Interest rates and oil price volatility are still a big concern !

March 27, 2015



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Federal Reserve Chair Janet Yellen said that interest rates could possibly increase in 2015 and made the case that the Fed would be cautious and subsequent rate hikes would be gradual. In a speech in San Francisco on Friday, she emphasized that the coming tightening cycle will be unlike any other in recent times, as the U.S. economy continues to heal from the worst recession since the Great Depression. She emphasized that it’s the expected path of short-term interest rates that matters and not the precise timing, when asked about when the Fed will finally raise interest rates for the first time in nine years. Meanwhile investors are selling US equities at a record pace and making investments in European assets while speculating that the interest rates in US will increase by this year, sooner rather than later. The US stock funds have seen an outflow of $44 Billion in the year-to-date period for their worst start to the year since 2009.  On he other hand, European equity funds have enjoyed an inflow of $46.6 Billion so far in 2015. A stronger Dollar and increasing probability of interest rate hike in US are probably the main reason for this movement of funds. Ahead of the start of the earnings season, about 84% of the companies that have provided first quarter outlook gave negative outlooks. Many companies blamed strengthening dollar or weak commodities or both for poor outlooks. This outlook is more than 81% of the companies that warned in Q1 2014 and the five-year average of 68%.

Last week was very volatile for crude oil. Oil prices gained around 15% in the first four trading sessions of the week but lost 6% on Friday. Recently there have been news of disturbances in Yemen and that drove the prices up. Yemen is the 39th biggest oil producer in the world and produces roughly 130,000 barrels of crude oil a day. But its not the amount of oil produced by Yemen which has shot up the prices, rather its the geographic importance of Yemen in the transportation of crude oil across different nations. Its sits at Bab-el-Mandab Strait, a key choke point in international shipping. About 3.8 million barrels of oil a day passed through this strait in 2013 and a closure would keep tankers away from reaching Suez canal and SUMED pipeline.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch


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