The Financial Market in the Fourth Quarter

The Financial Market in the Fourth Quarter

2015 has had its ups and downs and as we turn to the last quarter, this trend will continue. However, this quarter’s actions will slow down compared to what has happened in the last 3 quarters. In currencies, global currencies have fallen against the mighty dollar. The dollar index touched an all-time level of 103. Commodities such as oil and gold have experienced serious losses. On the other hand, United States equities have become victims of the slowdown in the Chinese economy. This article will look at the 4 main categories of the financial sector that day traders are actively involved in.

Key economic themes in the 4Q

In this quarter, there will be a number of key economic activities that will increase volatility in the market. There is a consensus among many economists that the Federal Reserve will raise interest rates during the quarter. Most of the economists polled by Bloomberg believe the fed will tighten in December. Other economists believe the fed will tighten in October while others believe that tightening will come in 2016.

Indications from the Federal Reserve show that they might raise the rates this year. In a speech on Thursday last week, Fed chair Yellen stated that most committee members were optimistic that time is ripe for tightening.

Recently released economic data seems to support the fed’s opinions. The recently released consumer confidence data showed resilience among American consumers nearing post-recession highs. The consumer confidence rose from 101.1 to 103.3. This is coupled by a strengthening labour and housing market.

The labour market has showed resilience with recently released ‘jobs plentiful’ rose from 22.1 to 25.1% which is a post-recession high. Jobs-hard-to-get increased from 21.7% to 24.3% which is a modest retracement.

On Tuesday, billionaire Carl Icahn released a video asking fed to increase interest rates, stating that the low rate regime was creating a bubble in the financial market. Other experts such as Allianz Global chief economists, Mohammed El-Erian and Fed’s Bill Dudley remain optimistic that the fed will tighten.

Another key macroeconomic theme in the 4Q will be China. In 3Q, China was a leading cause of panic in the global financial markets. In the quarter, China released data to show that its economy was not growing as expected by the market. In addition, recent data from China show that industrial production is weakening. However, in an address to journalists, Chines president, Xi Jimping stated that the government has placed measures in place to prevent the fall of the economy. Therefore, participants will have a close look at China and its progress.

In Japan, the industrial output fell unexpectedly. Investors are therefore worried that the economy is experiencing the second recession under Prime Minister Shinzo Abe. During his reign, the BOJ governor Kuroda has continued boosting the monetary stimulus from the Bank of Japan. A continued decline in the Japanese economy will be a major theme this quarter. In the last quarter, the Japanese Yen has risen 2.2% against the dollar.

In Europe, the British gross domestic product surprised many in the 3rd quarter when it rose above the pre-recession peak. The labor market is also improving with workers’ wages increasing at the fastest pace in 8 years. In addition, according to the office of National Statistics, the economy grew at a modest rate of 0.7%. In Germany, the unemployment rate went up in September, signalling challenges in the economy. Joblessness increased from 2,000 to 2.795 million.

Asset classes

In the previous quarter, commodities and global currencies took a hit from the weakening China and uncertainties from the Federal Reserve as seen below.

gold_1_year

Gold 1 year chart

Crude oil

Crude oil