In hindsight, last week’s chaotic run for the markets looks almost inevitable.
The sustained lull in forex in volatility, overinflated stocks in the US and beyond, and an almost fanatical belief that key economies were on an unimpeded journey towards health all combined in spectacular fashion, and panic set in. The view held by many – that forex volatility would remain dormant until a rate rise in the US, possibly before year-end, reawakened it – proved incorrect as a far less positive catalyst brought life back to currency markets.
Of course, the catastrophic spread of the Ebola virus and bubbling international conflict were unforeseen developments and 2014 has been, if anything, a hugely unpredictable year so far. For now though, we have a new status quo, and the chance to examine what the last couple of months of the year may bring.
In business, the picture still looks troubled. Several key industries are facing a big struggle for the rest of the year, amongst them pharmaceuticals, UK retail and mining. At the moment, it looks likely that the current situation amongst major players in each section will change, with mergers and acquisitions, or alternatively liquidations.
For pharmaceuticals, the two huge plays of the year – AbbVie/Shire and Pfizer/AstraZeneca – both now look either troubled or dead in the water. The tax ‘inversion’ loophole that made such mergers a priority has been closed, but the poor years suffered by many major players like GSK, Pfizer and Bristol-Myers could bring mergers back to the table.
2014 has been reported as huge for M&As, but so far it appears that it could be remembered more for those that didn’t happen than those that did. There are many companies trading cheaply though: Tesco, Ford, IBM and Rio Tinto to name a few. With that in mind, plus struggling indices – the FTSE 100 has been a notable straggler recently – and many notable earnings season misses, some big moves in the M&A field could well materialise.
The current state of the markets might be of concern to those stocks trading at inflated levels. Amazon, Tesla, Twitter and Netflix have all suffered over the past month and could do with avoiding any negative headlines in the run to Christmas.
It’s not all negativity though, and several companies have defied the market malaise. Indeed, the overreaction by many traders to last week’s problems will almost certainly see many stocks rebound at least a little in the coming weeks: the question for traders is ones were justifiably shunned, and which were harshly treated.
Over in forex, the return of volatility and a little bit more unpredictability should be welcomed. The ongoing saga of USD dominance at the expense of all other currencies has been halted, if not exactly subverted, and GBP/EUR has shown little sign of conforming to any particular trend.
Nationalism and separatism, a political story that played out across currency movements during both the Scottish referendum the European elections should remain largely inconsequential for traders until next year. Beyond that, political objections to the European Union may well flare up and cause problems once more.
In truth, the most likely course we will see until January is probably the continued primacy of the US in the face of other economies. What is almost certainly true is that the undying scrutiny of every economic release for any signs of a delayed or early rate rise will continue well into the New Year.
That the ongoing problems with economic instability, global conflict and elsewhere have not yet translated fully onto gold – the precious metal failed to regain the losses made in early September, and is now on the way back down once more – is perhaps the most telling indicator of the state of global markets. For Silver, the picture is even worse, and Oil has not yet managed to claw its way higher again.
2014 has been a remarkable year so far; for some positively so but for many more a year to forget. 12 months ago, many were predicting that this would be the year that broad health returned to global markets. To make the same prediction again would be foolish: the main lesson from the past 10, surely, is that our road away from the recession has a few twists in it yet.
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