clear pattern has been identified since the market's inception a decade ago, it's that digital assets do not perform well in a risk-off scenario. But the interest in major coins like Bitcoin, Solana and Ethereum is more than mere speculation. Since the arrival of serious institutional capital, Bitcoin and Ethereum are now genuinely viewed as stores of value and with prices at multi-year lows, it made sense for people to start buying in early 2023. Behind Solana's superior performance, meanwhile, is another factor altogether. Its rapid transaction speeds, immense scalability, and interoperability have made it an attractive investment ahead of the coming metaverse revolution. Of course, it is this more risk-friendly atmosphere that has facilitated investor activity. Whether we see a true bull market emerge will largely depend on if this sentiment is maintained for a reasonable length of time.

Fundamental volatility

Like any asset class, cryptocurrencies are also highly influenced by fundamentals. And the crypto news climate has been mixed, to say the least. This probably explains the rally-correction cycles we've seen since late 2022. One of the biggest sources of volatility this year has been the decision by the Commodity Futures Trading Commission (CFTC) to bring charges against Binance for breaching the law. Although BTC's price responded by dipping below $28,000, it soon recovered to regroup above $29,000 within just a few hours. While some see a case like this as a negative factor, others would consider it a step in the right direction when it comes to regulation and, hence, the lack of a clear, uniform response to the news.

Beyond Bitcoin, another huge development in the cryptosphere came from none other than Twitter's new owner, Elon Musk. The larger-than-life Tesla and SpaceX CEO moved markets as he changed Twitter's emblematic bird logo for the iconic Doge Shiba Inu dog. As one might expect, Dogecoin responded positively, gaining 25% in the space of just a day. Musk has long been a proponent of Dogecoin, and an almost cult of personality has developed around him among fans of the canine coin. Could this move be a cryptic hint that Dogecoin could become the official digital currency of Twitter? If so, this would obviously be very good for the memecoin's long-term prospects.

Diversify your trading with Libertex

With multi-decade experience in the market, Libertex is a famous name in the online trading space. Our wide variety of CFDs now spans numerous asset classes, from stocks and ETFs all the way to commodities, cryptocurrencies and even options. Libertex offers CFDs on over 100 digital underlying assets, including Bitcoin, Dogecoin, Solana and Ethereum, as well as crypto-related CFDs on stocks, such as the Grayscale Bitcoin Trust. Best of all, you are now able to enjoy 0% commission and ultra-tight spreads on all crypto trades made with Libertex. For more information or to create an 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. 85.9% 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.

[Libertex]

China returns to growth as zero-COVID restrictions relax

After nearly two years of relative normalcy in the world at large, many of us have almost forgotten the pandemic ever happened. As harsh and unprecedented as the lockdowns, travel bans and social distancing measures were at the time, they now seem like a brief and distant memory. For the citizens of mainland China, however, these draconian restrictions were much more intense and long-lasting. We will all remember horror stories from just a few months ago of residents walled up in their multi-story apartment blocks, dead-of-night abductions of non-conformers by quarantine police and even summary executions of family pets. Needless to say, the impact of the Chinese Communist Party's zero-COVID policy on Chinese GDP was catastrophic, with growth of just 3% recorded in 2022 (compared to 6% in 2019). Meanwhile, the US economy has already surpassed its pre-pandemic GDP growth rate by over 0.5%.

But now, after three long years of on-off restrictions, authorities have finally announced an end to their much-maligned zero-COVID policy — to rapturous applause from Chinese citizens and global investors alike. The response from both national statistics data and domestic markets has been extremely positive, as the Q1 2023 GDP figures show above-forecast growth of 4.5%. Among the strongest sectors, as one would expect, are retail sales (+10%) and services (+5.4%), though industrial production also beat analysts' projections to record growth of 3.9% to March. As Goldman Sachs confirms its bullish full-year projection of 6% GDP growth, many investors will be wondering what a resurgent China will mean for both Chinese and world markets.

When the (blue) chips are down

As a result of the pandemic and other regulatory factors, some of China's most prospective and well-established companies have been on a downward spiral for several years. Perhaps the most famous and reputable among these are Baidu, Tencent, and, of course, Alibaba. Since their highs of 2021, these Chinese tech giants saw between 50% and 75% of their share price wiped off. And while not all of this pain can be attributed to lockdowns and restrictions, they certainly haven't helped in generating a recovery.

But now, as retail sales rebound, we are beginning to see the green shoots of new growth emerge. Indeed, Baidu has already seen YTD stock price growth of over 10%, while Baidu and Alibaba have managed to see price increases of 8.5% and 4%, respectively. One can't help but think that if the growth in key sectors like retail and services continues as projected, this will surely benefit the share prices of these major players in Chinese e-commerce and remote services markets. While many Western investors are wisely cautious about investing in mainland companies, China's big tech troika represent a relatively safe and easy way to gain exposure to the Chinese stock market.

Whether the ongoing regulatory uncertainty will keep these stocks subdued remains to be seen. However, the latest comments by the State Administration for Market Regulation (SAMR) suggest the crackdown may be over, with SAMR stating its main focus in 2023 as maintaining the "bottom line of development security" and strengthening its "linkage effect" with international markets.

Beyond the bamboo curtain

While above-target GDP growth in China is clearly a bullish factor for domestic markets, what are the implications for US and European stocks? Well, they say that a rising tide raises all ships and — with China responsible for almost a fifth of global GDP — what's good for Beijing will undoubtedly benefit other economies around the world. However, with much of this post-lockdown growth expected to be limited to private consumption and retail markets, the positive contagion effect is likely to be restrained for the US and Europe.

In a recent report, Fitch Ratings suggested that the largest boom will likely be reaped by those economies that are "more closely integrated with Chinese consumer markets via merchandise trade and tourism". That said, the concurrent strengthening of both the dollar and euro we've seen of late, coupled with a more moderate ramp-up in China's industrial and manufacturing sector, could well see an increase in exports at more competitive prices. The result of this would be lower costs for US and European importers, which would allow them to increase their margins and, thus, profits. It's still early days, but provided that Western central bank policies don't take a more hawkish turn, the knock-on effect for US and European manufacturing stocks could be significant.

Finding the energy

Ask any economist, and they'll tell you: you can't have an economic recovery without large amounts of power. And even amid the renewables boom of recent years, that still means large quantities of oil and gas. Now, it is no secret that Russia and China have solidified relations in the face of rising geopolitical tensions between the Eurasian continent and the West. With Russian oil and gas under severe sanctions and price caps, Putin will be just as happy to provide Urals crude at knockdown prices as Xi will be to receive it.

However, China is a huge industrial powerhouse and its annual consumption for 2023 has been projected at over 11.8 million bpd, a full 1 million bpd higher than Russia's total daily output. Given that Russia also has significant commitments to India and other major industrialised nations, China will have to make up some of the shortfall elsewhere. Consequently, we can expect the prices of Brent and WTI to rise amid rising global demand and supply-side constraints. Furthermore, as Fitch Ratings also notes in the above-mentioned report, a strong rise in LNG demand from Chinese users "could thus interrupt the energy-led disinflation that we forecast this year in Europe, where gas inventories have been rebuilt partly through increasing LNG imports". The end result of this would be higher energy prices for many Europeans that could well continue into the next heating season.

Trade China and the world with Libertex

Regardless of where you think global markets are headed, you'll always be able to have your say with Libertex. With long and short CFD positions available in a wide range of asset classes, from Chinese and US stocks, all the way through to oil, gas and forex, you're sure to find an underlying asset to trade. As China's economy enters recovery mode, Libertex users can trade CFDs in Alibaba, Tencent and Baidu, as well as ETFs like the iShares China Large Cap index. We also offer CFD trading for energy resources, such as Brent and WTI crude oil and even Henry Hub natural gas. For more information or to create an account of your own, visit https://libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Banking crisis averted or merely postponed?

A little over a month after UBS's landmark acquisition of Credit Suisse was announced, we are finally seeing the first results of one of the highest-profile mergers and acquisitions in banking history. As part of the deal brokered by Swiss regulators, UBS paid 3 billion Swiss francs ($3.25 billion) for Credit Suisse, around 60% less than the bank was worth when markets closed on Friday, 17 March. Although many of Credit Suisse's shareholders and additional tier-one bondholders were totally wiped out by the takeover agreement, the hope was that it would help protect the historic Swiss institution's whopping $1.7 trillion of assets under management while averting a potentially devastating GFC-esque banking crisis.

It might seem melodramatic at first glance, but we would do well to remember that Credit Suisse ate through nearly 20 times the amount of the agreed purchase fee in the days leading up to the announcement amid daily net withdrawals of around $10 billion. Indeed, even a $54 billion loan from the Swiss National Bank failed to stop the bleeding. But now, as UBS releases its first quarterly results since this 'shotgun' acquisition, many traders and investors are wondering whether the deal is set to achieve its desired aims and, if so, how are the world's markets likely to respond.

So far, so good

It's obviously far too early to tell, but the initial responses from both markets and private wealth have been rather encouraging. Perhaps the most visible positive is the near 10% share price increase we've observed over the past month, demonstrating that investors are confident in UBS's ability to steady the ship and deliver new growth in future years. In its Q1 report, UBS also noted that it has managed to attract $28 billion in new money to its global wealth management unit. While only totalling about half the amount that was lost during the final throes of Credit Suisse's asset management business, it is certainly a step in the right direction.

Of course, it's far from all good news. UBS did underperform significantly compared to analysts' initial predictions, with net profit down 52% to just $1.03 billion amid projections of $1.75 billion. However, it's important to note that these forecasts were made well before the unexpected and somewhat forced takeover of Credit Suisse, which was always going to have a significant negative impact on the bank's bottom line. If this trend continues through to Q4, we could certainly take it as a good sign that a full-scale European banking crisis is now unlikely and inflation is somewhat under control.

Don't bank on it

This most recent banking crisis began with the simultaneous collapse of crypto-friendly lenders Silvergate, Silicon Valley Bank and Signature Bank. Other banks, such as First Republic, were lucky to survive what has since been termed "the first Twitter-fueled bank run". While the Swiss regulator might have expertly managed to avert what would have been a catastrophic failure for European capital, it could've easily gone the other way. Therefore, with many European banks still dangerously undercapitalised, there is every chance that we aren't quite as lucky next time round.

Despite ECB President Christine Lagarde's affirmations that "the euro area banking sector is resilient, with strong capital and liquidity positions" and that "the ECB's policy toolkit is fully equipped to provide liquidity support to the euro area financial system," concern is nevertheless strong among ordinary market participants and economists alike. The biggest worry is that any large-scale programme for rescuing Global Systemically Important Banks (G-SIBS) like Credit Suisse could lead to the creation of behemoths, which, in the words of German economist Hans-Werner Sinn, could turn out to be "too big to bail". Let's not forget that UBS needed its own bailout just 15 years ago, and if such a situation were to arise again in its new enlarged form, even the IMF would struggle to finance it.

Trade stocks and more with Libertex

Libertex is an experienced CFD broker with a long history of providing access to the financial markets for traders and investors in EEA and Switzerland. We offer CFDs with a diverse range of underlying assets, including forex, crypto, commodities, and, of course, stocks. Because Libertex offers both long and short positions in a wide range of instruments, you can potentially benefit from any movements in the markets.

With us, you can trade CFDs of a range of major business and private banks, including BNP Paribas, Citibank, JPMorgan Chase, and Goldman Sachs. For a more conservative and wide-reaching strategy, you could try CFDs in major US- and Europe-based ETFs and Index funds, such as the Vanguard FTSE Europe, the SPDR S&P 500 and theiShares Core US Aggregate Bond ETFs. For more information about trading or investing with Libertex or to create your own account today, visit https://libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Bitcoin slides following First Republic takeover

After the dizzying heights of the post-pandemic crypto boom, 2022 was a particularly poor year for digital currencies. From a November 2021 high of $64,400, Bitcoin had dropped all the way to below $17,000 by the end of the following year as some investors racked up losses of over 70%. But then something unexpected happened. By mid-April 2023, the original cryptocurrency had gained almost 100%, breaking through the key psychological resistance of $30,000.

Many have attributed this phoenix-like resurgence to the financial turmoil and uncertainty that has ruled the market of late. First, we had the FTX scandal, then the collapse of Signature and SVB, and it looked like the embattled First Republic Bank would be the next domino to fall. However, after regulators took possession of the bank, JPMorgan Chase stepped in to assume the majority of its deposits and assets, putting an end to the months-long saga and promising stability for the future. This was much to Bitcoin's chagrin, which immediately responded with a 4.2% decline on Monday (01/05/2023). But what is behind Bitcoin's new-found correlation with volatility, and what does the wider economic context predict for BTC during the rest of 2023?

Digital gold…or something like that

Ever since Bitcoin emerged, its fans have tried to cast it as a new alternative to the historic yellow metal. Well, it is limited in supply and impossible to forge, but until recently, that's where the similarities ended. Bitcoin's immense volatility and correlation with higher-risk assets had always ruled it out as a store of value or inflation hedge. However, since the post-pandemic influx of institutional capital, things appear to be changing. Yes, BTC lost around 70% of its value over the course of 2022, but so too did many major tech stocks like Shopify and Square.

Since January 2023, however, it has outperformed virtually every other instrument — a fact that can only be attributed to its appeal as a long-term store of value, which investors believe has an intrinsic value above the local lows of late 2022. As central banks struggle to combat inflation and preserve national economies, the fate of the entire fiat system hangs in the balance. Some have suggested that a return to a gold or even Bitcoin standard will ultimately be required. Whatever happens, the data are clear that younger generations prefer digital currencies to precious metals, and so it is entirely feasible that Bitcoin could replace gold as the go-to hedge. For this to happen, Bitcoin would need to increase in value above $100,000, which some have predicted could happen by year-end.

Mine the gap

Any discussion of Bitcoin's intrinsic value and, thus, potential future price action wouldn't be complete without an overview of the situation in the mining market. The previous year of pain for BTC was accompanied by an unusual phenomenon: mining difficulty and cost increased exponentially at a time when prices were in freefall. As a result, Hashrate Index and Luxor now estimate that it costs miners at least $17,000 to produce one BTC in the United States, which is significantly more than the $5,000-10,000 it cost one year ago when prices were almost double their current level.

The reason for this increase in difficulty and cost is complex, but one obvious contributing factor has been the massive energy inflation we've seen. There is a general consensus that electricity prices will fall in the second half of the year, with the US Energy Information Administration predicting declines in both price per kWh and overall demand. This will, in turn, allow mining companies to increase their margins, but we would nevertheless expect BTC to remain well above its intrinsic cost. However, mining difficulty will also depend on technological upgrades and capacity increases by major miners, and any significant increase here will also have the potential to drive Bitcoin's price up.

FED up with inflation

The final and by no means least important factor will be central bank policy in the wider economic context, with the US Federal Reserve taking the leading role as usual. As the US regulator remains between a metaphorical rock and a hard place amid pressure to contain inflation and the need to support a precarious financial system, something will eventually have to give, and this will necessarily lead either to a flight to safety or a return to risk.

The question, however, is which category does Bitcoin now fit into in an ever-changing economic landscape, and is crypto even correlated with anything anymore? Conventional wisdom would suggest that if the Fed continues with its stated aim of additional rate hikes, this should lead to a decreased appetite for high-risk options like Bitcoin. However, it could well have the opposite effect since recent experience has shown that BTC is now viewed as a desirable hard asset to hold in times of economic uncertainty. If, however, the regulator is forced to return to stimulus mode, the historical data would indicate that Bitcoin could rise in lockstep with stocks as has previously been the case.

It would seem that we're at a crypto crossroads of sorts, and 2023 may well prove a seminal moment for Bitcoin and digital currencies at large as this fledgling-no-more asset class sheds its earlier correlations and begins to shape its own unique hybrid profile as both a store of wealth and speculative instrument.

Trade crypto with Libertex

Whatever the situation is in the cryptocurrency market, there's always a way you can participate with Libertex. We offer both long and short CFD positions on over 100 digital currency pairs, includingBitcoin (BTC), Ethereum (ETH), Solana (SOL), Avalanche (AVAX) and more. With leveraged trading, ultra-tight spreads and some of the most competitive rates of commission around, Libertex gives you unbridled access to the cryptocurrency market with all the convenience and accessibility of traditional trading. For more information or to start trading crypto with us today https://libertex.com/


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Dollar lagging behind competitors despite strong data

Last year was a famously strong twelve months for the US dollar, with the greenback stampeding its way to the top of the majors’ table amid high inflation and aggressive monetary policy from the Fed. Between achieving historic parity with the euro, some of the highest government bond yields in recent memory, and record levels of demand from both institutions and private investors, 2022 was one of USD’s best years on record. But that all appears to have changed now.

The dollar has been sinking like a stone against the other majors, and, far from trading 1:1 with the euro, the fibre is now back at pre-pandemic levels of 0.91 at the time of writing (10/05/2023). So, what’s behind this sudden downturn? Employment figures are better than good, and Treasury note yields are still high. The reasons for the ongoing USD decline aren’t immediately clear. In this article, we’ll explore some of the key factors at play as we attempt to predict what the future might hold for the dollar.

All hawked out

The relationship between central bank policy and a given currency’s performance is well established, and the US dollar is no exception in this respect. The Federal Reserve has been aggressively tightening longer and harder than any of the other major regulators and has now been forced to bring its hiking cycle to a premature end following the failures of several major banks, including the high-profile collapses of Signature and SVB.

And while the Fed did raise its funds rate once again this week, it was only by 25 basis points, and, as is often the case, it wasn’t what the regulator said that moved the markets but rather what it chose to omit. The US regulator’s outlook was markedly more cautious than many of its peers’, and it opted to drop all guidance about future rate hikes entirely. The US Dollar Index closed 0.42% lower on the day of the decision (03/05) and has held on to those losses for the past week. Markets are clearly pricing in the now-clear scenario that the Fed will be forced to stop hiking at 5.25%, despite setting its target rate closer to 6% earlier in the cycle.

Risky business

Anybody with money invested in the markets will be well aware of how devastating 2022 was for risk assets. There was a mass flight from risk, and, unsurprisingly, most of the capital flowed (at least temporarily) into US dollars. Along with gold and the Swiss franc, the greenback is the go-to risk-off asset, and last year’s fear and anxiety surrounding rampant inflation and general uncertainty quite predictably translated to dollar strength.

The big story of 2023 so far is the resurgence of risky instruments like crypto and stocks, so it’s unsurprising that we should now be seeing the dollar correct back to more reasonable levels, historically speaking. Bitcoin is currently up almost 70% YTD, while the S&P 500 is up almost 10% over the same period. Even high beta fiat currencies like the Aussie dollar have recorded modest gains following the latest FOMC meeting. For most traders and investors, the tentative reversal of the protracted bear market is an overwhelming positive, even if it does mean a short-term decline in the US dollar. Provided that a major devaluation can be avoided, a reasonable correction from late 2022 levels would probably be best for both the dollar and the US economy.

Just try and stay positive

Given the wholesale doom and gloom being spread around of late, it’s important to note that the US economy is, in fact, looking extremely healthy right now. Unemployment is at a more than 50-year low of 3.4%, a level unseen since the Summer of Love in the late 1960s. Meanwhile, the latest non-farm payrolls indicated 253,000 new jobs were created in April. This absolutely obliterated all forecasts, the most optimistic of which hovered around just 165,000.

Looking at Treasury yields now, we are also seeing a very positive dynamic. The two-year government bond has risen back above 3.92% after visiting 3.56% last month, representing a strong sign of confidence in the US national currency. While both a strong labour market and high T-note yields are traditionally good for the dollar’s paper value, too, investors shouldn’t be perturbed by the USD’s failure to turn strong fundamentals into real-world gains. We would all do well to remember just how high the dollar rose in 2022 due to a combination of geopolitical uncertainty, hyperinflation and central bank policy divergence. A correction is not only perfectly understandable, it’s absolutely necessary to ensure the competitiveness of US exports and the stability of the monetary system at large.

Trade CFDs on currencies with Libertex

Whether you think that the US dollar will continue its downtrend or that the foundations have now been laid for stable growth, you’ll always be able to throw your hat in the ring with Libertex. Because we offer both long and short CFD positions on a range of key majors like EUR/USD, GBP/USD and JPY/USD, as well as more exotic pairs like CHF/USD and AUD/USD, you’re sure to find an underlying asset and direction to suit you. With ultra-low spreads from 0.2 pips and leveraged trading up to 30:1, Libertex offers some of the most competitive terms around. Beyond currency pairs, Libertex also offers CFD trading in the US Dollar Index, core stock indices, and more! To find out more about what Libertex can offer you or to create your very own trading account, visit www.libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Gold flirts with all-time high as strong fundamentals persist

Gold has been making headlines of late after breaking through a key psychological level as it once again approaches its August 2020 all-time high of $2075 per Troy ounce. Indeed, the yellow metal has been steadily rising since the start of the year, and the reasons behind its good fortunes are numerous.

Beyond runaway inflation, banking sector fears, and geopolitical insecurity, there are also more subtle factors driving up the gold price, all of which we will look at in more detail in this article. But what most investors and traders would like to know is: Will this run continue, or have gold’s gains already been made? While we can’t answer this question for sure without a crystal ball, we can provide an overview of what is behind the precious metal’s growth this year and assess how likely these are to remain relevant going forward.

Crises everywhere

If you believed everything you’ve seen in the news recently, you’d be forgiven for thinking the end of the world was nigh. From the ongoing geopolitical uncertainty now on virtually every continent of the Earth to the economic uncertainty embodied by the latest US banking crisis, the future looks very bleak, indeed. First, we had the collapse of SVB and Signature Bank in the US, then there was the last-minute rescue of Credit Suisse in Europe, and now there are fears that even more high-risk lenders could be next in line.

While this kind of news is bad for most assets, for safe harbours like gold, it’s music to investors’ ears. At its highest level this year of $2065, gold had gained over 15% YTD, and though it has since corrected down slightly, the long-term perspective seems as if the way is paved for future rises in 2023. Some were surprised that we hadn’t seen this kind of movement last year when inflation was well into the double digits while gold remained fairly stagnant, but as is often the case in financial markets, not everything is exactly as it seems…

Counting those dollars

We will all surely remember the hyperinflation of last year all too well. It seemed as if prices would never stop rising, and, as any gold bug will tell you, high levels of inflation virtually always translate to increases in precious metal prices. But gold’s dollar price was virtually flat for the entirety of 2022. Why? Well, this was also a time of historic strength for another haven asset, the US dollar.

The greenback famously rose above parity with the euro, for one, a feat unmatched since the early 2000s. And since gold’s price is almost always quoted in USD, much of the real-world gains made by gold were masked. Now that the dollar is back at pre-pandemic levels against the other majors, all of this previously unseen growth is now being revealed. What’s more, the ongoing uncertainty and high interest rate environment mean that there is still an overarching trend towards safety, which is further buoying gold prices this year. So, will the USD remain at more stable levels going forward, or could we see further strengthening in the medium-to-long term?

Fed up with inflation

To answer that, we need to look closely at the single most influential player when it comes to the dollar’s dynamics: the US Federal Reserve. As we’ve already touched upon, gold is largely up due to inflation, the exact same market force that the Fed has been trying to combat with aggressively hawkish monetary policy. Unfortunately, the recent mini-banking crisis has forced the US regulator to cut its tightening cycle short of its target rate of 6%. Though it did announce a 25 bp increase to 5.25% in its latest policy decision, Powell’s rhetoric was much more restrained in April and May, as all guidance about future hikes disappeared from post-meeting comments.

A side-effect of the Fed’s tightening has been higher US Treasury bond yields, the inverse relationship of which with the price of gold is well-established. Now that the Fed has been forced to accept a more dovish wait-and-see approach, yields are falling sharply. For example, the two-year T-note yield now stands at a hair above 4% compared to 5.05% in March. If this trend continues, those looking to hedge against inflation will pour into gold, thus increasing its value over the medium term.

Trade precious metals with Libertex

Libertex is an experienced CFD broker with a long history of connecting traders and investors with the financial market. Beyond forex and equities, Libertex also offers CFDs in a range of precious metals, including silver, platinum, palladium, and, of course, gold. Since Libertex allows its clients to trade both long and short positions, you can put your money to work, no matter what you think the future holds for gold. Best of all, CFD trading means you don’t have to purchase physical metals to profit from any positive price changes, and our multi-award-winning, one-stop trading platform allows you to hold your entire portfolio in one manageable location. Enjoy ultra-tight spreads and some of the lowest commissions around when you become a Libertex client. For more information or to create your own account today, visit www.libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Libertex launches “Push For More” Brand Campaign with FC Bayern

Libertex are launching Push For More, a brand new campaign in partnership with FC Bayern, the recently crowned 2022/2023 Bundesliga Champions. The campaign aims to engage and inspire people around the world to act with more confidence, trust and self-belief in order to achieve success.

The new brand campaign is the first we’ve created utilising FC Bayern players since we announced a multi-year partnership together in August 2022, which saw us becoming the first Online Trading Partner of FC Bayern for CFD and foreign exchange trading.

What’s in the campaign?

The joint campaign launch video features current FC Bayern stars Matthijs De Ligt, Eric Maxim Choupo-Moting and Leroy Sané, all wearing the new 23/24 season home kit.

The players explain how three basic principles (discipline, strategy and skill) have led them to where they are today, and how those qualities have pushed them to achieve success as a team and as individuals on and off the pitch. De Ligt talks about how mastering the art of discipline creates a sense of unity, Choupo-Moting explains why strategy is key to unlocking your full potential and Sané describes why skill gives you the ability to find the “edge” to achieve success.

Take a look at the full video, which is also available to watch on both Libertex and FC Bayern’s official websites and social media channels.

Words from our CMO, Marios Chailis:

“Libertex is more than just a trading platform, and FC Bayern is more than just a football club. Yet both organisations share a lot more in common than most would initially think. This campaign, the first collaboration of this kind, shines a light on this.

Combining the fast paced and exciting worlds of football and financial services, we share core values, such as trust, teamwork and a winning mentality. It was important for us to create something that highlights the synergies between both brands. Using inspirational and engaging content with first-team players, our Push For More campaign will help us successfully elevate and raise awareness of the Libertex brand utilising FC Bayern’s channels, in Germany and beyond.

FC Bayern are the benchmark for perfection and success on the pitch, which is something we want to apply to our millions of customers around the globe. We’re incredibly proud to continue our partnership with FC Bayern for the foreseeable future.”

FC Bayern x Libertex

Our multi-year sponsorship with FC Bayern currently runs until 2025 with the collaboration encompassing numerous activities such as visibility across FC Bayern’s social media channels, as well as a presence on the LED advertising boards at home matches in the Allianz Arena.

[Libertex]

India to scrap its biggest banknote ahead of harvest season

After positive reports of a national GDP recovery, India is back in the headlines as the Reserve Bank of India (RBI) prepares to withdraw the country's largest denomination note. The 2000-rupee note was only introduced in 2016 but is now being removed from circulation as part of the country's 'clean note policy' to reduce low-velocity banknotes. The note will be phased out gradually over the next four months by September 2023. Many might be wondering why this is significant for world markets. Well, India is not just one of the BRICS group's biggest economies; it's also growing at one of the fastest rates in the world, both in terms of GDP and population.

And it is precisely this massive population that has the power to move markets, particularly when we take into account some specifically Indian factors like a proclivity towards precious metals and large cash-based transactions. With many analysts tipping potential upticks in gold and consumer durables in response to this news, we will be looking at the factors behind these projections and assessing the expected real impact on global markets.

Metal mania

It's a well-known fact that Indians are crazy about physical gold. Indeed, it is far and away the most popular investment vehicle for investors on the sub-continent, with 53% of Indians stating that they are currently invested in gold. When we're talking about a country with a population of over 1 billion people, it's easy to see how a major move one way or the other could have a palpable impact on the global bullion market.

Analysts have suggested that the large amounts of high-value 2000-rupee bills floating around the economy could lead Indians to use up the notes by investing in their favourite long-term instrument, gold. Of course, they will be permitted to exchange them in banks for lower-denomination notes. However, there will be a transaction limit of 20,000 rupees per person. The thinking is that many farmers and other seasonal workers, who often receive large payments in cash at harvest time, will prefer to purchase gold as opposed to digitising their wealth. In any case, the effect on worldwide yellow metal prices will clearly be modest, but it could be enough of a bump to push an already buoyant gold above its key resistance of $2,000 and on to a new all-time high should a genuine bull cycle ensue.

Big spenders

As we have already touched upon above, India is still very much a cash-based economy. Digital transactions have been increasing exponentially in recent years, but huge numbers of participants in this largely agrarian economy still deal almost exclusively in cash, which typically means large-denomination banknotes. Apart from gold and silver, another option many Indians are expected to take when it comes to getting rid of their 2000-rupee notes is purchases of big-ticket items. This could mean anything from high-tech items like smartphones, TVs, and laptops to white goods or even major consumer durables like new vehicles. It's not as if the analysts are suggesting all Indians will walk out of the house one day and buy a brand-new truck, but any purchases of such items that were planned for the next one to two years might well be brought forward as a method of using up some of the soon-to-be-withdrawn banknotes.

With India being a major producer of goods for domestic consumption, this is likely to be very positive for the country's GDP, which could move above 9% for the year as a result. Rising retail sales would also likely be a boon for the stock prices of India's largest conglomerates, like Mahindra, Tata and Reliance.

Not India's first rodeo

We often have a tendency to over-dramatise the effect of such a move by a central bank, but the reality is that India experienced a much further-reaching and disruptive event less than a decade ago. In 2016, the RBI scrapped a full 86% of India's national currency in circulation during its so-called "demonetisation" drive that saw all Ghandi-series 500- and 1000-rupee notes withdrawn over a very short period. This time round, only one note will be removed and one that is much less frequently exchanged than the two mentioned above. The Reserve Bank of India is also providing very clear guidelines and FAQs, a move that is expected to greatly reduce panic compared to six years ago.

Aside from the existence of a sufficient supply of 100- and 500-rupee banknotes for those who are heavily reliant on cash transactions, the rapid adoption of digital payments across all demographics will also minimise the impact of the 2000-rupee note's withdrawal. In terms of the rupee itself, the withdrawal is expected to have little to no effect on the exchange rate in the long term. There will, of course, be a temporary increase in demand as notes are exchanged, as well as a slight drop in supply (around 10% of the total money supply), but this impact is projected to be minor and short-lived.

Trade the news with Libertex

Whatever the latest developments in world markets are, you can always find an angle to trade with Libertex. Because Libertex offers a wide variety of underlying assets for CFDs from numerous asset classes, including commodities like gold and silver, all the way to stocks and traditional currency pairs, you can trade any news with us. So, whatever the effect of the RBI's note withdrawal, you can cover your bases with long or short CFD positions in gold, silver, and much more. Beyond these, our intuitive and multi-award-winning app supports trading for lots of other underlying assets, from stocks and ETFs to options, futures and even crypto. For more information, visit www.libertex.com today!


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Default diverted as debt ceiling bill draws closer

One of the biggest stories of recent weeks has undoubtedly been the fast-approaching debt-ceiling deadline in the United States. It seems almost impossible to imagine, but the US has nearly reached its $31.381 trillion debt limit, after which there is a real risk of the country being unable to meet its obligations to creditors. The implications of this would, of course, be unthinkable for the world's biggest economy, and markets have been understandably anxious for a resolution to be found. And it looks like disaster might thankfully have been averted as discussions between President Biden and House of Representatives Speaker Kevin McCarthy finally bore fruit this past Saturday.

While the bill remains to be passed by the Senate, the agreement that would see the debt ceiling raised for two years and a cap put on spending passed by the House of Representatives on the evening of 31 May. Before the collapses of SVB and Signature banks, a default was hardly ever discussed, but since then, a kind of "will-they-won't-they" saga has emerged that has had markets in limbo.

And yet, the debt ceiling has actually been increased countless times since its introduction in 1917, including 16 times between 2000-2016, for an average of about one increase per year. That's not to say that this bill's passing is a done deal. One example of a divided government being unable to come to an agreement resulted in the infamous government shutdowns of 1995, 2013 and 2018. However, that scenario is certainly much more likely than a US default. In this article, we'll look at the debt ceiling debacle's effect on stocks, energy and metals and examine what the future might hold for these key asset classes as a debt limit deal is still yet to be officially done.

Taking stock(s) of the damage

After an undeniably awful 2022, US stock markets appeared to start 2023 with renewed vigour as the key S&P 500 and Nasdaq 100 indices gained an average of 20% from November 2022 to March 2023. Then followed a significant dip following the mini-banking crisis of March and early April. However, despite the uncertainty surrounding the debt ceiling crisis, both major indices regained their temporary losses, with the S&P 500 standing at 4,205 at the time of writing, just a hair above its previous peak in late February. The Nasdaq appears to have fared even better, actually cementing a 7% gain on this local maximum to reach 13,007 over the same period.

This would suggest that the stock market has never doubted that a deal would be reached to raise the debt ceiling, as has happened in virtually every other case of an imminent US default. That said, Treasury Secretary Janet Yellen has warned that the potential "substantial financial distress" on the stock market could well be delayed, citing recent volatility as "just the beginning". Since the imminence of the deal became known, however, Dow futures and Nasdaq futures are up around 0.35%, with S&P 500 futures up 0.3%, which hopefully means that stocks will avoid a major move to the downside in the near future.

Oil aboard!

It's been an odd time lately for the oil markets, with many of the dominant market forces becoming less relevant to prices amid price caps and wider macroeconomic pressure, particularly from inflation. Given the already precarious market situation, it's unsurprising that oil should be more reactive to the risk of no debt ceiling agreement being forthcoming. Despite the positive implications of Saturday's milestone, crude still slumped a further 4.4% on Tuesday (30/05) to dip below $70 for the first time in a month, while the world standard Brent lost 4% to hit $74 per barrel. Many oil analysts have blamed this major sell-off on concerns that conservatives in the House of Representatives would try to sink the bipartisan deal agreed over the weekend.

To make matters worse, renewed Russia-Saudi tensions over Moscow's failure to curb production, as agreed, is increasing general scepticism in the energy markets while also ensuring production remains high. Over the longer term, there are serious fears that failure to pass a debt ceiling bill of some kind will lead to a long, deep recession that will see a sustained period of reduced demand for oil. Provided that the supply-side issues can be resolved by OPEC+ negotiations, a positive outcome to the debt ceiling saga in the coming weeks should generate significant gains for the energy resource.

Test your metals

Another instrument that has been making headlines over the past year or so is gold: first for its relative stagnation during the hyper-inflation of 2021-2022 and more recently for its illogical flirtation with the all-time high of $2075 per Troy ounce at a time when stocks were back in bull territory. However, gold has now reacted exactly as one would expect to the news of a breakthrough in the discussions around the debt ceiling bill. Spot gold slipped 0.1% to $1,944.09 per ounce and now hovers in and around the two-month lows hit on Friday. Futures for the yellow metal were also listless at $1,943.30. The initial boon from the Fed's more dovish approach in its recent FOMC meeting has also been nullified as rumours of a further rate hike in June circulate.

This is excellent news, however, for Treasury bond yields, which had already been rising nicely in early 2023 amid a strongly hawkish Fed monetary policy. Then, from 5.05% in March, yields on the two-year note fell to around 4% in May. Given the well-established inverse correlation between gold prices and T-note yields, fixed-income investors will most likely be looking forward to higher rates of return if a deal is finally done and the Fed's promise of continued tightening materialises.

Trade it all with Libertex

Libertex is a well known name on the international CFD market, with millions of clients across EEA and Switzerland. With Libertex, it doesn’t matter what you think is going to happen on the markets because you can go long or short on any of our underlying assets. Libertex offers CFD trading in a wide range of asset classes, including stocks and indices, such as the S&P 500 andNasdaq 100; crude oil like Brent, Light Sweet and WTI; and of course, gold and currencies galore. Try our multi-award-winning app today with ultra-tight spreads and some of the lowest rates of commission available. For more information or to create your very own live trading account today, visit www.libertex.com/signup


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Debt ceiling deal done as both sides of the aisle come together to stave off default

Last week, we discussed the fast-approaching US debt ceiling as a deal between both parties in the US House of Representatives remained elusive. But then the House approved the Fiscal Responsibility Act of 2023 with an overwhelming majority vote of 314-117 on 31 May. The drama still wasn't over, however, as the Senate still had to approve it in time to avoid catastrophe. Well, with mere days to spare before the deadline that would see the world's biggest economy face financial default, the Senate, at last, approved the legislation to lift the debt ceiling in a relatively convincing bipartisan 63-36 vote, and Joe Biden signed the bill into law on Saturday, 3 June.

The much-anticipated agreement will see the debt ceiling suspended until 1 January 2025, and according to the Congressional Budget Office, the new act will generate over $1.5 trillion in savings over the course of the decade ahead. Despite some last-gasp attempts by ultra-conservatives to have 11 potentially devastating amendments adopted, all were rejected in the Senate, and the bill ultimately passed as is. So, what does this mean for world markets, and how should traders and investors react to this news?

Time to restock?

Although the effect on the stock market has been relatively modest since the bill was signed into law – with major US indices like the Dow Jones IA, S&P 500 and Nasdaq 100 registering only modest gains of between 1-2% since the news broke – the impact of the increased debt ceiling cannot be underestimated when it comes to Wall Street. Essentially, market movers never doubted for a second that the legislation would pass. After all, we've already seen the ceiling raised an average of once per year since 2001. As a result, much of the benefit of the debt limit increase was already priced in during the rallies in US equities early in the year. But rest assured, if a deal had not been forthcoming, stocks would have surely tanked hard.

Europe reacted in much the same way, with the Stoxx 600 index gaining 1.5%, while individual sectors like mining and oil & gas seemed to do the best, recording average gains of between 3-4%. Given the long-term suspension of the debt ceiling that the Fiscal Responsibility Act of 2023 entails, the supportive environment for stocks looks set to continue (provided that the Fed backs off on its hawkish policy before year-end). As such, now could be a good time for medium- to long-term investors to increase purchases of discount stocks.

That's oil, folks

As we mentioned earlier, energy and commodities have reacted even more positively to the news. The reasons for the larger jumps in mining and oil & gas are rather complicated, however, and it's not necessarily guaranteed that Brent, WTI and Henry Hub will respond in kind. However, one thing is clear: beyond the general boost that the US economy being saved from default brings for all sectors, the promise of even more supply-side inflation is a growth factor in its own right for these asset classes. After all, energy commodities are exactly that: commodities. If the US debt is free to increase, which it surely will following the temporary removal of this ceiling, the value of hard assets like oil, gas, coal and minerals can only increase. So, what we're seeing is a double whammy of sorts whereby the guaranteed further depreciation of fiat is buoying the prices of these commodities, and the generally positive economic sentiment surrounding the avoidance of default is multiplying this effect.

Most varieties of crude are now firmly above the key $70 a barrel level, with Brent futures rising $1.85 (or 2.5%) to hit $76.13 a barrel and US WTI crude up $1.64 (or 2.3%) to top out at $71.74. All that remains now is for OPEC+ to reach a new deal on production cuts amid Saudi discontent with Russia's failure to reduce supply as agreed at the cartel's previous meeting. If harmony can be achieved, then we would be wise to expect further price gains ahead for oil, especially now the debt limit issue has been put to bed.

Going for gold

At the height of the debt ceiling panic, when it really looked as if a deal might not be forthcoming, there was only one instrument that felt like a safe bet. As usual, gold offers security and an unbeatable (as of yet) store of value potential. So, now that the bill has been passed, does that mean the gold bugs are about to lose out? Well, not exactly. An increase in the US national debt will only mean a weaker dollar in the long run. And what does that mean for the dollar-denominated gold price? You guessed it: more growth ahead.

While the yellow metal is currently more or less unchanged following the deal's announcement (gold, in fact, lost 0.1% in the days following the announcement), this is more of a knee-jerk reaction to the immediate strengthening of the US dollar on the aversion of a potentially devastating default. Over the longer term, it's hard to see how the greenback can avoid losing value as more are inevitably printed and the value of the existing money supply is further devalued. In any event, any serious investor should have some kind of gold allocation to hedge against short-term volatility. However, taking into account both the factors alluded to above and the nascent commodities super-cycle, many analysts are suggesting that gold is a solid buy at present prices.

Trade it all with Libertex

Libertex is a well-respected CFD broker with a long history of providing traders and investors across Europe with access to world markets. With Libertex, you can trade long or short CFD positions on a wide range of popular underlying assets, including major indices like the Dow Jones Industrial Average, S&P 500 and Nasdaq 100; oil and gas vehicles like Brent, WTI and the Henry Hub; and even precious metals like gold and silver. Best of all, Libertex offers some of the lowest levels of commission and tightest spreads in the industry. And because Libertex offers an easy-to-use app, you can keep your entire portfolio in one easily accessible location. For more information about Libertex's available asset classes and investment options, visit www.libertex.com


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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.

[Libertex]

Awarded: Libertex receives German Brand Award 2023

Libertex (https://libertex.com/), one of the leading online trading platforms, has been awarded the German Brand Award 2023 in the "Excellent Brands: Banking & Financial Services" category. The company, which participated in the long-established annual competition for the first time, received the award at the official ceremony at Verti Music Hall in Berlin on 15 June, 2023. The German Brand Award is presented by the German Design Council to companies operating in Germany that have attracted attention through their pioneering and effective brand work, independent projects and extraordinary campaigns. The online broker has already won over 40 international awards throughout its history, with this one being the first from Germany.

The German Brand Award is an independent annual award that recognises successful brand management. The "Excellent Brands" category honours the best products and brands of individual industry sectors. This year, the organisation received applications from around 1,200 companies, agencies, service providers and marketeers, as well as non-commercial and governmental organisations from all sectors, which the German Design Council’s expert panel evaluated to first select admissions and then assign winners in each category. Each year, around 700 guests attend the awards ceremony, including brand decision-makers from large German corporations, agencies, the creative industry, the trade press and category winners.

Representative office in Munich: Libertex strengthens position on the German market

“We are incredibly happy and proud to receive the German Brand Award 2023, as it shows that our work in Germany is bearing fruit", says Michael Geiger, the German-born CEO of the Libertex Group. “With our new representative office in Munich and our partnership with FC Bayern, we wish to further expand our position in the market in the future, so that we continue to be one of Germany’s ‘Excellent Brands’".

"The German Brand Award shows that our hard work is paying off", says Libertex Group CMO Marios Chailis. "All of our branding and marketing is done in-house by our creative team that works tirelessly day after day. Their phenomenal work is also reflected in our recent “Push for More” brand campaign with FC Bayern, which was created as part of our partnership with the club”.


Libertex Head of Brand & Creative, Nino Ilievski at the German Brand Award ceremony on June 15 at Verti Music Hall in Berlin

Nino Ilievski, Head of Brand & Creative at Libertex, adds: "It is always fascinating for me to brainstorm with my colleagues in our internal creative studio and to see how the many imaginative ideas develop into concrete projects. It is such a great honour that our efforts are now recognised with the prestigious German Brand Award."

[Libertex]

Dual counter system hits Hong Kong. What will it mean for Asian markets?

Much like in the rest of the world, the Asian stock market has had quite a bumpy ride in recent months. After reaching dizzying heights during the pandemic, both the Hang Seng and SSE Composite Index were in freefall until practically the end of 2022. As in the US and Europe, Chinese equities' fortunes began to improve at the beginning of this year, and both of the aforementioned indices are now up 25% and 15%, respectively, from local lows.

But this is by no means the most interesting news to come out of the East of late. That's right. This Monday saw the launch of the much-anticipated HKD-RMB Dual Counter Model, which will see an initial 24 companies start offering yuan counters that will allow investors in Hong Kong to trade the company's stock in both RMB and HKD.

The initial list of early adopters of the new dual counter model includes tech giants like Tencent, Alibaba, and Baidu. This is particularly interesting in light of the years-long tech crackdown on China's tech sector. It seemed like the Chinese Communist Party had set its sights on curtailing the power of these companies, but now all that appears to have changed. Traders and investors will certainly be wondering what this means for Chinese stocks, as well as the yuan and Hong Kong dollar. And while there are no sure things when it comes to the markets, we'll do our best to lay out the landscape.

Why now?

Perhaps the biggest question on people's minds is what is behind the Hong Kong Exchanges and Clearing's decision to offer stock trading in both RMB and HKD. After all, it's not the first time this has been attempted. Many will remember 2012's fated "dual tranche, dual counter" initiative, which failed when only one company adopted it. On top of that, Mainland investors are already able to purchase Hong Kong-listed stocks via the Southbound Stock Connect market access programme.

However, this is a rather inconvenient method of investing for many citizens of Mainland China, and HKEX CEO Nicolas Aguzin is convinced that the interest in the new dual counter model will be overwhelming as more and more companies sign up for the new system over the coming months and years. As he puts it: "The fact that they [Mainland investors] will be able to transact on an instant basis in renminbi […] is a huge difference." It might well take some time until stocks can be purchased seamlessly in RMB, but the HKEX is working closely with regulators and other stakeholders to ensure everything is in place before making a proper announcement.

What might it mean for Hong Kong-listed stocks?

Anybody with even a passing interest in Asian markets will surely remember the 2020-2021 crackdown from both US and Chinese authorities. Washington famously put an end to shady ADRs with the Holding Foreign Companies Accountable Act, which allowed the US Securities and Exchange Commission to delist Chinese companies from American exchanges if domestic regulators were not able to review company audits for three consecutive years.

Meanwhile, Beijing sought to rein in the country's overly powerful tech companies in a campaign that was most remembered for Jack Ma's temporary disappearance and the blocking of the $315 billion Ant Pay IPO. Now that the Chinese tech sector is cowed and unrest in Hong Kong has largely been put to bed, the Chinese Communist Party feels confident in realising its plan to centralise trading of China's stocks within its own sphere of influence. All of this points to a potential resurgence for big names like Tencent, Alibaba and Baidu, but also lesser players like Netease, Nio, and SMIC.

Indeed, the 24 names that have already applied for the dual counter system account for 40% of the average daily turnover of the cash equities market. And with another 1.6 billion potential investors on the Mainland now in reach, the sky truly is the limit.

Don't forget about Forex

As we've already touched upon above, trading volumes are expected to increase exponentially, with the influx of capital from the Chinese Mainland into the Hong Kong exchange anticipated once direct access is available. It can be easy to forget, but wherever securities are traded, so is cash. One of the biggest drawbacks of the RMB in the past has been its command economy context and limited trading potential. The yuan is already up 5% on the US dollar and is expected to continue to move upward for the foreseeable future. This is particularly impressive given the strong dollar we've seen of late amid hawkish Fed policy and strong US Treasury yields.

As of 22 June 2023, the RMB stands at 7.18 against the US dollar. The increased trading volumes associated with this opening up of markets, coupled with Beijing's shift towards trading traditional dollar assets in its own currency, is likely to lead to further strengthening for the renminbi. Add to this the US Federal Reserve's compulsion to pause its monetary tightening and perhaps even transition towards a more dovish policy amid increased economic uncertainty, and we could well see the yuan up towards the key psychological level of 8.00 by year's end.

Trade without borders with Libertex

As a well-respected broker within the CFD trading markets with many years of history. With a vast offering spanning multiple underlying asset classes, Libertex can give you the opportunity to trade CFDs in Forex and stocks, all the way to indices, commodities, and crypto. Whether you think the Chinese market is headed up or down, we have you covered with a choice of long or short positions. You can trade individual stock CFDs like Tencent, Alibaba, and Baidu or more balanced ETFs CFDs like the iShares China Large-Cap. Beyond that, Libertex also offers Forex CFD trading in pairs that include USDCNH and EURCNH. For more information or to create an account of your own, visit www.libertex.com/signup today!


Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85.9% 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