Trends For The First Half of 2008

Comentário feito pelos analistas da theLFB.com a respeito das tendências para os mercados financeiros para 2008. Vamos ver se a profecia se confirma.

Trends For The First Half of 2008

The new year brings us a chance to make some predictions so I thought it was a good idea to throw out some ideas for the first half of 2008. Feel free to post yours as well.

1. Currency

The trend for the dollar will be weakness vs. the Euro and Yen, but strength vs. the Pound in H1 2008. The Euro will appreciate and continue to replace the dollar's reserve currency status as the U.S. economy continues to cool during this period. Market turmoil will also accelerate the dollar's losses vs. the Yen as carry trade positions are further unwound. Two factors will lead to the dollar's gain on the Pound; unwinding of carry trades and UK economic weakness leading to further BoE rate cuts.

2. Equities

A cascade of problems exist for consumers and therefore business and equity markets. Consumer spending has the potential to take a huge hit due to factors such as rising food and energy costs, falling home values, weaker job creation and higher rates of unemployment, to say nothing of stagnant wages in real terms.

Businesses have been facing rising material costs for many months now while core CPI and PCE have remained contained. The bump up for these readings in their last reports indicate pass-thru effects may be starting to take place. Exports have continued to stay strong but rising commodity prices may squeeze profit margins, which will lead to lay-offs. Q4 Profits in the S&P 500 are projected by Reuter's to fall 6.1%, as opposed to the October estimate for an 11.5% gain in the period. Profits in Q1 and Q2 2008 have also been revised down from October's 11.4% projected gain to 5.1% and 5% respectively. Q3 2007 profits in the S&P 500 are already down nearly 4.0% from Q2.

3. Housing

Demand and therefore prices will continue to fall at least thru the first half of 2008. One of the main drivers of this are new mortgage regulations for conforming Fannie and Freddie loans. Increased fees and increased mortgage insurance requirements along with their demands for higher credit scores for prime borrowers (680 from 620) and higher down payments will shrink the pool of available buyers significantly. Also, as prices continue to fall, sellers and buyers will be more reluctant to get into the the market. There's also the huge inventory overhang to deal with, which means supply is outstripping demand.

4. Economy/Fed

There's no question the economy will slow; the only remaining questions are the depth and length. Another question that will be crucial for market survival is what the Fed will be able to do about it. The TAF auction system is helping to ease the liquidity squeeze, but the overall effect on the real economy is limited. A far more serious concern for the Fed and the economy in general is that the period of slackening demand may be accompanied with rising inflation i.e. stagflation. So while the Fed is expected to ease towards 3.5% in the overnight rate, the pace of reduction may be slowed and will likely be accompanied by more hawkish rhetoric-also a negative to carry trades and the equity markets in general.

5. China/Oil/Commodities

The trend for China to allow the Yuan to appreciate faster vs. the dollar will be a main feature for the global economy going forward. What's essentially happening is that China is looking to control its inflation by lowering the prices it pays for commodities (which are paid for in dollars)-hence the faster appreciation of the Yuan. China also lowered its import tariffs on oil, further cheapening its price for Chinese businesses. Demand from China for global commodities will increase, which will have the ultimate effect of increasing their prices here. Oil could easily head towards $125.00/bbl in six months time which will drive the stagflationary enviorment in the U.S. that some economists are predicting.

“2007 was a good year for Dollars Bears and Commodity Traders, and up until a certain point, it was good for Stock Traders too. The Dow Jones Industrial rose up to 14000, which is 1700 points higher than the beginning of 2007.

Weak Dollar

For 2008 I see a bad year too for the dollar, history telling us that every Rate Cut cycle held some years before reversing. The US still has a big debt, overseas Investors lost their desire for Treasury Bonds, as seen in the recent TIC Data, and so long as the US Consumer buys more than they can afford, the Trade Balance will only continue to grow.

Since 2008 is an US election year most do not expect the Government to cut its spending, or to have a tight fiscal policy that would otherwise lead to a reduction in Credit. Interest Rates are low at this moment and they seem to be heading even lower, which will only increase the availability of Credit, thereby increasing demand. All of this will only lead the dollar index moving one way; lower.

Strong Euro

In comparison the Euro-Zone fundamentals, its Business Cycle and sentiment are very good at this moment. A favorable Trade Balance with such a strong currency shows that the Economy is in a very good shape. The Euro Zone has a favorable labor market, with the Eastern Europe ready to push qualified workers to the industrial Central and Western Europe. Europe’s Central Bankers are more confident than ever, the last meetings showed that the Members are very confident in the Euro’s strength.

One particularly thing that must be noted by Traders is that the European Union is the only one showing Inflation, outside of Energy, and holding Rates (until now) when the rest of the world are cutting.

The only negative really for the Euro seems to be the politicians, who more and more and picking on the strong Euro and its impact on Exports.

For me 1.5000 and beyond is the target. I also do expect 1.70 to be touched for Eur/Usd.

Gold Hedge

Gold is the favorite tool to hedge Dollar weakness, and so I see a good year for Gold Traders and with it a good year for the Australian Dollar. Even if I don’t expect for gold to under the same rally as 2007, I do expect some testing of the 900-950 area.

Energy Play

Same thought for Oil as Gold really; I don’t expect to see such a rally as in 2007 but neither do I expect it to stay lower than the 70$ area. In 2008 I see more trading in a range, due to the fact that expensive Oil will only develop the search for an alternative fuel sources, like Hydrogen or Ethanol. A good year for both Oil and Gold may create a strong demand for Canadian dollar.

Yen Buying

The Sub-prime problems brought big problem in the market, along with it plenty of insecurity and vagueness. As long that continues it will be felt by the Traders I don’t see any good moves from the Stock and Equity markets. We need to keep in mind that US was heading (until now) towards possible Recession, three periods of GDP negative reads, and that is not a good environment for Corporate profits.

With the Stock market not moving any higher next year, the Yen will be the big winner.

I lay it all down, only time shall prove me wrong”.


Semar

LFB European Analyst

Fonte: http://www.forexfactory.com/